UPDATE 3-Southwest profit trails estimates; growth plans cut

Thu Aug 4, 2011 11:10am EDT

* Adjusted EPS 15 cents vs Street view 20 cents

* Revenue up 31 pct to $4.1 bln

* Shares down nearly 8 percent (Rewrites first paragraph; adds share fall, analyst comment, details on capacity outlook, background)

By Kyle Peterson

CHICAGO, Aug 4 (Reuters) - Southwest Airlines Co (LUV.N) posted a smaller-than-expected quarterly profit on Thursday, battered by soaring fuel costs, sending its shares down nearly 8 percent.

The company said its fuel bill rose 64 percent from a year earlier, and it has trimmed its winter flying schedule and 2012 capacity plans.

The airline still expects 2011 capacity to grow 4 percent to 5 percent.

"Fuel, fuel, fuel," said Ray Neidl, senior aerospace sector analyst with Maxim Group. "That's why (Chief Executive Gary Kelly) is wisely cutting back on capacity growth plans."

The airline industry has been battered this year by soaring fuel costs. While most major U.S. carriers posted profits for the second quarter, the fuel burden and concerns about travel demand in a weak economy have weighed.

Southwest shares were down 75 cents $8.90 in morning trade on the New York Stock Exchange after falling as low as $8.85 earlier in the session, their lowest level since December 2009.

"Given the pessimistic near-term outlook for fuel prices and the U.S. economy, we have reevaluated our capacity plans," Chief Executive Gary Kelly said in a statement.

The airline still expects 2011 capacity to grow 4 percent to 5 percent.

Despite the pressures, the airline industry has stabilized with help from capacity cuts and consolidation, including last last year's merger of United Airlines and Continental Airlines to form United Continental Holdings (UAL.N).

Southwest completed its purchase of AirTran in May, positioning itself to challenge bigger rivals in major U.S. East Coast markets such as Atlanta, a city it did not previously serve and home of the world's busiest airport.

Southwest said second-quarter earnings came to $161 million, or 21 cents a share, compared with $112 million, or 15 cents a share, a year earlier.

Excluding one-time items, profit was 15 cents per share. On that basis, analysts had expected 20 cents, according to Thomson Reuters I/B/E/S.

Quarterly revenue rose 31 percent to $4.1 billion.

Southwest said it has incurred $75 million in costs related to the AirTran merger, including $58 million in the second quarter. It said it expects to receive final government approval to operate as a single carrier in the 2012 first quarter.

Industry experts are on the look-out for signs that Southwest is preparing to replenish its fleet of narrow-body planes. Kelly on Thursday welcomed Boeing Co's (BA.N) recent decision to revamp the 737, which is the backbone of Southwest's fleet.

"I applaud Boeing for that decision and we're waiting to hear from them exactly what that means for Southwest in the future, so I see that only as a good thing for us. We're the world leader in the 737, so obviously it's in our selfish interest to see that aircraft improve," he told CNBC.

The carrier could also choose to order planes from Boeing rival Airbus EADS EAD.PA. [ID:nLDE7730BU] (Reporting by Kyle Peterson; editing by John Wallace)

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