Falling fuel prices bolster Southwest Airlines’ fourth quarter

Don’t expect Southwest Airlines to lower its ticket prices just because the price of fuel has cratered.

Southwest, the busiest commercial air carrier at McCarran International Airport, on Thursday reported solid fourth-quarter profits boosted by those plunging fuel prices.

In a conference call following the release of the company’s fourth quarter and end-of-the-year financial results, Southwest Chairman, President and CEO Gary Kelly said the company has no plans to veer from its current capacity and growth strategy. Like most air carriers that have benefited from the drop in oil prices, Southwest is content to play catch-up after years of getting shellacked by high fuel prices, now that oil has fallen to $40 a barrel.

Regulators could interpret a broad announcement of fare cuts corresponding to fuel costs as a form of collusion, but Kelly said he wouldn’t say anything anyway because he doesn’t want to tip off competitors.

While some analysts are forecasting oil prices to increase sometime in 2015, others say they’ll continue to drop throughout the year. Southwest has opted not to hedge fuel prices in 2015, a cost-cutting strategy of locking in fuel prices at a set rate in advance of purchase. It’s an advantage when prices spike, but a disadvantage when prices seem to be in a perpetual free fall. Southwest figures to save $1.7 billion in fuel costs in 2015 and that includes the cost of getting out of its hedging program.

The airline’s fourth-quarter performance bolstered Dallas-based Southwest’s 2014 results of a record $1.1 billion in net profit assuring the company its 42nd straight profitable year.

Fuel prices for the airline have declined 50 percent since September enabling Southwest to return $1.1 billion to shareholders through the repurchase of 33 million shares of common stock for $955 million and the payment of $139 million in dividends.

For the quarter that ended Dec. 31, Southwest reported net income of $190 million, 28 cents a share, on revenue of $4.63 billion. That compares with net income of $212 million, 30 cents a share, on revenue of $4.43 billion for the same period a year ago.

The airline’s performance beat Wall Street expectations by 4 cents a share.

During the quarter, Southwest expanded its network at its Dallas Love Field headquarters, at New York’s LaGuardia International Airport and at Ronald Reagan Washington National Airport. The airline also offered its last AirTran flight in December, completing an acquisition first announced in September 2010.

In 2014, Southwest also inaugurated service to seven international destinations in five countries and will add three more international cities this year.

In Las Vegas, Southwest has 193 daily flights, about 45 percent of McCarran’s daily capacity, with a schedule that fluctuates seasonally. The airline serves 56 nonstop destinations from Las Vegas.

Shares of Southwest rose $3.52, or 8.42 percent, to close at $45.35 on Thursday.

Contact reporter Richard N. Velotta at rvelotta@reviewjournal.com or 702-477-3893. Find him on Twitter: @RickVelotta.