The Prussian
Stecknadelkopf
- Joined
- Oct 24, 2005
- Posts
- 671
Investor's Business Daily
Southwest Flies Above Industry Challenges With Focus On Efficiency
Wednesday August 23, 7:00 pm ET
Marilyn Alva
It seems nothing can throw Southwest Airlines off course. Not high fuel costs. Not the threat of terror in the skies. Not even rising competition from other low-cost carriers.
Through it all, Southwest (NYSE:LUV - News) keeps churning out financial gains. The company's earnings have grown in double digits in 12 of the last 13 quarters. Sales have risen in double digits six quarters in a row.
"We see Southwest as the best operator in the industry," said Jim Corridore, airline equity analyst with Standard & Poor's.
Once a scrappy low-cost regional airline, Southwest is now a major national carrier, serving more than 60 U.S. cities with 462 aircraft. It flies mainly short- to medium-haul flights and still pushes its low fares as central to the brand.
The company can charge low fares because of its ability to maintain low operating costs, says Southwest spokesman Ed Stewart.
"It blows back down to productivity and efficiency," he said.
Part of the efficiency plan is to use fewer employees to take care of a single plane. Four years ago Southwest had 91 employees working various duties on an aircraft. At the end of the second quarter, that dropped to fewer than 69, Chief Executive Gary Kelly told analysts in a July 19 conference call.
Southwest keeps finding new ways to squeeze costs in other areas. A few months ago it removed all the light bulbs behind no-smoking signs in planes, saving on bulbs and power. It saves $100,000 annually by buying cheaper mops to clean planes.
Starting in early 2007, the company plans to install fuel-saving, aerodynamic winglets on the ends of many of its Boeing-737 jets.
These kinds of initiatives might not sound like much, but there's no arguing with Southwest's record as a moneymaker. The last time it lost money was in the fourth quarter of 1990, at the start of the Gulf War.
Second-quarter earnings this year rose 83% to 33 cents a share even as fuel costs continued to skyrocket. Southwest's fuel hedge buffeted the sting of higher prices. During the quarter 77% of its fuel was hedged at $36 a barrel. Current crude oil prices are above $70 a barrel.
Southwest's overall per-gallon jet fuel costs still rose 39% from last year, however. The firm imposed modest fare hikes in June to offset the increase.
Since keeping costs down is a given, management pegs the strong second-quarter showing largely to a record $2.4 billion in revenue, 26% better than last year.
Southwest's operating margin rose 4.3 points to 17.5%. It ended the quarter with $3 billion in cash.
"Their balance sheet has not deteriorated the way the rest of the industry's has," Corridore said. "If they want to grow, they can grow. They have plenty of cash and plenty of dry powder."
Analysts polled by First Call expect annual earnings to rise 64% to 87 cents a share this year, then climb 16% to $1.01 in 2007.
In contrast, low-cost carrier JetBlue (NASDAQ:JBLU - News) is expected to post a 6-cent loss this year -- matching last year -- before moving back to profitability in 2007 with earnings of 27 cents.
Good Swap
Load factor -- the percentage of available seats sold for a flight -- is an important barometer of any airline's performance. During the second quarter Southwest posted a record high of 78%, up from 72.5% the previous year.
In July, a peak travel month, Southwest's loads fell slightly from 2005 to 79.5%. Analysts attribute the decline to the modest fare increase. Company watchers figure that's not a bad trade-off.
"If the company is trading load for yield (as we believe is the case), the impact on (earnings) should be positive," analyst William Greene of Morgan Stanley wrote in a report.
Spreading Its Wings
Southwest continues to add routes across the system, including service from Dallas' Love Field to Missouri.
It added service in Denver in January. In October, it plans to fly out of Washington Dulles International Airport to Chicago Midway, Las Vegas, and Orlando and Tampa in Florida.
Southwest expects to end the year with 34 additional aircraft for a total of 479.
"They would grow faster if they could get more aircraft," said airline analyst Ray Neidl of Calyon Securities. "The Boeing 737 production line is full and there are very few models on the secondary market that they would want."
Meanwhile, Southwest's fuel hedges will trend down over the next few years. The firm has hedged 65% of its 2007 fuel needs at $41 a barrel. In 2008, the hedge is 38% at $40. In 2009, 34% is hedged at $44 and in 2010 12% is hedged at $61 a barrel.
"The hedge is buying us time until we come up with more efficiencies," Stewart said.
