Southwest Airlines Doesn’t Expect A 1st Quarter Profit
DALLAS (AP/CBSDFW.COM) — Southwest Airlines says it doesn’t expect to earn a profit in the first quarter because of higher fuel costs.
Chief Financial Officer Laura Wright said Tuesday that jet fuel prices have been higher than the airline expected — about $3.50 per gallon instead of the $3.35 it had been forecasting.
Wright also says ticket bookings for spring travel weakened in late February. She says the airline doesn’t know whether that was a short-term blip or signals something bigger about the economy.
Southwest, which is based at Dallas’ Love Field, has been the mostly consistently profitable large U.S. airline for many years, so news that it won’t make money in the first quarter could indicate that other airlines will also struggle for profits.
Analysts, on average, expected Southwest to report a profit of 4 cents per share for the first quarter, which ends March 31, according to a survey by FactSet. That’s about $30 million, excluding special items such as one-time costs and gains.
Southwest has raised fares 10 times in the past 12 months to offset higher fuel prices, but it has also launched frequent fare sales, sometimes every week, to fill seats. Wright said the most recent price hikes have not been as effective in boosting revenue.
Bookings close to the time of travel fell off at the end of February, Wright said. Bookings so far in March “remain good, but we are cautious based on what we saw in late February,” she said at a JPMorgan conference in New York.
“It’s really too early for us to know whether some of that near-in weakness that we saw at the end of February — whether it’s a sign of something going on in the economy or whether February was an anomaly,” she said.
“Fuel unfortunately is the story of the quarter,” Wright said. In January, Southwest expected fuel prices to be high but stable in the first quarter. Instead, they have risen, leading the airline to add 15 cents per gallon to its forecast for first-quarter fuel expenses.
“This fuel increase is a significant hurdle for us to overcome, and based on the current revenue and fuel estimates, we currently do not anticipate a profit in the first quarter.”
Wright said the company was holding to a “favorable” outlook for the rest of 2012, but that assumes stable fuel prices and a strong enough economy for the airline to increase its revenue.
Southwest share fell a penny to $8.27 in morning trading. For the year, the stock is down more than 3 percent. While the broader markets are up about 9 percent since the start of the year, Southwest shares peaked in early February and have steadily fallen since then, as fuel prices jumped.
(Copyright 2012 by CBS Local. The Associated Press contributed to this report. All Rights Reserved.)