Southwest Reports First Quarter Profit of $11 Million

Southwest Airlines reported a slim first quarter 2010 net income of $11 million compared to a net loss of $91 million, or $.12 loss per diluted share, for first quarter 2009. Excluding special items for both periods, first quarter 2010 net income was $24 million, or $.03 per diluted share, compared to a net loss of $20 million, or $.03 loss per diluted share, in first quarter 2009.

Gary Kelly, Southwest’s CEO, said that the airline has began to see modest improvement in demand for business travel, as measured by the increase in full-fare traffic in the first quarter, even though the airline remained challenged by persistently high energy costs. He said Southwest had a record first quarter performance for load factor, passenger yield, and passenger revenues. Load factors were up to 75 percent from 69.9 percent.

Revenue passenger miles were up 1.6 percent and the average passenger fare was up 9.6 percent. Furthermore, first quarter 2010 operating unit revenues, and the corresponding 19.3 percent year-over-year increase, represent all-time quarterly records.

Kelly said accomplishing all this during the first quarter, usually the weakest quarter, was notable and to do so in a recovering economy was remarkable. “Thus far, strong load factor and yield trends have continued in April and, assuming trends continue, we expect another significant year-over-year unit revenue gain in second quarter 2010,” he said.

First quarter 2010 fuel costs increased 33 percent year-over-year to $2.34 per gallon, which included approximately $44 million in unfavorable cash settlements from derivative contracts.

For the remainder of 2010, including second quarter, Southwest currently has derivative contracts in place for approximately 65 percent of estimated fuel consumption at crude-equivalent prices up to approximately $100 per barrel; approximately 40 percent if market prices settle in the $100 to $120 per barrel range; and approximately 60 percent if market prices exceed $120 per barrel.

Based on the current 2010 fuel hedge portfolio and market prices (as of April 20, 2010), the Company estimates economic fuel costs, including fuel taxes, for second quarter will be in the $2.40 to $2.45 per gallon range.