Posted on 04/21/2006 1:14:22 PM PDT by Paleo Conservative
A confident Southwest Airlines (LUV:NYSE) beat analysts' first-quarter targets Thursday and said it might very well meet or exceed its own goal of 15% earnings growth this year.
On top of that forecast, the carrier said it plans to grow its fleet as well, by exercising options for 79 additional Boeing jets.
Despite a 10% rise in unit costs, driven by sky-high fuel prices, the Dallas-based carrier made $61 million, or 7 cents a share, in the quarter, compared with $59 million, or 7 cents a share, a year earlier. Excluding hedging losses and gains, earnings rose to 8 cents a share from 5 cents last year, beating the Thomson Financial estimate by a penny.
Revenue rose 21% from a year ago to $2.02 billion, topping the $1.96 billion forecast from Wall Street.
During a conference call, Southwest CEO Gary Kelly told reporters and analysts that the airline's full-year goal remains 15% earnings growth, but that analysts' higher estimates of 71 cents a share for 2006 are achievable "if we can continue at this pace during the second, third and fourth quarters."
"It's not our forecast, but we're not telling you it is wrong either," Kelly said. He noted that he wants growth to come through increased passenger counts, rather than through ticket price increases, and he expressed doubt that Southwest could continue to raise fares without impacting demand for seats.
"With the airlines reporting so far, we're all talking about strong demand and high load factors, (and) my hope is we'll continue to see year-over-year load factor gains," Kelly said. "We've used modest fare increases historically, and that's what we would like to continue to do. You can push fares only so far [before] a negative effect and a backlash by customers."
The decision to exercise options for Boeing 737-700s from 2007 through 2012 means Southwest now has firm orders for 140 aircraft deliveries during the period, along with 116 options for deliveries from 2008 to 2012 and 54 purchase rights for delivery through 2014.
During the first quarter, Southwest said revenue passenger miles increased 15.4%, while available seat miles rose 9.1%, resulting in a 3.8-point increase in its load factor to 69.2%.
Yield per revenue passenger mile rose to 12.68 cents, up 5.4%. Revenue per available seat mile climbed 11.3% to 9.15 cents. Meanwhile, cost per available seat mile was 8.70 cents, up more than 11%.
CASM, excluding fuel, was down slightly from last year's 6.44 cents. Kelly said Southwest expects that its full-year CASM excluding fuel will be 6.48 cents, representing essentially no change in year-over-year costs.
CFO Laura Wright said Southwest continues to benefit from its hedging positions. For the rest of 2006, the airline has 70% of its fuel hedged at $36 a barrel. The company is 60% hedged for 2007, about 35% hedged for 2008 and 30% for 2009. She said the company is exploring a hedging strategy for 2009 and beyond.
Southwest's capital expenditures totaled $262 million for first quarter 2006. In January, the company's board authorized stock buybacks up to $300 million. As of Wednesday, the company had repurchased 15.4 million shares for $261 million. Southwest ended the quarter with $2.9 billion in cash and short-term investments.
Kelly said Southwest's plan to code-share on ATA international flights in 2009 means the company will build the capacity for international bookings into its reservation system, but he cautioned that his airline has no plans to fly overseas.
"I just don't want Southwest Airlines to be distracted," he said. "We have a lot of work to do on our domestic growth. Now is not the time to let up on our domestic route system development."
The only service I care about is getting there on time and in one piece. Nobody does that better than SWA.
Although it gets pretty tiring holding the GPS out the window so you can get a fix on a decent number of satellites.
< ]B^)
I use my GPS all the time when I fly.
Sadly, I have to fly SW in a few weeks, I don't care for them, and I can fly free for life on USairways, but its too important to try to standby, so its a SW/ATA flight.
Yuck
If you're tired of holding your arm out the window you can always ask for a wing seat.:-)
You got it backwards. Southwest does require its cabin crews (and pilots, gate agents, etc.) to clean the aircraft between flights to save money. Delta does no such thing.
Nope. It was on the radio all day today.
If so, then I suppose some Delta employees and executives who chose to do so cleaned some airplanes the other night. But you said Delta was "asking their flight attendents to clean up the...cabin after each flight off the clock for free", which is completely incorrect, but which is required of Southwest employees.
A good rule of thumb to use is that if something aviation-related is reported in mainstream media, it's been misreported badly.
Fair enough. Did not have time to look further into it when I posted my first post on this.
Still in the overall scheme of things, SWA is doing alot more things right than Delta. Don't you think?
I flew back to Ontario (CA) from Reno Nevada this past Tuesday on Southwest Airlines.
While the service was very professional, plane arrived on time, I must say that the stewardesses looked worn out, disheveled and couple of them could have substituted successfully as scare crows.
Their webpage is fairly plain (almost amateurish), but that suits their no-frills manner quite well.
I've noticed that while Southwest typically advertises cheap fares, I often have a hard time locking in those "special fares" to the point that the standard (read: non-low cost) airlines are often cheaper.
Incidentally, I've also heard that one of the reasons that Southwest is making such a killing right now--as opposed to the other airlines--is that it hedged the price of fuel some years back. While that's certainly great business and foresight, it will be interesting to see if the profits remain stable when their fuel contracts expire.
I'd say they're both doing a lot of things right, right now. The difference is that Southwest created a very successful business plan long ago, and by following it strictly they've continued to do very well. Delta's formerly very successful business plan started to fall apart between 2000 and 2002, at which time they were unfortunately run by a group of executive bandits who cared nothing for the company or the industry and who were just out to loot whatever they could for themselves. So while Southwest continues to build on a long string of success by doing what they've always done, the new management at Delta started from a much worse position and even with all the things they're doing right these days it will take them a while to dig themselves out of the hole that was dug for them.
I don't know, they could probably make money serving Edmonton, Calgary and Winnipeg. Perhaps London, Ontario as well.
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