Southwest Airlines Posts 54 Percent Profit Increase

Fuel Costs Hurt American Despite More Revenue

DALLAS, Jan. 18 -- Southwest Airlines Co. reported a 54 percent jump in fourth-quarter profit as the bets it made on fuel prices allowed it to dodge for a little longer the spiraling costs that led to a $604 million loss for the parent of American Airlines, the nation's biggest carrier.

Revenue rose at both airlines, as planes were more crowded and average fares rose.

Airline stocks rallied, led by American's parent, AMR Corp., which rose $1.53, or 8.1 percent, to close at $20.39 on the New York Stock Exchange. Southwest shares added 89 cents, or 5.6 percent, to $16.76.

Ray Neidl, an analyst with Calyon Securities, said that the stocks were lifted by a decline in crude oil prices but added that AMR also may have been rewarded for the strength of American's route network and a loss that was slightly smaller than expected.

Southwest said it earned $86 million (10 cents per share) in the fourth quarter, compared with $56 million (7 cents) a year earlier. Excluding one-time items, profit was $98 million (12 cents). Analysts had expected a gain of 13 cents per share, according to a survey by Thomson Financial. Revenue rose 20 percent, to $1.99 billion from $1.66 billion a year ago.

For all of 2005, Southwest earned $548 million (67 cents), compared with $313 million (38 cents) in 2004. Revenue rose to $7.58 billion from $6.53 billion.

Southwest again cashed in on a winning bet it made several years ago on the direction of fuel prices. The carrier bought options that locked in prices on most of its fuel needs through 2009. As a result of this hedging, Southwest paid about $1.20 per gallon for fuel, its second-biggest cost after labor, in the fourth quarter.

Beginning this year, however, Southwest has less of its fuel hedged, and the carrier expects its average cost of fuel to rise to $1.45 a gallon in the first three months of this year. Still, chief executive Gary C. Kelly said the company has a favorable outlook on the first quarter and expects profit to rise 15 percent this year.

American Airlines was too weak financially to buy fuel options in recent years, and it paid the price in the fourth quarter -- $2.02 per gallon. Its parent, AMR, which also owns the American Eagle commuter line, spent about $400 million more on fuel in the fourth quarter than it did a year ago.

That helped push Fort Worth-based AMR to its loss, which equaled $3.49 per share, after a loss of $387 million ($2.40) in the fourth quarter of 2004. Excluding $191 million in one-time costs, AMR said it lost $413 million ($2.39). On that basis, Thomson Financial said analysts were expecting a loss of $2.50 per share.

Revenue rose 13.8 percent, to $5.17 billion from $4.54 billion a year ago, but that was below analysts' forecast of $5.24 billion.

"We need to do more on both the cost and revenue sides of the ledger to return our company to sustained profitability," said Gerard J. Arpey, AMR's chairman and chief executive.

The full-year loss at AMR was $861 million ($5.21), compared with a loss of $761 million ($4.74) in 2004. Revenue rose to $20.71 billion from $18.65 billion.