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Southwest Airlines exceeds estimates with a 3Q net profit of $205 million

Southwest Airlines (Dallas) reported third quarter 2010 net income of $205 million, or $.27 per diluted share, compared to a net loss of $16 million, or $.02 loss per diluted share, for third quarter 2009. Both years’ results included special items related to non-cash, mark-to-market, and other items associated with a portion of the Company’s fuel hedge portfolio. Excluding special items for both periods, third quarter 2010 net income was a third quarter Company record of $195 million, or $.26 per diluted share, compared to $31 million, or $.04 per diluted share, for third quarter 2009. This exceeded Thomson’s First Call mean estimate of $.25 per diluted share for third quarter 2010.

Third quarter 2010 unit costs, excluding special items, increased 7.1 percent from third quarter 2009, largely due to the 11.7 percent increase in economic fuel costs to $2.38 per gallon. Third quarter 2010 economic fuel costs included $56 million, or $0.15 per gallon, in unfavorable cash settlements for fuel derivative contracts. As of October 15th, the Company had derivative contracts in place for approximately 40 percent of its estimated fourth quarter 2010 fuel consumption at varying crude-equivalent prices up to approximately $95 per barrel; approximately 10 percent if market prices settle in the $95 to $120 per barrel range; and approximately 30 percent if market prices exceed $120 per barrel. Based on this fuel hedge position and market prices (as of October 15th), the Company estimates economic fuel costs, including fuel taxes, for fourth quarter 2010 will be in the $2.45 to $2.50 per gallon range.

For 2011, the Company has derivative contracts in place for approximately 65 percent of its estimated fuel consumption at varying crude-equivalent prices up to approximately $90 per barrel; approximately 55 percent if market prices settle in the $90 to $95 per barrel range; approximately 30 percent if market prices settle in the $95 to $105 per barrel range; and approximately 55 percent if market prices exceed $105 per barrel. Beyond 2011, the Company has coverage of approximately 60 percent of its estimated fuel consumption in 2012; approximately 50 percent in 2013; and approximately 45 percent in 2014, all at varying price levels. The total market value (as of October 15th) of the Company’s net fuel derivative contracts for the remainder of 2010 through 2014 reflects a net liability of approximately $90 million.

Excluding fuel and special items in both periods, third quarter 2010 unit costs increased 5.1 percent from third quarter 2009, which was better than anticipated primarily due to lower than expected advertising and Employee benefit costs. Excluding profitsharing and special items in both periods, third quarter 2010 nonfuel unit costs increased 2.5 percent compared to third quarter last year. Based on current cost trends, the Company expects its fourth quarter 2010 nonfuel unit costs to increase from fourth quarter last year.

On September 27th, Southwest Airlines announced it had entered into a definitive agreement to acquire all of the outstanding common stock of AirTran Holdings, Inc., the parent company of AirTran Airways (AirTran), for a combination of cash and Southwest Airlines’ common stock. The acquisition will significantly expand Southwest Airlines’ low-fare service to many more customers in many more domestic markets, creating hundreds of additional low-fare itineraries for the traveling public, more than what Southwest or AirTran could otherwise provide on a stand-alone basis, particularly in and out of Atlanta, Georgia. Moreover, the expansion of low fares should generate hundreds of millions in annual savings to consumers.

Based on an economic analysis by Campbell-Hill Aviation Group, LLP, Southwest Airlines’ more expansive low-fare service at Atlanta, alone, has the potential to stimulate over two million new passengers and over $200 million in consumer savings, annually. These savings would be created from the new low-fare competition that Southwest Airlines would be able to provide as a result of the acquisition, expanding the well-known “Southwest Effect’” of reducing fares and stimulating new passenger traffic wherever it flies.

The closing of the proposed acquisition is subject to the approval of AirTran stockholders, receipt of Department of Justice (DOJ) and certain other regulatory clearances, and fulfillment of customary closing conditions. The Company has met its required filing deadline with the DOJ in compliance with the terms of its agreement with AirTran and has begun the integration planning process.

The proposed transaction is expected to yield net annual synergies of more than $400 million by 2013. Excluding one-time acquisition and integration costs estimated to be between $300 million and $500 million, the transaction is also expected to be accretive to Southwest’s fully-diluted earnings per share in the first year following the close of the transaction, and strongly accretive, thereafter, upon full realization of the estimated net synergies. The Company currently expects to close the transaction in the first half of 2011.

Copyright Photo: Tony Storck. Please click on the photo for additional details.

JetBlue Airways reports a 3Q net profit of $59 million

JetBlue Airways Corporation (New York) reported its results for the third quarter 2010:

Operating income for the quarter was $140 million, resulting in a 13.6% operating margin. This compares to operating income of $66 million and a 7.7% operating margin in the third quarter of 2009.

Pre-tax income for the quarter was $97 million. This compares to pre-tax income of $23 million in the third quarter of 2009.

Net income for the third quarter was $59 million, or $0.18 per diluted share. This compares to JetBlue’s third quarter 2009 net income of $15 million, or $0.05 per diluted share.

Copyright Photo: Eric Dunetz. Please click on photo for additional details for this new logojet.

Delta Air Lines launches Detroit-Sao Paulo flights

Delta Air Lines (Atlanta) yesterday (October 21) connected its Detroit hub and South America for the first time, with new nonstop service to Sao Paulo, Brazil.

