March 13, 2012 / 3:33 PM / 7 years ago

Southwest Air does not see 1st-quarter profit due to fuel

(Reuters) - Southwest Airlines Co (LUV.N) does not expect to report a profit for the current quarter because of high fuel prices, the company’s finance chief said on Tuesday.

A Southwest Airlines Boeing 737 passenger jet takes off at Midway Airport in Chicago, Illinois in this July 24, 2008 file photo. REUTERS/Jeff Haynes/Files

The carrier, which acquired AirTran last year, said it expects fuel costs of around $3.50 a gallon for the first quarter, about 15 cents higher than its prior forecast.

“For March, bookings remain good but we are cautious,” Southwest Chief Financial Officer Laura Wright told a JPMorgan Aviation, Transportation and Defense conference that was broadcast over the Internet.

Southwest said passenger revenue per available seat mile, an important measure, rose a weaker-than-expected 4 percent after a 7 percent rise for January. Wright said bookings toward the end of February were weaker.

She added that it was too early to discern if the February softness was a “sign of something going on in the economy” or an anomaly.

Delta Air Lines (DAL.N), meanwhile, said it expects margins to improve in the first quarter despite higher fuel prices as business travel continues to hold up. It added that it has offered new early retirement and severance programs for employees in a bid to cut non-fuel costs.

“We expect not only will fuel prices stay high, we expect they’re going to continue to rise over time and we’re building our model accordingly,” Delta President Edward Bastian told the JPMorgan conference.

Delta said it expects a first-quarter operating margin of 1 percent to 3 percent, down a little bit from what it forecast in January. While fuel costs are expected to rise $250 million in the period, revenue should outpace that by rising $550 million, Bastian added.

Delta said it expects unit revenue to rise 11 to 12 percent for the month of March.

“We still see a very solid revenue and demand path for us in the current month,” Bastian said.

The airline industry has struggled to maintain stability after a years-long downturn exacerbated by volatile fuel prices. In the past year, carriers have raised prices, retired less fuel-efficient planes and cut capacity to blunt the effects of higher fuel.

Oil prices traded up on Tuesday, with Brent crude near $126, as investors awaited comments from the U.S. Federal Reserve that may confirm an improving outlook.

Shares of Southwest eased 4 cents to $8.24 in late morning trading while Delta was up 1.2 percent at $9.30. Other major airlines were up a bit, with industry leader United Continental Holdings UAL.N up 2 cents at $19.64 and US Airways Group LCC.N up 2.3 percent at $7.05.

Reporting by Karen Jacobs; Editing by Gerald E. McCormick and Mark Porter

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