Southwest reports a profit, American Airlines a loss

Friday, January 13th 2006, 11:33 am

By: News On 6

DALLAS (AP) _ Southwest Airlines Co. reported a 54 percent jump in fourth-quarter profit as the bets it made on fuel prices allowed it to dodge for a little longer the spiraling costs that led to a $604 million loss for the parent of American Airlines, the nation's biggest carrier.

Revenue increased at both airlines, as planes were more crowded and average fares rose.

Southwest said it earned $86 million, or 10 cents per share, in the fourth quarter, compared with $56 million, or 7 cents per share, a year earlier. Excluding one-time items, net income was $98 million, or 12 cents per share. Analysts had expected a gain of 13 cents per share, according to a survey by Thomson Financial.

Revenue rose 20 percent, to $1.99 billion from $1.66 billion a year ago.

Southwest shares rose 78 cents, or 4.9 percent, to $16.65 in afternoon trading on the New York Stock Exchange.

Southwest again cashed in on a winning bet it made several years ago on the direction of fuel prices. The carrier bought options that locked in prices on most of its fuel needs through 2009, softening the blow of higher fuel costs.

As a result of this hedging, Southwest paid about $1.20 per gallon for fuel _ its second biggest cost after labor _ in the fourth quarter.

But beginning this year, Southwest has less of its fuel hedged and at higher prices. For that reason, the carrier expects its average cost of fuel to rise to $1.45 a gallon in the first three months of this year. Still, Chief Executive Gary Kelly said the company has a favorable outlook on the first quarter and still expects profit to rise 15 percent this year.

American Airlines was too weak financially to buy fuel options in recent years, and it paid the price in the fourth quarter _ $2.02 per gallon. Parent AMR Corp., which also owns the American Eagle commuter line, spent about $400 million more on fuel in the fourth quarter than it did a year earlier.

That helped push Fort Worth-based AMR to its loss, which equaled $3.49 per share, after a loss of $387 million, or $2.40 per share, in the fourth quarter of 2004. Excluding $191 million in net one-time costs, AMR said it would have lost $413 million, $2.39 per share. Thomson Financial said analysts were expecting a loss of $2.50 per share.

Revenue rose 13.8 percent, to $5.17 billion from $4.54 billion a year ago, but that was below analysts' consensus forecast of $5.24 billion.

``We need to do more on both the cost and revenue sides of the ledger to return our company to sustained profitability,'' said Chairman and Chief Executive Gerard Arpey.

Michael Linenberg, an analyst for Merrill Lynch, said AMR did a good job of controlling costs other than fuel. The airline permanently grounded 27 jets at the end of the year.

AMR shares rose 98 cents or 5.2 percent, to $19.84, in afternoon trading on the New York Stock Exchange.

Both American and Southwest reported their planes were more full than they were the year before. American's average occupancy rate rose 3.6 points, to 77.9 percent, while Southwest's gained 4.6 points, to 69.6 percent.

Airline executives and analysts are counting on financially troubled carriers to cut back on flights, which could make planes even more crowded and push fares up. Yet there are signs that might not happen.

A new airline, Virgin America, plans to begin flying between San Francisco and New York. And on Tuesday, Houston-based Continental Airlines Inc. hinted it may increase flights to combat rivals such as JetBlue Airways Corp.

Southwest's Kelly said high fuel costs made it an ``enormous risk'' to start a new airline.

``Look at the results here for the fourth quarter and you may find that we are literally the only airline to make a profit,'' Kelly said. ``That to me sort of sums it up about starting a new airline.''

Robert Mann, an airline industry consultant in Port Washington, N.Y., said 2006 could be a tougher year than expected if the airlines increase capacity.

``If Continental does expand, we'll see a me-too response,'' Mann said. He added that expanded capacity on international routes could also undercut rising fares to Europe.

``It's great news for travelers _ more low prices,'' he said.

For all of 2005, Southwest earned $548 million, or 67 cents per share, compared with $313 million, or 38 cents per share, in 2004. Revenue rose to $7.58 billion from $6.53 billion.

At AMR, the full-year loss was $861 million, or $5.21 per share, after a loss of $761 million, $4.74 per share, in 2004. Revenue rose to $20.71 billion from $18.65 billion.