The inaugural flight departed from Detroit Metropolitan Wayne County Airport at 7:30 p.m., arriving in Sao Paulo Guarulhos International Airport at 8 a.m. today.

Service will operate twice weekly through December 15, when it will increase to five days each week to coincide with the start of the Brazilian tourist season.

In recent months Delta has added new service from Detroit to Seoul-Incheon and Hong Kong and expanded flights to Shanghai. Next year, Delta will begin nonstop service between Detroit and Haneda Airport in Tokyo, which will open for trans-Pacific flights for the first time in three decades.

On a year-round basis, Delta offers Detroit customers service to 158 nonstop destinations, including 28 international destinations and five in Asia.

The Sao Paulo flights will be operated with 216-seat Boeing 767-300 ER aircraft, with 35 BusinessElite seats and 181 seats in Economy Class.

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Alaska Air Group has its best quarter ever

Alaska Air Group, Inc. (Alaska Airlines and Horizon Air) (Seattle/Tacoma) reported record third quarter 2010 net income of $122.4 million, or $3.32 per diluted share, compared to net income of $87.6 million, or $2.46 per diluted share, in the third quarter of 2009. Excluding mark-to-market fuel hedge gains of $16.7 million ($10.4 million after tax or $0.28 per diluted share) and Horizon restructuring and CRJ-700 transition charges of $9.8 million ($6.1 million after tax or $0.17 per diluted share), the company reported record adjusted net income of $118.1 million, or $3.21 per diluted share, compared to net income of $83.0 million, or $2.33 per share, excluding special items in the third quarter of 2009.

Copyright Photo: Nick Dean. Please click on photo for additional details.

AirTran Airways reaches a tentative agreement with ALPA

AirTran Airways (Orlando) at the Air Line Pilots Association Int’l (ALPA), representing the pilots of AirTran Airways, have reached a tentative agreement after more than five years of contract negotiations. The agreement represents the first contract for AirTran pilots since they joined ALPA in 2009.

The terms of the tentative agreement establish the foundation for a fair and equitable contract. Details of the settlement will not be released to the public until approved by the AirTran Master Executive Council (MEC) and ratified by AirTran pilots. If the pilot representatives on the AirTran MEC give their approval, a membership ratification vote will take place in November.

AirTran has agreed to be acquired by Southwest Airlines and is awaiting shareholder and regulatory approval for the buyout.

On the financial side, AirTran Holdings, Inc., the parent company of AirTran Airways, Inc., today reported a net profit of $36.3 million or $0.22per diluted share for the third quarter of 2010. During the quarter, the Company reported operating income of $56.7 million.

Included in these third quarter results is a non-operating gain on derivative financial instruments of $15.3 million. This non-operating gain on derivative financial instruments was largely attributable to unrealized increases in the fair value of our future fuel-related derivative assets. During the same period in 2009, AirTran Airways reported net income of $10.4 million, and diluted earnings per common share of $0.08. Included in our third quarter 2009 results is a non-operating loss on derivative financial instruments of $10.3 million. The Company ended the third quarter with $424.5 million in unrestricted cash and the Company’s revolving line of credit remains undrawn.

During this period, the Company also achieved an all-time record for traffic (revenue passenger miles), and second highest load factor in Company history. AirTran Airways also established record setting operational metrics during the quarter, including the highest ever performance in on-time arrivals at 83.4 percent. In July alone, AirTran Airways served more than 2.4 million customers and achieved a load factor in excess of 88 percent. The Company continued to rank among the top of the industry in completion factor, mishandled baggage rate and the number of customer complaints the Department of Transportation receives.

Copyright Photo: Tony Storck. Please click on photo for further details.

Southwest Airlines is coming to South Carolina on March 13

Southwest Airlines (Dallas) is coming to the Palmetto State! Today, Southwest announced it will begin service to/from Charleston International Airport (CHS) and Greenville-Spartanburg Airport (GSP) on March 13, 2011.

In Charleston, the carrier will operate seven daily nonstop flights to four destinations: three to Baltimore/Washington, two to Chicago Midway, one to Nashville, and one to Houston Hobby. Southwest Airlines will operate from gate B5 in Charleston’s main terminal.

In Greenville-Spartanburg (near Charlotte), the airline will begin service with seven daily nonstop flights to five destinations: two to Baltimore/Washington, two to Chicago Midway, one to Nashville, one to Houston Hobby, and one to Orlando. Southwest Airlines will operate from gates A3 and A4 in Greenville-Spartanburg’s main terminal.

Copyright Photo: Nick Dean. Please click on the photo for additional details.

US Airways reports a $240 million third quarter profit

US Airways Group, Inc. (Phoenix) today reported its third quarter financial results. On a GAAP basis, the Company reported a net profit of $240 million for its third quarter 2010, or $1.22 per diluted share, compared to a net loss of ($80) million, or ($0.60) per share, for the same period in 2009. The $240 million net profit is the highest third quarter net profit in the Company’s history.

Excluding special items of $3 million, net profit for the third quarter 2010 was $243 million, or $1.23 per diluted share. Net loss excluding special items for the third quarter 2009 was ($110) million, or ($0.83) per share.

Copyright Photo: Nick Dean. Please click on photo for additional details.