Southwest Airlines Co.'s fourth-quarter net income slipped 10 percent due to the effect of fuel-hedging contracts that lost value as oil prices tumbled, but the company's results beat Wall Street expectations.
Southwest said Thursday that it earned $190 million despite $282 million in write-downs on the fuel contracts.
Adjusted to exclude those and other one-time costs and gains, Southwest said adjusted profit was a record $404 million, or 59 cents per share. Analysts expected 55 cents per share, according to FactSet.
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Revenue increased 4.5 percent to $4.63 billion, above the analaysts' forecast of $4.59 billion.
Southwest shares rose $1.87, or 4.5 percent, to $43.70 in trading before the opening bell.
Prices for oil and jet fuel have dropped by half in recent months. That reduces Southwest's spending -- labor surpassed fuel as the airline's biggest single expense in 2014. And it should get better -- Southwest expects to spend less than $1.90 per gallon in the January-through-March period, 40 percent less than a year ago.
But falling oil prices also lower the value of contracts that Southwest made to hedge against the kind of spike in energy prices that occurred in 2008. In the fourth quarter, Southwest booked a $282 million charge to write down the value of its hedging deals, resulting in the decline in net income.
Chairman and CEO Gary Kelly said travel demand remained strong -- the average flight in the quarter was 82 percent full, up 1.6 percentage points over the same period a year earlier. Kelly said he was pleased with booking trends so far in January, and the Dallas company expects first-quarter 2015 passenger revenue per mile to grow 6 percent.