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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."
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The feedlot of the air.
Kick butt and take names, Mr. Kelly. It's a pleasure to read about a company that appears to know how to "play."
It's also the Old Country Buffet of the air too. I've been on America West, pretty much the same but with older planes and poorer customer service. Those two have the fattest, worst dressed people I've ever seen in my life.
There is a reason why they have only posted a quarterly loss only once over the past 30 years.
Southwest is certainly one of the remarkable success stories in aviation. Curiously, it is not that well known among aviation enthusiasts in Asia. I remember when (East and Southeast) Asia caught up on building low cost carriers like AirAsia or Tiger Airways about 3 or 4 years ago commentators commonly cited Ireland's Ryanair for expertise and model, and Southwest was rarely mentioned at all.
Well at least it's not the Golden Corral of the air.
LOL!
It is a bit tight in the planes I must admit. But they are usually ontime. They are cheap, and they fly almost anywhere in the US. I use them almost exclusively.
Management's latest initiative--A brilliant move to slowly and quitely enter the more profitable international markets (which they are currently doing) via the 'code-share' with ATA.
"The feedlot of the air."
Well at least they are not asking their flight attendents to clean up the poop from the cabin after each flight off the clock for free like Delta is now.
That's just wrong :( Hey why is the service going down hill? Did the airlines start out charging too little for their services years ago and they're trying to catch up?
This is a slick move by their deft management--as a way to get their foot in the door with minimum risk exposure. I think you'll see Southwest continually grow that international code-share until the day the Mr. Kelly alluded to--the day that they make the decision to fly those routes themselves. It's a great way to generate additional revenue, connecting passengers, brand exposure, and physical presence overseas at minimal cost and risk.
I use them, too. 49 bucks one way, baby.
I flew SWA lat year on business, $99 both ways.
That's a great price. If money were no object, I'd fly a luxury airline, but I work hard for my money, and domestic flights are very short.
None are perfect. My first jet ride was DAL-HOU on WN way back in '74. They also allow GPS operation during cruise (sure helps pass the time enroute!).
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