Southwest says it won't make a profit in 1st qtr.

Southwest Airlines says high fuel prices mean it won't earn a profit in 1st quarter

Associated Press
Southwest says it won't make a profit in 1st qtr.
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In this Feb. 6, 2012 photo, Southwest airplanes are seen on the tarmac in Baltimore. Southwest Airlines said Tuesday, March 13, 2012, it doesn't expect to earn a profit in the first quarter because of higher fuel costs. (AP Photo/Elise Amendola)

DALLAS (AP) -- Southwest Airlines Co. doesn't expect to earn a profit in the first quarter because of higher fuel costs.

Chief Financial Officer Laura Wright said Tuesday that jet fuel prices have been higher than the airline expected — about $3.50 per gallon instead of the $3.35 it had been forecasting.

Wright also said ticket bookings for spring travel weakened in late February. The airline is unsure if that was a short-term blip or signals something bigger about the economy, Wright added.

Southwest has been the most consistently profitable large U.S. airline for many years, so news that it won't make money in the first quarter is another sign that other airlines will also struggle for profits.

Fuel costs are a concern for all the airlines. The spot price of jet fuel has risen 10 percent since the beginning of the year, according to government figures. U.S. airlines burn 48 million gallons per day, making fuel their biggest expense.

Also Tuesday, Delta Air Lines Inc. said that higher fuel costs will trim its first-quarter profit margin to between 1 and 3 percent, down from an earlier forecast of between 2 and 4 percent. And United, the world's biggest airline, said it will cut flying by up to 1.5 percent this year. By cutting flights, airlines burn less fuel and hope to drive up fares by creating a shortage of seats.

Southwest has raised fares 10 times in the past 12 months to offset higher fuel prices, but it has also launched frequent fare sales, sometimes every week, to fill seats. Wright said the most recent price hikes have not been as effective in boosting revenue.

Bookings close to the time of travel fell off at the end of February, Wright said. Bookings so far in March "remain good, but we are cautious based on what we saw in late February," she said at a JPMorgan transportation conference in New York.

Fuel prices, which Southwest expected to be high but steady in the first quarter, instead went up, leading the airline to add 15 cents per gallon to its forecast for first-quarter fuel.

"Fuel unfortunately is the story of the quarter," Wright said. "This fuel increase is a significant hurdle for us to overcome, and based on the current revenue and fuel estimates, we currently do not anticipate a profit in the first quarter."

Analysts, on average, expected Southwest to report a profit of 4 cents per share for the first quarter, which ends March 31, according to a survey by FactSet. That's about $30 million, excluding special items such as one-time costs and gains.

Wright said the company was holding to a "favorable" outlook for the rest of 2012, but that assumes stable fuel prices and an economy that's strong enough for the airline to increase revenue.

Analysts expected first-quarter losses from United Continental Holdings Inc., Delta, US Airways Group Inc. and American Airlines parent AMR Corp., which filed for bankruptcy protection in November. Only a few airlines, such as JetBlue, Alaska and low-cost carriers Spirit and Allegiant, were expected to make money in the first three months of this year.

Travel-industry officials say high airfares and gasoline prices, combined with uncertainty about the economy, make the outlook for travel dicey. The Global Business Travel Coalition, a group of corporate travel managers, predicts road warriors will take fewer trips but they'll spend more because travel prices are up.

Michael McCormick, the group's executive director, said companies facing more expensive gasoline and airline tickets "don't necessarily want to cut trips. First they'll find ways to economize — they'll pull back on premium travel."

Southwest shares rose 13 cents to close at $8.41 after falling in morning trading. The stock started the day down 3.3 percent for the year, as a January rally was cut off by growing concern over fuel prices. By comparison, the S&P 500 is up 11 percent and the Dow Jones industrial average up nearly 8 percent in 2012.

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