SAN FRANCISCO (AFX) -- Southwest Airlines on Thursday reported a modest rise in first-quarter earnings as spending on jet fuel rose 80% and as expansion plans took the low-fare carrier's revenue north of $2 billion, more than it had in any quarter last year.
But unit costs will be higher in the second quarter, the Dallas-based airline said, even when fuel is excluded.
Shares of Southwest on Thursday were swept lower with the rest of the airline sector as crude oil prices set a new high. They closed at $16.48, down 5.1 percent on the day, in heavier-than-usual volume.
Southwest generated net income of $61 million, or 7 cents a share, up from $59 million, or 7 cents a share, earned in the first three months of 2005.
Revenue totaled $2.02 billion, a 21% increase from the $1.66 billion reported in the year-ago quarter, as the carrier had record load factor during the quarter and registered a 15% increase in traffic.
Analysts had expected earnings of 8 cents a share from Southwest, according to the average of estimates compiled by Thomson First Call. Revenue in the quarter was forecast to total $1.96 billion, on average.
Fuel spending in the quarter reached $501 million, up from $279 million last year.
Labor costs, the largest expense at the carrier, rose 8.5% to $716 million.
With crude-oil prices topping $74 a barrel on Thursday, the company's fuel-hedging position gives it an important competitive advantage over less well-protected rivals. Though carriers like American Airlines are hedged too, it's to a lesser extent and at higher prices.
Southwest said that its hedging helped to the tune of $133 million during the quarter and that it paid an average of $1.46 a gallon -- a 63% increase over the year-ago quarter.
Hedging for the second quarter will contain fuel costs to $1.45 to $1.50 a gallon, the airline said. The hedges for the rest of the year cover 70% of the airline's fuel needs at $36 a barrel, but that protection becomes smaller in the future -- down to 30% in 2009 at a price of $36 a barrel.
Meanwhile, Southwest's expansion continues. The airline announced it will exercise options for 79 Boeing Co. 737-700 jets with delivery starting next year and running through 2012. The carrier currently has 451 Boeing jets in its fleet, up from 424 a year ago.
The value of the deal is about $4.5 billion at list prices, Boeing said. Boeing stock reached a new high of $86.26 on Thursday. This story was supplied by MarketWatch. For further information see www.marketwatch.com.