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Lower fuel spending, higher average fares help Southwest Airlines boost 4Q earnings

DALLAS - Southwest Airlines Co. made more money in the fourth quarter thanks to a lower fuel bill and higher average fares.

That combination boosted net income for the final three months of 2013 to $212 million from $78 million a year earlier.

Southwest's results topped Wall Street expectations, and the company said that a key revenue figure for the first quarter would be higher than a year ago.

Still, the airline's shares fell 53 cents, or 2.4 per cent, to close at $21.24. Most U.S. airline stocks fell after United Airlines gave a lacklustre revenue forecast. In the past year, Southwest shares have gained 87 per cent, however. Investors have been drawn to airlines, which have boosted profits with help from stable fuel prices and nearly-full planes.

Southwest paid 30 cents less per gallon in the fourth quarter, cutting its fuel bill by $138 million, or 9.2 per cent. Meanwhile, the average fare on Southwest rose $8, or 5.4 per cent, to $156.05 each way.

Southwest officials said fares rose because the average customer's trip was longer and the airline sold fewer seats at sale prices.

"We're not sitting here hoping that we can raise fares," CEO Gary Kelly said on a call with analysts and reporters. He called Southwest's fare hikes "very modest, very infrequent and very judicious."

In recent years, airlines have limited the number of flights, which helps them fill seats without slashing prices. But industry-wide fare increases have slowed — there were just two in 2013, compared with seven in 2012 and nine in 2011, when airlines were offsetting rising fuel costs.

Kelly said travel bookings are strong for the first quarter. Southwest predicted that revenue for every seat flown one mile — a key measure in the airline business called unit revenue — will be higher in the first quarter than it was in the same period last year.

Southwest, which also operates AirTran Airways, earned 30 cents per share in the fourth quarter, compared with 11 cents per share a year earlier.

Excluding special items, Southwest said it earned 33 cents per share. Analysts were expecting 29 cents per share, according to a FactSet survey. Revenue of $4.43 billion topped analysts' forecast of $4.39 billion.

Southwest's labour costs rose 7.3 per cent due to profit sharing and raises to put AirTran employees on par with pay at Southwest.

This figures to be an important year at Southwest. The airline will begin international flights as it takes over routes to the Caribbean and Latin America now operated by AirTran. Southwest will announce routes and fares for the first international flights in the next few days.

Also, Southwest is poised to grow at home this fall when a federal law limiting flights from Dallas Love Field expires. That law, passed in the 1970s, was designed to protect nearby Dallas-Fort Worth International Airport, a hub for American Airlines. Finally, Southwest looks to complete the job of folding AirTran into the Southwest brand, which company officials say will eliminate redundant costs.

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Follow David Koenig at http://www.twitter.airlinewriter

The Canadian Press


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