Southwest Airlines beats profit forecasts on fare price hike

US carrier makes most of upturn in demand following the presidential elections although fourth-quarter revenue for each seat mile flown declined.

A Southwest Airlines jet comes in to land at Lindbergh Field in San Diego, California. Mike Blake / Reuters

Southwest Airlines reported fourth-quarter profit that exceeded analysts’ expectations, helped by increased demand following the November election and higher prices on tickets bought just before travel.

Earnings excluding some items were 75 cents a share, the Dallas-based carrier said on Thursday, compared with the 69 cents predicted by analysts. Sales rose 2 per cent to US$5.08 billion. Analysts had anticipated $5.03bn, based on the average of estimates compiled by Bloomberg.

Southwest joined rival large airlines in reporting higher demand and renewed pricing power late in the quarter, in particular on more costly fares often purchased by business travellers. The improvement more than offset increased spending for fuel and new labour contracts.

Revenue for each seat flown a mile, an industry benchmark, slipped 2.9 per cent from a year earlier. Southwest had predicted a decline of as much 4 per cent. Investors have closely watched the measure, an indicator of pricing power, since it first began lagging behind year-earlier levels almost two years ago. The airline has forecast that the figure would be flat to down 1 percent this quarter.

Southwest is working to offset rising costs this year by updating its fleet with more fuel-efficient planes and phasing in a new computerised reservation system. Jamie Baker, a JP Morgan analyst, estimates the airline will face $700 million in higher labour costs this year from contracts with pilots and flight attendants, plus a pact with mechanics that is being negotiated.

The stock climbed 29 per cent in the 12 months through Wednesday, while the Bloomberg US Airlines Index gained 26 percent.

* Bloomberg

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