Southwest says BWI `bleeding' is ended

BUSINESS DIGEST

Business Digest

October 21, 2005|By DALLAS MORNING NEWS

DALLAS -- Southwest Airlines' chief executive said yesterday that "the bleeding has stopped" at its Baltimore-Washington International Airport operations, which have been hurt by Independence Air's fast growth at Washington Dulles International Airport.

Dulles-based Independence has reduced its schedule sharply, and most analysts expect the carrier to get a lot smaller and perhaps liquidate.

Southwest, the dominant carrier at BWI, posted a profit of $227 million for the third quarter on the strength of a one-time accounting gain that added $87 million before taxes. That compares with net income of $119 million in the previous year's third quarter.

Without the charge, Southwest's profit of $174 million equaled 21 cents a share, 3 cents more than analysts had forecast. Southwest shares fell 51 cents to $15.07.

"Our revenue momentum has been strong and has been sustained," said Gary Kelly, chief executive, in a conference call with analysts. The company's goal of a 15 percent profit margin for 2006 remains "the right goal," he said. The carrier's margin was just over 11 percent in the third quarter.

A series of small fare increases - coupled with its competitors shrinking - resulted in a healthy 18.8 percent rise in revenue in the quarter to nearly $2 billion.

Southwest has benefited from prepurchasing much of its jet fuel at lower prices through futures markets. That's kept its average price per gallon of jet fuel at 95 cents; other carriers without hedging in place paid twice that during the quarter.

But rising refining costs will push Southwest's average fuel price in the current quarter closer to $1.25, despite Southwest's industry-leading hedging program, Chief Financial Officer Laura Wright said.

The airline also announced yesterday that it will resume service to Denver after a 20-year absence.

Southwest is enjoying strong results in its newest cities, though its "No. 1 priority" remains to rebuild demand at hurricane-devastated New Orleans, Kelly said. The carrier, which previously offered 57 flights a day there, now has just four daily departures. Southwest's schedule won't be readjusted to maximum efficiency until the first quarter, meaning five or six planes aren't being flown full-time, Wright said. That will put pressure on Southwest's costs in the fourth quarter, she said.

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