Southwest Airlines expected to post narrow 3Q loss despite increase in traffic
By: DAVID KOENIG
Associated Press
10/13/09 6:15 PM EDT
DALLAS — Southwest Airlines Co. is scheduled to report third-quarter earnings on Thursday. The following is a summary of key developments and analyst opinion related to the period.
OVERVIEW: Dallas-based Southwest leads off the parade of major airlines to report third-quarter earnings. Analysts expect the discount carrier to post a small loss, much narrower than the wider loss they expected before Southwest reported a big increase in September traffic to end the quarter.
Southwest's traffic actually rose in each of the three months compared with the same period a year ago. But a slump in business travel meant that fewer seats were filled with higher-fare corporate customers, and more were taken up by leisure travelers.
The vacationers were lured by cheap fares that drove traffic higher but might not have been enough to help Southwest avoid its fourth losing quarter in the last five.
That's a worrisome streak for what had been the most consistently profitable company in the industry. Unless the fourth quarter is a home run, Southwest could record its first money-losing year since the early 1970s, when it was just getting off the ground.
Southwest is fighting back by targeting its flights more carefully. Southwest executives have been reducing flights overall while adding service where they think they'll find high-fare business travelers, including New York's LaGuardia Airport and Boston's Logan.
Southwest is also looking for other sources of revenue. While still holding out against fees on checking two bags, Southwest began charging for unaccompanied minors and added new services, such as taking small pets in the cabin, for a fee.
BY THE NUMBERS: As of Tuesday, analysts surveyed by Thomson Reuters were expecting Southwest to report a loss of 1 cent per share, which would be about $7 million. A year ago, the Dallas-based airline lost $120 million, or 16 cents per share — its first losing quarter in 17 years — as it wrote down the value of fuel hedges when the price of oil fell.
The analysts expect third-quarter revenue of $2.60 billion, which would be a 10 percent decline from the same period last year.
ANALYST TAKE: Wall Street took notice when Southwest reported an 8.8 percent gain in September traffic, or the miles flown by paying passengers. The carrier also estimated a 3 percent increase in passenger revenue for each available seat times miles flown. That's a closely watched measure of financial performance in the airline industry.
Jamie Baker, an analyst for JPMorgan, called the September revenue figure "solid." He raised his price target for Southwest stock, saying he expects "firmer revenue trends this year and next."
STOCK PERFORMANCE: Southwest shares surged 42.6 percent in the third quarter, rising from $6.73 to $9.60 as investors looked for the early signs of a recovery in the airline industry. The shares hit a decade-long low of $4.95 in March.
Southwest shares rose 4 cents to $9.58 on Tuesday.
