Profits Rise Despite Fewer Travelers on Southwest

Revenue rose between 5 and 6 percent last month compared to May 2011

Friday, Jun 8, 2012  |  Updated 6:34 AM CDT
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Profits Rise Despite Fewer Travelers on Southwest

Passengers on Southwest Airlines Co. flew fewer miles in May, but a key measure of revenue rose in a sign that airlines are still benefiting from higher fares despite the weak economy.

Airlines calculate how much revenue they make for every mile flown by each seat in their fleet. That seemingly arcane statistic is closely watched by analysts and investors as a sign of pricing power and travel demand.

Southwest said Thursday that the revenue figure rose by between 5 and 6 percent last month compared with May 2011. That was slightly better than some analysts had predicted. Barclays estimated a gain of 4 to 5 percent.

Robert Mann, an airline consultant in Port Washington, N.Y., estimated that based on the revenue-measure gain, Southwest fares rose by about 7 percent or 8 percent, which he said was ideal.

"Add in the effects of moderating fuel prices and you have a winner," Mann said of the Southwest monthly report.

Southwest doesn't release monthly figures for average fares, but in the first three months of the year its average one-way ticket rose 4.9 percent to $146.44. Airlines imposed broad fare increases about a dozen times last year and three times so far in 2012, usually citing the need to cover higher fuel costs.

The Southwest report could ease fears that travel demand is weakening because of the sluggish economy. Those fears were stoked this week when Delta Air Lines Inc. reported slightly disappointing "revenue per available seat mile" as the statistic is called, which led to a sell-off of airline stocks on Monday.

Southwest shares rose 11 cents to $8.91 in afternoon trading Thursday. Other airline stocks were mixed, with United, Delta, US Airways and Spirit shares down and JetBlue, Alaska and Allegiant up.

Despite the report's upbeat revenue news, Southwest passengers flew less last month. Paying passengers flew 8.97 billion miles last month, down 2.6 percent from May 2011.

Southwest has been cutting passenger-carrying capacity -- down 0.9 percent in May -- but because traffic fell faster than Southwest reduced flying, there were a few more empty seats.

Most were likely they were middle seats, however. Flights were still 81.3 percent full on average. While that was down from 82.7 percent a year ago, it was still high by Southwest's historical standards.

The figures included Southwest's AirTran Airways subsidiary.

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