Southwest Airlines posts 4Q income of $131 million

By Richard N. Velotta

Published Thursday, Jan. 20, 2011 | 9:57 a.m.

Updated Thursday, Jan. 20, 2011 | 11:13 a.m.

The highlights

+ By passenger volume, Southwest is the No. 1 carrier at McCarran International Airport.

+ Southwest has announced that its seasonal schedule change in February would add two daily flights from its Las Vegas schedule, including the only nonstop flight to and from Norfolk, Va.

+ Beginning March 13, Southwest will begin serving Charleston and Greenburg-Spartanburg, S.C. From Las Vegas, there will be one-stop or direct service, but no nonstop flights.

- Southwest announced a major overhaul of its frequent-flier program, Rapid Rewards, earlier this month. Changes take effect March 1.

+ In September, Southwest announced a plan to acquire AirTran Holdings for $1.4 billion. A Las Vegas-based AirTran shareholder has filed a lawsuit saying the price is too low and unfair to investors.

+ Southwest paid a half-cent dividend to shareholders on Dec. 7.

+ Jan. 19 stock price: $12.83. ($52-week high $14.20 on Nov. 3)

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Dallas-based Southwest Airlines, the market leader at McCarran International Airport, wrapped up its 38th straight year of profitability with a healthy fourth quarter that beat analysts’ expectations.

The airline, which flies about 45 percent of the commercial flights to and from Las Vegas, has strong bookings for February and March.

“It was a satisfying year, an upbeat end to what most would agree has been a lost decade for the airline industry,” Gary Kelly, Southwest’s chairman, president and CEO, said in a conference call today.

For the fourth quarter, Southwest reported earnings of $131 million, 18 cents a share, on revenue of $3.11 billion, compared with earnings of $116 million, 16 cents a share, on revenue of $2.71 billion in the same quarter a year earlier. Earnings reported were 2 cents higher than Wall Street projections.

As Southwest enters its fifth decade of operations this year, the company reported $459 million net income, 61 cents a share, on revenue of $12.1 billion for 2010.

The airline has several plans to increase profitability.

The biggest of those plans is continuing efforts to complete the company’s $1.4 billion acquisition of AirTran Holdings, expected to be completed later this year. The deal is subject to approval by AirTran shareholders, the Justice Department and regulators.

The acquisition, announced in September, would enable Southwest to enter the largest market it currently doesn’t serve: Atlanta. It also would give the company more gates at New York’s LaGuardia International Airport and a new presence at Ronald Reagan National Airport near the Capitol in Washington, D.C.

Although Southwest will pick up 37 cities on AirTran’s route map and add 138 aircraft, it’s too early to tell how the blending of the airlines would affect Las Vegas.

Prospective cities on the AirTran route map for Las Vegas include Wichita, Kan.; Des Moines, Iowa; Moline-Quad Cities, Ill.; Bloomington-Normal, Ill.; and Memphis, Tenn.

Southwest has said that it and AirTran would operate independently until details are worked out and they work under one operating certificate. The airline has estimated that the acquisition of AirTran would net annual synergies of more than $400 million by 2013.

Three other destinations will be connected by Southwest in the first quarter.

Late last year, the company announced its schedule of flights for two South Carolina destinations, Charleston International Airport and Greenville-Spartanburg Airport. Beginning March 13, Southwest will offer seven flights a day to and from those airports.

Las Vegas is not among the nonstop routes to be served, but the airline has begun selling one-stop flights connecting from Baltimore, Chicago’s Midway Airport, Nashville and Houston’s Hobby International Airport.

The company also announced service to Newark, N.J.’s Liberty International Airport beginning March 27. The airline will roll out nonstop flights between Newark and Chicago’s Midway Airport and St. Louis. On June 5, Southwest will add nonstop flights to and from Newark from Baltimore, Houston’s Hobby Airport, Denver and Phoenix. Those flights will enable one-stop service to Newark from Las Vegas.

With the addition of those flights, Southwest will operate in 72 destinations in 37 states.

Another key initiative of the airline is the revamping of its Rapid Rewards frequent-flier program. Many critics have panned the planned changes, which include switching from a system in which customers earned credits on any flight taken to a points system based on how much a customer spends for a ticket and redeeming them based on ticket prices.

Southwest is weathering the criticism and is hopeful that the change generates a greater number of new customers.

The airline also has embarked on a plan to acquire larger planes giving it the potential of serving new destinations or dedicating more seats to restricted destinations like New York’s LaGuardia International Airport and Washington National.

New initiatives have proved profitable for Southwest. Chief financial officer Laura Wright said today that the company’s Early Bird program, which enables customers to pay an additional $10 to get closer to the front of the line when the airline distributes boarding passes, generated $98 million in revenue for the company, far exceeding expectations.

While most of Southwest’s efforts are focused on increasing profitability, it also is wary of higher fuel prices and has continued to implement fuel hedges to protect against rising costs.

“Except for fuel, our outlook for 2011 looks quite good,” Kelly said.