Southwest misses Street 1Q forecasts on higher costs

Markets Associated Press

Southwest Airlines' first-quarter earnings fell 32 percent as it flew more passengers but took in less revenue on average from each one. Rising costs for fuel and labor weighed on the airline.

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The Dallas company on Thursday posted earnings of $351 million, down from $513 million in the same period in 2016. Per-share earnings fell to 57 cents from 79 cents.

Earnings adjusted for non-recurring costs came to 61 cents per share, a penny shy of Wall Street expectations, according to a survey Zacks Investment Research was for earnings of 62 cents per share.

The airline posted revenue of $4.88 billion in the period, up 1 percent but also shy of Street forecasts for $4.89 billion.

The disappointing quarter dragged down Southwest shares in early trading. They recovered a bit in the afternoon and were lower by 1.9 percent to $55.86.

Revenue for each seat flown one mile by Southwest, a proxy for average fares, fell 2.6 percent in the quarter. The carrier expects that figure to be positive in the second quarter, a sign that a long period of declining fares could be coming to an end for Southwest and the airline industry.

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Southwest is paying out higher compensation to employees under new labor contracts. Costs for salaries, wages and benefits rose 13 percent to $1.73 billion. In addition, its costs for fuel rose 8 percent. The company has also been spending on a new reservation system, which it expects to launch next month.

Southwest carries more passengers in the U.S. than anyone, although its smaller international network places it behind American, Delta and United in total size.

CEO Gary Kelly said Southwest plans to stop overbooking flights — an industry practice that led to an ugly incident on a United Airlines flight that has damaged United's reputation with the flying public.

Last year Southwest bumped 15,000 passengers off flights, more than any other U.S. airline. Carriers say they sometimes sell more tickets than there are seats because often a few passengers don't show up.

Kelly said on a conference call Thursday that the airline had been thinking about ending overbooking for "a long time" because of fewer and fewer no-shows. But the issue gained more urgency after the United incident, he said. Chief Financial Officer Tammy any loss in revenue from doing away with overbooking would be somewhat offset by lower costs.

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Elements of this story were generated by Automated Insights using data from Zacks Investment Research. Access a Zacks stock report on LUV at https://www.zacks.com/ap/LUV

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Keywords: Southwest Airlines, Earnings Report, Priority Earnings