Southwest Airlines Co. Thursday reported its quarterly profit almost doubled, while rival low cost carrier JetBlue Airways Corp. said earnings sank by two thirds and warned that fuel costs would drive it into the red.
Southwest, now the No. 1 U.S. airline by market value, said a big bet on jet fuel hedges would help it keep outperforming the rest of a loss-plagued industry next year.
JetBlue, the second-largest by market value, said energy prices would send its fourth-quarter and likely its full-year results into the minus column, breaking a profit run since it went public in April 2002.
“It certainly shows what happens when you’re exposed to fuel,” Fulcrum Global Partners analyst Susan Donofrio said of JetBlue. “They’re a victim of circumstance right now.”
Southwest said third-quarter net income rose to $227 million, or 28 cents a share, from $119 million, or 15 cents a share, a year earlier.
Even stripping out $87 million in one-time gains, the results still beat Wall Street analysts’ forecasts.
JetBlue said third-quarter profit fell to $2.7 million, or 2 cents a share, from $8.1 million, or 7 cents a share, a year earlier.
Alaska Air Group Inc., parent of Alaska Airlines, also reported better than forecast earnings on Thursday, and like Southwest, it benefited from fuel hedges.
Alaska Air’s third-quarter earnings rose to $90.2 million, from $74.0 million. Earnings per share were $2.71, beating a $2.12 per share forecast from Reuters Estimates.
As soaring jet fuel prices hammered most U.S. airlines, Dallas-based Southwest again benefited from a policy of buying contracts that lock in oil -- and jet fuel -- at certain prices. Southwest said its hedging policy resulted in a $295 million benefit in the quarter.
But the low-cost carrier’s results were strong in other areas too, helped by improving results in cities where the airline is expanding service, including Philadelphia, Pittsburgh and Chicago.
Aggressive expansion
“Their newer markets are kicking in with respect to demand,” Donofrio said, adding that the earnings were ”terrific” overall.
Donofrio said that while JetBlue’s third-quarter profit beat expectations, the New York-based airline’s outlook for a negative operating margin of 5 to 7 percent was worse than the break-even that analysts were expecting.
Even as most traditional U.S. airlines -- including newly bankrupt Delta Airlines Inc. and Northwest Airlines Corp. -- have said they plan to cut available seats to cut excess capacity which has been depressing ticket prices, Southwest said it will pursue an aggressive expansion plan.
The airline, which said it plans to begin service from Denver International Airport starting in early 2006, expects to take deliveries of 33 new Boeing 737-700 aircraft next year.
“We have a number of things that we could chase, but we’re focused,” said Southwest Chief Executive Officer Gary Kelly. ”Denver is a market that makes sense for us and that’s going to be our focus at least for the first half of 2006.”
Reducing flights
Calyon Securities cut its recommendation on the stock to ”reduce” from “neutral,” saying JetBlue might have to try to raise fares, a move that would lead to slower growth.
JetBlue CEO David Neeleman said on a conference call that the airline plans to keep expanding, taking deliveries on 16 Airbus A320 and 18 Embraer 190 jets next year.
But he said JetBlue may look at reducing flights to some destinations where it has had trouble getting fare increases to stick and use the spare capacity to serve additional cities.
Southwest shares have gained 10 percent since the beginning of the third quarter, compared with about a drop of about 6.7 percent in the Amex Airline index, while JetBlue has lost 9.8 percent and Alaska Air is roughly flat.