SWA Again Most Profitable, Eyes Denver

Southwest Airlines today announced a third-quarter net income of $227 million, once again the best performance of any U.S. carrier. The airline today also said it would again serve Denver starting early next year, after a 20-year absence.

Other airline third-quarter results announced today included a small JetBlue profit and stronger year-over-year results at Alaska Airlines. Yesterday's results included another Continental profit and a $153 million loss at American Airlines parent AMR Corp.

Airlines benefited from strong revenue trends resulting from airfare hikes, as well as expanded international flying. Most also have been able to lower their costs, excluding jet fuel, which again had a severely negative impact on financial performance. Jet fuel prices, as well as airline operations and profitability, were affected during the quarter by Hurricanes Katrina and Rita.

Southwest's net income--including $87 million in one-time items--was more than $100 million ahead of last year's third quarter. It benefited from record passenger revenue and load factor, higher passenger yield and the most enviable fuel-hedging program in the industry. "We also benefited from a reduction in the glut of competitive seat capacity," said CEO Gary Kelly.

Meanwhile, Southwest said it would begin serving Denver International Airport in early 2006, ahead of its internal schedule, due in part to aircraft availability in the wake of Hurricane Katrina service disruptions. Details are expected next week.

"Southwest has experienced strong customer demand to serve an obvious gap in our route network," Kelly said. "Over time, Denver International has dramatically reduced its costs, increased its efficiency and demonstrated that Denver can be a viable opportunity for Southwest Airlines."

The airline previously served Denver in the mid-1980s from Stapleton International Airport.

At JetBlue, third-quarter net income declined to $2.7 million from $8.1 million one year earlier. "This quarter was a difficult one for JetBlue," said chairman and CEO David Neeleman. "The combination of record-high jet fuel costs, which were 58 percent above fuel costs for the same period last year, hurricanes and a competitive revenue environment has proven difficult for all airlines, and JetBlue is not immune."

The carrier posted stronger passenger yield, unit revenues, total revenues, traffic and capacity growth but experienced higher unit costs, even when excluding fuel. For the fourth quarter, JetBlue now anticipates an uncharacteristic net loss.

AMR, all told, dropped $153 million in the quarter, a significant improvement from a $214 million quarterly loss from one year earlier, but still "unacceptable," said CEO Gerard Arpey. "It is certainly disappointing to have swung to a loss after recording our first quarterly profit--without special items--since 2000 in the second quarter of this year. The fact that we were unable to sustain profitability despite robust customer volumes says a lot about our inability to pass on fuel-price increases to consumers."

Nevertheless, American posted solid revenue performance, including an 8 percent year-over-year improvement in passenger yield. "Strong demand, combined with capacity restraint, enabled us to gain some traction on the revenue side of the ledger," Arpey said. "We saw our first significant yield increase in some time, but there is still a disconnect between the price of fuel and the price of air travel."

At Continental, a $61 million net gain represented the company's second consecutive quarterly profit. It's $2.8 billion in passenger revenue--up more than 15 percent from a year earlier--was a new Continental record.

Calyon Securities analyst Ray Neidl said that "relatively low unit revenues, excluding fuel, combined with what is perceived as Continental's premium service and Newark airport serving the New York business market, helped Continental beat expectations."

Like others, Continental suffered hurricane-related operational disruptions. Specifically, Hurricane Rita forced the airline to suspend service at its main Houston hub for 36 hours, costing roughly $25 million.

Continental yesterday also announced it had boosted liquidity by raising $204 million through an offering of 18 million shares. "While the sale of nearly 20 percent of the company in one transaction highlights the company's somewhat limited traditional liquidity options, the company did reiterate in its 10Q filing that its interests in ExpressJet Holdings and Copa Airlines remain unencumbered," said J.P. Morgan Securities analyst Jamie Baker.

For its part, Alaska Airlines grew quarterly net income to $90.2 million, versus $74 million a year ago. The carrier marginally increased traffic on a 3 percent capacity decline, pushing the load factor to 79 percent.