Southwest Airlines reports record earnings in 2016
Despite a 2.6 percent fourth-quarter drop in net income, Southwest Airlines, the busiest commercial air carrier at McCarran International Airport, reported record annual earnings in 2016.
The Dallas-based airline, which averages 200 flights a day at the Las Vegas airport and provides nearly 40 percent of the flights there, beat Wall Street estimates en route to its 44th straight year of profitability.
“Our total operating revenues reached a record $20.4 billion, with sustained demand for our legendary low fares and superior customer service,” Southwest chairman and CEO Gary Kelly said in a statement accompanying the company’s earnings report. “Our profit margins were very strong, and our return on investment capital was a near-record 30 percent.”
For the quarter that ended Dec. 31, Southwest reported net income of $522 million, 84 cents a share, on revenue of $5.08 billion. That compared with net income of $536 million, 82 cents a share, on revenue of $4.98 billion for the same quarter a year earlier. Earnings per share rose because the number of outstanding shares fell.
Earnings fell as a result of increasing expenses, including fuel and higher labor costs from amended union contracts. Kelly also said the company’s acceleration of the retirement of the older models of its Boeing 737 fleet increased depreciation costs.
While Southwest has expanded its international presence with new service to three cities in Cuba and new routes from Los Angeles International Airport to Cancun, Puerto Vallarta and Los Cabos, Mexico, the airline has opted to stand pat in Las Vegas.
Southwest filed an application with the U.S. Department of Transportation to serve Owen Roberts International Airport in Grand Cayman and announced plans to begin service to Cincinnati in June. It abandoned service in Dayton and Akron-Canton, Ohio.
In the past year, Southwest has added one flight a week to its Las Vegas schedule, but it has no nonstop international routes from McCarran.
Excluding fuel, special items and profit-sharing expenses, operating expenses climbed 9.7 percent in the quarter compared with the same period a year ago, primarily as a result of higher pay to pilots and flight attendants, whose contracts became amendable in September 2012 and June 2013, respectively.
With the new contracts in place, costs are expected to ease by the fourth quarter of 2017.
The airline also saw higher expenses as a result of the accelerated retirement of the airline’s Boeing 737-300 jets. Those expenses also are expected to ease as the airline takes on more fuel-efficient -700 and -800 series jets to replace them.
The airline also expects cost savings when it fully implements its new reservation system in May. The company began implementing the system in December for travel on and after May 9 and Kelly described the deployment as “virtually flawless.”
Shares of Southwest Airlines rose on Thursday, gaining $4.46, or 9.02 percent, to close at $53.92, according to Google Finance.
Contact Richard N. Velotta at rvelotta@reviewjournal.com or 702-477-3893. Follow @RickVelotta on Twitter.
