Southwest profits drop nearly 72%

April 22, 1995|By Suzanne Wooton | Suzanne Wooton,Sun Staff Writer

Southwest Airlines' earnings plummeted nearly 72 percent during the first quarter, as other carriers gave the Dallas-based airline a dose of its own low-fare medicine.

Southwest earned $11.8 million, or 8 cents per share, in the three months ended March 31, compared with $41.8 million, or 28 cents per share, in the same period a year earlier. Revenues were $621 million compared to $619.4 million in the first quarter of 1994.

While the airline, unlike some others, is still making a profit, its results recently have been far less impressive than previous years, when the carrier seemed to have cornered the low-fare market.

The results, not unlike the carrier's fourth quarter performance, were caused by aggressive industry sales, Southwest's chairman and CEO Herbert D. Kelleher said yesterday. Not only have East Coast carriers matched or undercut Southwest fares, but United Airlines has put intense pressure on Southwest with its new West Coast shuttle.

Mr. Kelleher also cited reservation system capacity constraints and the company's unusually aggressive expansion last year when it bought Morris Air. That acquisition prompted Southwest to begin expensive operations in seven new cities, compared to its typically, more deliberate expansion pace of three new cities a year.

Nearly two years ago, Southwest launched its first East Coast service at Baltimore-Washington International Airport. Its debut kicked off a fare war that has made the once-sleepy airport a mecca for discount fares and boosted annual traffic by more than 3 million passengers.

According to Joseph W. Lamkin, Southwest's area marketing manager here, the company's latest financial results will not slow planned expansion at BWI.

"We feel we have pretty much conquered the main problems, including fare wars over the winter," he said. Continental Airlines' decision earlier this month to scrap its Continental Lite low-fare program removed a major competitor from the market.

In August, Southwest plans to add four nonstop flights to Nashville, making it its sixth city served out of BWI. The carrier will take over two new gates at BWI in June and two more before the end of 1995, bringing its total to six.

While the added gate space will give Southwest the ability to operate 72 flights a day, the airline has no plans to expand rapidly, Mr. Lamkin said. Other than Nashville, no additional destinations are expected to be added before 1996.

Since October 1993, the airline has expanded gradually here, growing from eight to 25 daily flights. Overall, its volume of passengers has increased from 23,946 in October 1993 to a record 54,959 last month.

Southwest earnings picture was complicated by factors other than increased competition. Last May, it was bumped from three computerized systems used by travel agents because the airline refused to pay booking fees to those systems.

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