Reuters

(Reuters)

Southwest Airlines 2Q Profit Jumps 35%

Industries Reuters

Southwest Airlines reported a lower-than-expected quarterly profit as costs rose and the budget airline forecast a drop in a key profitability metric for the third quarter.

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Southwest shares fell 3.6 percent to $40.50 in light premarket trading on Thursday.

The No.4 U.S. airline by traffic said it expected revenue per available seat mile (RASM) to fall 3-4 percent in the quarter ending September.

RASM, a key indicator of an airline's performance, measures sales against flight capacity.

Southwest's total expenses rose 2 percent to $4.11 billion in the second quarter. However, unit cost fell 2.6 percent, helped by lower fuel costs.

Lower fuel prices have pushed up competition in the U.S. airline industry, enabling large domestic carriers to slash fares to levels offered by budget airlines.

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Cheap oil has also forced Southwest, the largest hedger among U.S. airlines, to pay hefty sums to counterparties in hedge contracts that it acquired for protection in case of rising energy prices. As a result, the carrier will not reap the full benefit of cheaper fuel.

The results come a day after Southwest halted all flight departures temporarily as it worked to resolve issues impacting multiple technology systems.

Southwest's net income jumped 35 percent to $820 million, or $1.28 per share, in the quarter ended June 30.

Excluding items, Southwest earned $1.19 per share, missing the average analyst estimate of $1.21, according to Thomson Reuters I/B/E/S.

Total operating revenue rose 5.3 percent to $5.38 billion.

(Reporting by Arunima Banerjee and Sweta Singh in Bengaluru; Editing by Kirti Pandey)