Low fuel prices boost Southwest Airlines to record fourth-quarter earnings

Low fuel prices helped Southwest Airlines — by far, the busiest commercial air carrier at McCarran International Airport — to hit record fourth-quarter earnings, the Dallas-based airline reported Thursday.

The company reported quarterly earnings of $536 million, 82 cents per diluted share, on record revenue of $4.98 billion. That compares with earnings of $190 million, 28 cents a share, on revenue of $4.63 billion for the same quarter a year ago.

It was the 11th straight profitable quarter and 43rd consecutive profitable year for Southwest. Southwest employees shared a record $620 million in profits for the year, a 74.6 percent year-over-year increase.

Southwest currently operates 197 daily flights between McCarran and 59 destinations by the airport's count. That represents a 41.5 percent market share of flights at the airport.

For Southwest, Las Vegas is its third-busiest station by number of departures behind Chicago's Midway International and Baltimore-Washington International airports, and there are 1,782 local employees.

Investors rode a roller-coaster with Southwest stock Thursday, closing up 20 cents, 0.5 percent, at $39.50 after initially reacting favorably and peaking at $41.50 on heavy trading.

"Based on our current outlook, we expect strong free cash flow to continue in 2016 and intend to repurchase an additional $500 million of Southwest common stock under an accelerated share repurchase program, which will be launched soon," Southwest Chairman and CEO Gary Kelly said in a statement issued with the earnings announcement.

The company met the expectations of Wall Street analysts and executives said it hit operating margins of 19.9 percent excluding special items for the quarter.

Southwest was buoyed by one of the same things that has benefited all airlines — the lower cost of fuel, a factor that is expected to continue through 2016. Southwest reported paying an average $2.03 a gallon systemwide, a decline of 22.5 percent from the fourth quarter of 2014.

The low-fuel-cost environment has changed Southwest's fuel-hedging strategy, a plan for the advanced purchase fuel at a locked price. In light of the low costs, the airline has reduced fuel hedging in 2016 from 60 percent to 70 percent of its fuel to 30 percent to 35 percent, meaning the airline won't be locked to a price that could continue to fall.

The airline also strengthened its revenue stream in 2015 by increasing flight offerings from its Dallas headquarters at Love Field, a move that has touched the Las Vegas market. Southwest currently operates 33 flights a week between Dallas and McCarran, making it the 13th busiest Las Vegas market for the airline. The sudden growth was the result of the lifting of the Wright Amendment that prohibited Southwest from flying directly from Dallas to cities beyond Texas and adjacent states in October 2014.

Southwest also has received a boost from the rapid expansion of international flying — a factor that hasn't directly affected Las Vegas.

In 2015, Southwest launched service to four new international destinations, San Jose and Liberia, Costa Rica; Puerto Vallarta, Mexico; and Belize City, Belize. It also opened a new five-gate concourse at Houston's William P. Hobby Airport in October, relaunching international flights for the first time since 1969 at that airport.

Los Angeles International Airport will become Southwest's 11th international gateway in April when it begins flights to Liberia.

The airline hasn't ruled out someday offering international service from McCarran.

Southwest also made fleet announcements that assure steady growth in the years ahead. The company had 704 Boeing 737 jets in its fleet at the end of the year and announced a revised delivery date of new and previously owned planes to grow faster. The company will get 24 pre-owned 737-700s and 19 new larger-capacity 737-800s in the coming year while retiring four of its "classic" older jets.

Combined with a revised delivery schedule, Southwest plans to retire its classic 737-300s and -500s by the middle of 2018 instead of the previously announced 2021. The new planes not only will expand the airline's capacity but it will also increase cost-effectiveness since the new planes will be more fuel-efficient than the older existing planes.

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