Seems like a great company worth investing in....TP
Southwest Flies Above Industry Challenges With Focus On Efficiency
Wednesday August 23, 7:00 pm ET
Marilyn Alva
It seems nothing can throw Southwest Airlines off course. Not high fuel costs. Not the threat of terror in the skies. Not even rising competition from other low-cost carriers.
Through it all, Southwest (NYSE:LUV - News) keeps churning out financial gains. The company's earnings have grown in double digits in 12 of the last 13 quarters. Sales have risen in double digits six quarters in a row.
"We see Southwest as the best operator in the industry," said Jim Corridore, airline equity analyst with Standard & Poor's.
Once a scrappy low-cost regional airline, Southwest is now a major national carrier, serving more than 60 U.S. cities with 462 aircraft. It flies mainly short- to medium-haul flights and still pushes its low fares as central to the brand.
The company can charge low fares because of its ability to maintain low operating costs, says Southwest spokesman Ed Stewart.
"It blows back down to productivity and efficiency," he said.
Part of the efficiency plan is to use fewer employees to take care of a single plane. Four years ago Southwest had 91 employees working various duties on an aircraft. At the end of the second quarter, that dropped to fewer than 69, Chief Executive Gary Kelly told analysts in a July 19 conference call.
Southwest keeps finding new ways to squeeze costs in other areas. A few months ago it removed all the light bulbs behind no-smoking signs in planes, saving on bulbs and power. It saves $100,000 annually by buying cheaper mops to clean planes.
Starting in early 2007, the company plans to install fuel-saving, aerodynamic winglets on the ends of many of its Boeing-737 jets.
These kinds of initiatives might not sound like much, but there's no arguing with Southwest's record as a moneymaker. The last time it lost money was in the fourth quarter of 1990, at the start of the Gulf War.
Second-quarter earnings this year rose 83% to 33 cents a share even as fuel costs continued to skyrocket. Southwest's fuel hedge buffeted the sting of higher prices. During the quarter 77% of its fuel was hedged at $36 a barrel. Current crude oil prices are above $70 a barrel.
Southwest's overall per-gallon jet fuel costs still rose 39% from last year, however. The firm imposed modest fare hikes in June to offset the increase.
Since keeping costs down is a given, management pegs the strong second-quarter showing largely to a record $2.4 billion in revenue, 26% better than last year.
Southwest's operating margin rose 4.3 points to 17.5%. It ended the quarter with $3 billion in cash.
"Their balance sheet has not deteriorated the way the rest of the industry's has," Corridore said. "If they want to grow, they can grow. They have plenty of cash and plenty of dry powder."
Analysts polled by First Call expect annual earnings to rise 64% to 87 cents a share this year, then climb 16% to $1.01 in 2007.
In contrast, low-cost carrier JetBlue (NASDAQ:JBLU - News) is expected to post a 6-cent loss this year -- matching last year -- before moving back to profitability in 2007 with earnings of 27 cents.
Good Swap
Load factor -- the percentage of available seats sold for a flight -- is an important barometer of any airline's performance. During the second quarter Southwest posted a record high of 78%, up from 72.5% the previous year.
In July, a peak travel month, Southwest's loads fell slightly from 2005 to 79.5%. Analysts attribute the decline to the modest fare increase. Company watchers figure that's not a bad trade-off.
"If the company is trading load for yield (as we believe is the case), the impact on (earnings) should be positive," analyst William Greene of Morgan Stanley wrote in a report.
Spreading Its Wings
Southwest continues to add routes across the system, including service from Dallas' Love Field to Missouri.
It added service in Denver in January. In October, it plans to fly out of Washington Dulles International Airport to Chicago Midway, Las Vegas, and Orlando and Tampa in Florida.
Southwest expects to end the year with 34 additional aircraft for a total of 479.
"They would grow faster if they could get more aircraft," said airline analyst Ray Neidl of Calyon Securities. "The Boeing 737 production line is full and there are very few models on the secondary market that they would want."
Meanwhile, Southwest's fuel hedges will trend down over the next few years. The firm has hedged 65% of its 2007 fuel needs at $41 a barrel. In 2008, the hedge is 38% at $40. In 2009, 34% is hedged at $44 and in 2010 12% is hedged at $61 a barrel.
"The hedge is buying us time until we come up with more efficiencies," Stewart said.
Seems like a great company worth investing in....TP
