Higher Fares Help Southwest Airlines’ Profit
DALLAS (AP) — Higher fares helped Southwest Airlines make more money than Wall Street expected in the first quarter, but the company said Thursday that automatic federal spending cuts could hurt revenue in April.
The average passenger fare on Southwest is now more than $150 one-way, 4 percent higher than a year ago.
The airline also said that a new policy on no-shows will start next month.
Southwest’s first-quarter net income fell 40 percent to $59 million, or 8 cents per share. That’s down from earnings of $98 million, or 13 cents per share, a year ago.
Without gains from fuel-hedging contracts, Southwest would have earned 7 cents per share, topping analysts’ forecast of 2 cents per share.
Revenue totaled $4.08 billion, up 2 percent from a year ago. Analysts expected $4.07 billion, according to FactSet.
Southwest shares rose 27 cents, or 2 percent, to $13.69 in pre-market trading.
Southwest said that revenue was weaker than expected in March and so far in April. Automatic budget cuts that went into effect in March have caused federal agencies to cut back on travel. The company said that it’s “cautious” because of the potential effect of those cuts, but that recent bookings for May and June are “solid.”
Other airlines have also seen damage from the federal spending cuts. US Airways said this week that revenue from government workers plunged 37 percent in March. Government travel counts for 3 percent of US Airways’ revenue.
At Southwest, lower fuel prices have offset the slump in revenue in April. Fuel is the airline’s biggest expense. It’s first-quarter fuel bill fell 3.5 percent compared with the same period last year, to $1.46 billion.
Southwest estimated its second-quarter fuel cost at $3 to $3.05 per gallon, less than a year ago and below its forecast for 2013.
Southwest also unveiled details of a new no-show policy. The airline will start dinging some customers who fail to cancel their reservations and then don’t show up for the flight. Beginning with reservations made on or after May 10, no-shows will lose the value of the unused part of their itinerary and the rest of the reservation will be canceled.
The change will cover people who buy cheaper, nonrefundable tickets that the airline calls Wanna Get Away and Ding fares.
Unlike most airlines, Southwest doesn’t charge a fee to change a ticket, and it lets customers apply the amount of unused tickets to new bookings. But the airline believes that the policy results in seats going unsold when passengers fail to show up.
Southwest doesn’t charge for the first two checked bags, but it has added and increased other fees such as priority boarding recently.
“We are pleased with the early results from revenue initiatives implemented in first quarter 2013 and are excited about the incremental benefit expected for future periods,” CEO Gary Kelly said in a statement.
The average fare on Southwest rose to $152.29. It was $146.72 a year ago.
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