Southwest earnings fall 41.8% in quarter

But 13 cents a share leaves it only profitable big airline

July 19, 2002|By Paul Adams | Paul Adams,SUN STAFF

Southwest Airlines, which flies 45 percent of the passengers at Baltimore-Washington International Airport, reported second-quarter earnings yesterday of $102.3 million, making it the only major U.S. airline to remain profitable since the Sept. 11 terrorist attacks.

The profit amounted to 13 cents per share, down 41.8 percent from earnings of $175.6 million, or 22 cents per share, reported for last year's second quarter. Sales slipped to $1.47 billion, down 5.2 percent from $1.55 billion during the 2001 quarter.

The Dallas-based airline, which has made a virtue of cheap airfares, said profit fell because it has booked fewer business travelers and had to slash prices in order to combat sluggish demand for air travel. In a sign of the difficulties facing the industry, the airline said it expects profit to fall further in the third quarter.

"There's just no evidence that things are going to improve sharply anytime soon," Gary Kelly, Southwest's executive vice president of finance and chief financial officer, said in a conference call with reporters.

The news came amid growing concern about the slow pace of recovery in the airline industry. Delta Air Lines, the nation's third-largest, reported a $186 million second-quarter loss yesterday, and Northwest Airlines, the No. 4 carrier, reported a loss of $93 million. Earlier this week, American Airlines, the nation's largest, reported a $465 million loss, and Continental Airlines reported a $139 million loss.

Despite the gloomy industry outlook, analysts remain enamored with Southwest. It is the only airline that didn't eliminate jobs or cut back service after the Sept. 11 attacks. With the lowest operating costs in the industry, it continues to slowly add planes and increase its service to Baltimore, where it has fueled BWI's growth in recent years.

"I think that obviously you have to give them credit for being able to post a profit in this environment when nobody else can," said James Corridore, an airline analyst with Standard & Poor's.

Excluding a $36 million reduction in estimated cost for ticket refunds and exchanges, Southwest's profit would have been $84.5 million, or 10 cents per share. Kelly said the added income is partly a result of more passengers booking discounted, nonrefundable tickets, some of which go unused. Analysts polled by Thomson Financial/First Call had expected a profit of 11 cents per share.

The company ended the quarter with $2.12 billion in cash and expects to get another $43 million from the government as part of an aid program designed to help airlines recover from the terrorist attacks.

For the first six months, Southwest reported net income of $123.7 million, down 58 percent from $296 million in the first half of 2001. Sales were $2.73 billion, down 8.5 percent from $2.98 billion.

Southwest shares lost 65 cents at $13.28 yesterday.

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