JonnyKnoxville
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NEW YORK (Reuters) — Southwest Airlines, the leading U.S. discount carrier, Wednesday posted a 19% decline in fourth-quarter earnings as swings in jet fuel prices led to increased costs.
Net profit fell to $57 million, or 7 cents a share, from $70 million, or 9 cents a share, in the same period last year.
Earnings were burdened by a 28% rise in its fuel costs, while expenses related to its fuel hedging program increased 49%, to $52 million.
Still, Southwest's fuel-hedging program yielded a gain of $118 million in the quarter, continuing to underpin the carrier's profits.
Excluding charges related to revaluing its hedging position, earnings rose to 12 cents per share from 10 cents, in line with analyst expectations.
Southwest was one of the few U.S. airlines to lock in low fuel prices with long-term hedging contracts, which helped it undercut competitors' fares and still make money. But its hedges are gradually unwinding and provide less protection than they did in the past.
Southwest said it was 95% hedged for the remainder of 2007 at an oil price of about $50 per barrel. After a recent decline, crude oil is currently trading only slightly above that at $50.31.
The earnings come amid a background of merger frenzy among traditional airlines. US Airways Group Inc. has made hostile bid for larger, bankrupt rival Delta Air Lines Inc.. Analysts and industry observers expect the deal to spark other mergers if it succeeds.
Southwest, which plans to increase its fleet by 8% with the addition of 37 aircraft in 2007, said it is well-positioned either way.
"We have significant growth opportunities with or without consolidation," Southwest Chief Executive Gary Kelly said in a statement. He said the company is "hopeful" it can exceed its target of 15% growth in earnings before special items this year.
Southwest isn't expected to be a partner in any merger, but has said it would be interested in bidding on gates, planes or routes spun off as a result of any deals.
Operating revenue rose 14.5% to $2.3 billion in the fourth quarter, as Southwest, the largest carrier by market value, raised fares and increased capacity by 10%.
Net profit fell to $57 million, or 7 cents a share, from $70 million, or 9 cents a share, in the same period last year.
Earnings were burdened by a 28% rise in its fuel costs, while expenses related to its fuel hedging program increased 49%, to $52 million.
Still, Southwest's fuel-hedging program yielded a gain of $118 million in the quarter, continuing to underpin the carrier's profits.
Excluding charges related to revaluing its hedging position, earnings rose to 12 cents per share from 10 cents, in line with analyst expectations.
Southwest was one of the few U.S. airlines to lock in low fuel prices with long-term hedging contracts, which helped it undercut competitors' fares and still make money. But its hedges are gradually unwinding and provide less protection than they did in the past.
Southwest said it was 95% hedged for the remainder of 2007 at an oil price of about $50 per barrel. After a recent decline, crude oil is currently trading only slightly above that at $50.31.
The earnings come amid a background of merger frenzy among traditional airlines. US Airways Group Inc. has made hostile bid for larger, bankrupt rival Delta Air Lines Inc.. Analysts and industry observers expect the deal to spark other mergers if it succeeds.
Southwest, which plans to increase its fleet by 8% with the addition of 37 aircraft in 2007, said it is well-positioned either way.
"We have significant growth opportunities with or without consolidation," Southwest Chief Executive Gary Kelly said in a statement. He said the company is "hopeful" it can exceed its target of 15% growth in earnings before special items this year.
Southwest isn't expected to be a partner in any merger, but has said it would be interested in bidding on gates, planes or routes spun off as a result of any deals.
Operating revenue rose 14.5% to $2.3 billion in the fourth quarter, as Southwest, the largest carrier by market value, raised fares and increased capacity by 10%.
