Southwest’s revenue takes off

DALLAS – Southwest Airlines Co.’s earnings climbed 41 percent in the third quarter on stronger summer travel demand, and the carrier said Monday it might add smaller planes and in-flight entertainment to meet tougher competition from low-cost rivals.

Southwest, the largest U.S. low-fare airline, said Monday it earned $106 million, or 13 cents per share, in the July-September period, up from $75 million, or 9 cents per share, a year ago.

The latest results matched the consensus forecast of analysts surveyed by Thomson First Call.

Revenue rose 11.6 percent to $1.55 billion from $1.39 billion a year earlier and was barely above the $1.53 billion forecast by analysts.

Chief executive James F. Parker attributed the jump in earnings to increased travel demand after major combat ended in Iraq.

The company said winter holiday bookings look promising and announced that it has moved up the delivery of five Boeing 737 jets from 2005 and 2006 to next year and agreed to lease another jet next year. Combined with previous moves, that will increase Southwest’s fleet of 385 jets by 30, which will be enough to add service to at least one more city, said chief financial officer Gary Kelly.

Kelly said the airline will increase capacity by 7 percent next year and about 10 percent in 2005 largely to meet growing competition from other low-cost carriers.

One of those rivals, JetBlue Airways Corp., has raised its profile by offering in-flight television and leather seats – comforts not available on Southwest.

Kelly said Southwest has for several months been studying “in-flight entertainment options.” He declined to be more specific.

“We want to do what meets customers’ needs. We want to offer things that customers are willing to pay for, and we still want to be the low-cost producer,” Kelly said. He said in-flight food was not an option.

Kelly also said the company is beginning to look into augmenting its fleet with smaller jets that might make service to smaller cities feasible – a strategy JetBlue embarked on earlier this year when it ordered 100 new 100-seat jets from Brazilian plane maker Embraer.

Southwest said passenger traffic rose 7.7 percent from a year ago, outstripping a 3.4 percent increase in capacity. As a result, planes were slightly fuller, at 70.5 percent occupancy. Southwest also reported a 3.8 percent increase in revenue per mile flown from a combination of less discounting and targeted fare increases.

Expenses rose 5.2 percent to $1.37 billion in the third quarter, mostly due to higher labor and jet fuel costs.