Higher fares boost Continental, Southwest profits
CHICAGO (Reuters) - Continental Airlines Inc. (CAL.N) and Southwest Airlines Co. (LUV.N) on Thursday posted first-quarter profits on broadly higher fares, but the results showed early signs that domestic air travel demand might be waning.
Both airlines managed to overcome a unusually stormy quarter -- which is seasonally their weakest -- but their shares fell on fears that the nascent airline recovery might falter.
Continental stock was down 1.6 percent, while Southwest, which also played down recent talk of a leveraged buyout, fell 2 percent.
"There is a growing body of evidence that domestic demand is deteriorating, further calling into question the likelihood of 2008 results anywhere near the level implied by consensus," JP Morgan analyst Jamie Baker wrote in a research note.
Continental's results topped expectations and were the company's first profit for the March quarter since 2001. But the U.S. No. 4 airline said yields from its regional partners -- which track the price of tickets -- fell slightly from a year earlier, indicating softer demand.
Southwest, the leading discount carrier and No. 6 U.S. airline, warned that unit revenues in the current quarter would fall below last year's high levels, also indicating that demand may be waning in the domestic air travel market.
Southwest Chief Executive Gary Kelly, speaking on CNBC, also downplayed talk that the airline was a leveraged buyout candidate. That speculation had boosted the company's shares on Wednesday.
COSTLY WINTER STORMS
The airline industry is broadly recovering from a years-long slump as carriers restrain capacity -- the number of seats for sale -- and collect higher fares.
AMR Corp. (AMR.N), the parent of the world's largest carrier, American Airlines, reported a sharp swing to profit on Wednesday.
Aggressive cost cutting by airlines has also bolstered profits despite major winter storms that eroded revenue for some carriers. Most airlines, including Continental and Southwest, charged higher ticket prices in the quarter.
Continental reported net income of $22 million, or 21 cents per share, compared with a year-earlier net loss of $66 million, or 76 cents per share.
The company said severe winter storms cut $10 million off its quarterly revenue, which still rose 8 percent to $3.18 billion. Its load factor -- the percentage of seats filled with paying passengers -- increased 0.8 points to 78.7 percent.
Excluding a gain from the sale of the company's holdings in regional carrier ExpressJet Holdings Inc. (XJT.N) and some other one-time items, Continental reported profit of 25 cents per share.
On that basis, Wall Street analysts were expecting 14 cents, according to Reuters Estimates. Revenue was in line with analyst estimates.
Continental shares were down 71 cents at $43.03 on the New York Stock Exchange.
SOUTHWEST PROFITS AGAIN
Southwest, one of the few U.S. airlines to post consistent profits over the past few years, said net income rose to $93 million, or 12 cents per share, from $61 million, or 7 cents a share, a year earlier.
Excluding special items from the hedging program, earnings fell to 4 cents per share from 8 cents, in line with Wall Street estimates.
The no-frills carrier, which is the largest U.S. airline by market value, said it had recorded a $65 million benefit from its jet fuel hedging program in the first quarter. The company said its fuel costs per gallon for the quarter increased 11.6 percent, to $1.63.
Operating revenue rose 8.9 percent to $2.2 billion, boosted by higher fares.
Southwest shares were down 32 cents at $15.34 on the New York Stock Exchange.
(Additional reporting by Bill Rigby, Karey Wutkowski and Dhanya Skariachan)
