Southwest Air Swings to 3Q Loss

Southwest Airlines (NYSE:LUV) fell to a third-quarter loss from a year-earlier profit on sharply higher fuel costs, however it predicted passenger revenues in the fourth quarter will be stronger as bookings through October have rebounded, sending its shares higher in morning trade.

The carrier's chief executive, Gary Kelly, said Thursday that a 6% increase in passenger revenues were driven by strong load factors, revenues yields and unit revenues, which he said all hit records during the third quarter.

“Despite the cautious economic outlook, our booking trends remain strong,” he said. “Importantly, business travel has remained stable since spring.”

Operating revenues were $4.3 billion for the three months ended Sept. 30, up from $3.19 billion a year ago, beating the Street’s view of $4.23 billion.

However, the Dallas-based company swung to a third-quarter loss of $140 million, or 18 cents a share, compared with a year-earlier profit of $205 million, or 27 cents a share, in the same quarter last year. Excluding one-time items, the airline said it earned 15 cents a share, which is ahead of average analyst estimates polled by Thomson Reuters of 13 cents.

The sales gains were offset by a 46% increase in expenses during the period on higher fuel costs. The airline saw a 34% year-over-year increase in economic fuel costs per gallon, lifting its total fuel bill 71% to $1.59 billion.

Kelly said that based on October traffic and booking trends, Southwest thus far expects solid passenger unit revenue year-over-year growth in the fourth quarter. The airline has also started to charge more per tickets, lifting average passenger fares last quarter 7.4% to $142.31.

The company, which continued integrating AirTran during the third quarter, and said it has already seen some $60 million in cost synergies from the deal. The company expects to have the capability to connect the networks of both airlines in the first half of next year.