Published January 14, 2015
Low-cost carrier Southwest Airlines (LUV) Thursday again flew higher than competitors, posting another profit while rivals remain in the red, but earnings missed analyst estimates as fuel costs soared, and its CEO unexpectedly stepped down.
Southwest's second-quarter net earnings fell to $113 million, or 14 cents per share, from $246 million, or 30 cents a share, a year earlier.
The results missed Wall Street estimates for a profit of 16 cents per share, according to Reuters Estimates, and Southwest's shares fell 2 percent.
The 2003 second quarter included a $271 million government payment to help reimburse Southwest for security costs. Excluding that benefit, the year-ago profit was $103 million, or 13 cents a share.
Southwest said soaring fuel costs cut into its bottom line, even though it has a strong hedging position in jet fuel through 2006. It also had a $12 million expense in the quarter for retroactive pay for flight attendants after reaching a tentative labor contract.
"The performance represents a miss of expectations in the quarter, but we believe results will prove to be blip to the longer term trajectory," Dan Hemme an airline analyst at Prudential wrote in a research note.
Gary Chase, an airline analyst at Lehman Brothers (search) said revenue was above his expectations and unit costs were also higher than he expected.
"We believe Southwest shares will perform well as we move into the second half when we expect that growth will accelerate as cost pressures ease," he wrote in a research note.
Chief Executive Jim Parker — who helped pilot Southwest through turbulence after the Sept. 11, 2001, attacks on the United States, when air travel plummeted and several major carriers sought help in the bankruptcy courts after losing billions of dollars — said Thursday he was resigning.
Parker, 57, took over as CEO about three years ago, succeeding Herb Kelleher, who remains as chairman. Southwest said Parker was leaving for "personal reasons" and will be replaced by Chief Financial Officer Gary Kelly, 49.
"It was a combination of things," Parker said in a teleconference about his departure. "I did my tour of duty and it was just time to let someone else have a turn."
Kelly said he did not plan any major changes for the carrier for the time being.
The company said operating revenue for the second quarter increased 13.3 percent to $1.72 billion from $1.52 billion a year earlier.
Operating expenses increased 10.5 percent to $1.52 billion due to items such as higher labor costs, aircraft maintenance and advertising. It expects to see lower cost pressure for the remainder of the year.
"Based on our current revenue and cost outlook and barring any unforeseen event, we expect third-quarter 2004 earnings to exceed third-quarter 2003 earnings of $106 million," Parker said in a statement.
He said strong bookings for July and August are expected to increase revenue for the airline in the current quarter from a year ago.
The airline, which has never laid off an employee during its three decades in the sky, said about 1,000 employees accepted a buy-out package it offered last quarter that was aimed at reducing head count.
Parker's leadership hit a snag earlier this year when he left contract talks with the airline's flight attendants on a new deal and was replaced by Kelleher, who helped secure a new labor agreement.
Southwest shares closed down 31 cents to $14.75 in active trade on the New York Stock Exchange (search).