Southwest, Continental profits soar

Wednesday, July 19th 2000, 12:00 am
By: News On 6

Good news expected from other carriers, too

Ticket price increases and record passenger traffic are propelling the nation's major airlines into brighter skies heading into this year's second half.

Dallas-based Southwest Airlines Co. and Houston-based Continental Airlines Inc. reported record profits Tuesday for the second quarter. Other large carriers, including Fort Worth-based AMR Corp., parent of American Airlines, are expected to announce strong results Wednesday and Thursday.

The results indicate that the economy, despite predictions of a slowdown, isn't showing signs of cooling. This summer, Americans are filling airplanes in numbers not seen in years. The demand is bringing renewed optimism to an industry that's enjoyed good times since the mid-1990s.

"Never have I seen the demand for Southwest Airlines travel so high," said Gary Kelly, Southwest's chief financial officer and vice president of finance. "The industry fundamentals are strong."

Southwest's second-quarter net income surged 21 percent to $190.6 million, or 36 cents per diluted share, from $157.8 million, or 29 cents, in the year-ago period. The low-fare carrier's operating revenue jumped about 20 percent to $1.46 billion from $1.22 billion last year. The results, which beat analysts' expectations of 31 cents a share, marked a turning point for Southwest.

In the previous three quarters, high jet fuel costs slowed earnings growth. But the No. 7 airline reversed the trend in the second quarter as it locked in more fuel at lower prices and raised fares.

The good fortune isn't limited to Southwest. Continental's second-quarter net income shot up 13 percent to $149 million, or $2.39 a share, compared with $132 million, or $1.73, in the year-ago quarter. Excluding a $4 million charge for early debt repayment, income climbed 16 percent to $153 million, or $2.46 a share.

Wall Street applauded the airlines' performances, pushing shares up 81 cents for each company. Southwest closed at $21.94 a share Tuesday; Continental's stock finished the day at $53.81 a share.

During the second quarter, Continental earned operating revenue of $2.6 billion, up 18 percent. Like Southwest, it enjoyed fuller planes, particularly in June. In addition, it benefited from an increase in business travelers, who pay the highest fares.

"If there is a different industry structure in the future, Continental will certainly play a role in it," Gordon Bethune, Continental's chairman and chief executive, told reporters Tuesday, referring to speculation that it may merge with Delta Air Lines Inc. Mr. Bethune said the airline is not in merger talks with anyone. "We are in an enviable position," he said. "They are starting to grow again," said Raymond Neidl, an airline analyst at ING Barings Inc. in New York.

Both Continental and Southwest said bookings in July remain strong. Airlines are expected to show an improvement in earnings in the second half of the year. Many carriers were caught off-guard in the year-ago period by surging jet fuel prices, their biggest expense after labor .By now, many have learned to cope by hedging their fuel needs, or locking in lower jet fuel prices in advance.

Expect the favorable trends in the second quarter to continue through the summer, Mr. Neidl said. Carriers to avoid: those that haven't adequately hedged their fuel needs, such as US Airways, Alaska Airlines and America West, he added.America West Holdings Corp., based in Phoenix, reported second-quarter net income of $33.5 million, or 91 cents a share, a drop of 21 percent from the year-ago period.

The results exceeded analysts' estimates of 89 cents a share. America West suffered from a 52 percent increase in jet fuel costs. Operating revenue rose 9 percent. Shares of America West fell 50 cents, closing Tuesday at $17.75.