After reporting a record net income of $1.1 billion for 2014 on Thursday, Southwest Airlines appears prepared to hold steady on fares as it continues to boost capacity and add routes this year.
Southwest in 2015 plans to increase available seat miles about 6 percent, following a 2.4 percent year-over-year increase in capacity during the fourth quarter. The carrier particularly has grown from Dallas Love Field, where available seat miles increased 80 percent year over year in the fourth quarter following the expiration of the Wright Amendment, as well as from Ronald Reagan Washington National Airport and its newly converted international routes through the integration of AirTran's network, Southwest president and CEO Gary Kelly said in an earnings call on Thursday.
Revenue passenger miles during the fourth quarter, meanwhile, were up 4.3 percent, and fourth-quarter load factor increased 1.6 percentage points year over year to 82 percent. CFO Tammy Romo said the load factor on most new nonstop flights from Dallas was at or above 90 percent.
"Our business has been strong and steady despite having a large percentage [of routes] under development," Kelly said.
Even while working to build these new routes, Southwest's average fare increased 1.3 percent year over year to $158.06 during the fourth quarter, and passenger revenue per available seat mile increased 2.6 percent.
During the first quarter of this year, Southwest projects passenger-revenue growth will keep pace with capacity, which a research note by Cowen and Co. called "very encouraging."
"There was some fear that Southwest would begin discounting fares as the company begins to grow capacity again," the note continued. "Southwest remains one of, if not the, most important indicators for the pricing environment in the domestic United States."
Echoing comments made by both United Airlines and Delta Air Lines in their earnings calls, Kelly said the carrier is making no adjustments to its capacity plans as a result of lower fuel costs. He added that resulting travel cutbacks from energy-sector companies would have little impact on Southwest.
"Oil and gas businesses are going to cut back, and that will result in some reduced travel, but the consumers are going to outweigh the cutbacks," Kelly said. "More worrisome is what's going on around the world and the impact on the U.S. economy, consumers and business travel demand, but there's absolutely no evidence of anything changing on that front."
Southwest's fourth-quarter net income was $190 million, compared with $212 million in the fourth quarter of 2013.