Southwest profit falls 17% from a year ago...

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Southwest's second-quarter profits declined by 17% from the same quarter in 2006, the company reported this morning. The airline blamed rising fuel costs for the dip in earnings, according to The Associated Press. Southwest earned $278 million (36 cents per share), which compared to a $333 million (40 cents per share) profit from the same quarter a year ago. AP says "after adjusting for fuel costs and related financial transactions, Southwest reported a profit of 25 cents per share." Analysts polled by Thomson Financial had expected Southwest's profit to come in at 22 cents per share. The quarter was Southwest's 65th consecutive in which it posted a profit.

New York Newsday writes "Southwest said that it was paying $1.62 a gallon for fuel, a 14.1% increase from a year ago. The airline said that it booked gains of $173 million from its fuel-hedging program, but that program is winding down, and Southwest's advantage over other carriers in this area is being reduced." Bloomberg News quotes Southwest CEO Gary Kelly as saying: "Revenues aren't increasing at the pace our costs are,'' Kelly said. "This is the root of our profit problem.''

Still, Kelly sounded optimistic about the airline's third-quarter prospects according to The Dallas Morning News (free registration). "Although softer revenue trends were consistent throughout the second quarter, demand strengthened somewhat in June. … Traffic trends and bookings thus far in July are strong," Kelly is quoted as saying by Reuters. Southwest's earning report comes a day after news broke that the airline "is offering buyouts to about one-fourth of its employees in an effort to cut costs as the discount carrier heads into a period of expected slower growth," AP writes. The Morning News says the buyout has been offered to "8,700 employees who are at the top of their pay grades." The package includes $25,000 in cash plus health and dental benefits.
 
Southwest's second-quarter profits declined by 17% from the same quarter in 2006, the company reported this morning. The airline blamed rising fuel costs for the dip in earnings, according to The Associated Press. Southwest earned $278 million (36 cents per share), which compared to a $333 million (40 cents per share) profit from the same quarter a year ago. AP says "after adjusting for fuel costs and related financial transactions, Southwest reported a profit of 25 cents per share." Analysts polled by Thomson Financial had expected Southwest's profit to come in at 22 cents per share. The quarter was Southwest's 65th consecutive in which it posted a profit.

New York Newsday writes "Southwest said that it was paying $1.62 a gallon for fuel, a 14.1% increase from a year ago. The airline said that it booked gains of $173 million from its fuel-hedging program, but that program is winding down, and Southwest's advantage over other carriers in this area is being reduced." Bloomberg News quotes Southwest CEO Gary Kelly as saying: "Revenues aren't increasing at the pace our costs are,'' Kelly said. "This is the root of our profit problem.''

Still, Kelly sounded optimistic about the airline's third-quarter prospects according to The Dallas Morning News (free registration). "Although softer revenue trends were consistent throughout the second quarter, demand strengthened somewhat in June. … Traffic trends and bookings thus far in July are strong," Kelly is quoted as saying by Reuters. Southwest's earning report comes a day after news broke that the airline "is offering buyouts to about one-fourth of its employees in an effort to cut costs as the discount carrier heads into a period of expected slower growth," AP writes. The Morning News says the buyout has been offered to "8,700 employees who are at the top of their pay grades." The package includes $25,000 in cash plus health and dental benefits.


I think the gist of the article makes the point that as the fuel hedges come off the books, profits will be much tougher to come by.
 
Southwest's MSG Switch

Jul 18, 2007

By Lori Ranson/AviationWeek.com

Southwest's maintenance materials and repair line item had the largest rise -- 29% -- in the carrier's second quarter operating expenses released July 18. [$35 million increase - Jim]

In a discussion of the airline's financial results, management attributed the bulk of the rise to the transition of its older Boeing 737-300/500 classics to the MSG-3 program it uses for its next generation -700s. It's a process the airline started in 2006 that triggered some additional maintenance costs in both the first and second quarters of this year. While the carrier's logging expenses up front to make the switch, management says that over time adopting MSG-3 would result in more favorable economics.

Jim