Southwest, United surprise with quarterly profits

Airline stocks were mixed today after Southwest Airlines Co. and United Airlines reported a small quarterly profit despite the economy's ravages on air travel.

Southwest, Philadelphia's second-busiest airline, posted a $54 million profit for the quarter ended June 30, or 7 cents a share, down sharply from the $321 million, or 44 cents a share, the Dallas-based carrier earned a year ago.

"Based on weak travel demand and fuel price volatility, we cannot predict a profitable third quarter," said Gary C. Kelly, Southwest chairman and chief executive.

Excluding onetime items, Southwest said it earned 8 cents a share. Analysts, whose estimates exclude onetime items, expected earnings of 7 cents a share.

Kelly said 1,400 employees, about 4 percent of Southwest's workforce, have accepted voluntary buyouts to leave the company, starting July 31.

Chicago-based United Airlines reported today a $28 million second-quarter profit based on fuel hedge gains and other onetime items.

United announced it will cut international capacity - seats and flights - by an additional 7 percent after Labor Day. United earned 19 cents a share in the three months ended June 30, compared with a loss of $2.7 billion, or $21.57 a share, in the latest quarter.

United's revenue fell 25.2 percent to $4.02 billion from $5.37 billion a year earlier. Analysts had been expecting revenue of $4.04 billion in the latest quarter.

Excluding onetime items, United said it lost $2.23 a share in the quarter. Analysts had been expecting a loss of $2.61 a share.

Continental Airlines today posted a $213 million loss, or $1.72 per share, compared with a loss of $5 million, or 5 cents a share, in the second quarter a year ago.

Continental announced it will cut 1,700 jobs, or 3.4 percent of its workforce, and raise fees for checking bags.

Excluding $44 million in special charges, the Houston-based carrier lost $169 million, or $1.36 per share. Analysts had expected a loss of $1.35 per share, excluding charges.

Continental said its financial results were hurt by "significant declines in high yield traffic" as business passengers did not travel, or bought lower-cost economy tickets.

The swine flu outbreak devastated travel to Mexico in May and cost Continental $50 million in lost revenue.

Revenue for Continental's latest quarter was $3.1 billion, a decrease of 22.7 percent compared with the period last year.

Continental plans to raise $100 million annually by increasing domestic checked-bag fees by $5 to $20 for customers who do not prepay online for travel starting Aug. 19.

Southwest said it will further cut capacity - seats and flights - by 5 percent to 6 percent this year, and said if travel does not rebound significantly, revenue in the third quarter will decline even more than in the second quarter.

"Our outlook for the next three quarters is cautious," Kelly said.

Southwest's revenue fell 8.8 percent to $2.62 billion from $2.9 billion in the June quarter a year ago. To entice passengers, the airline has aggressively discounted fares.

Southwest shares were down 18 cents, or about 8.4 percent, to $6.69 in midday trading; United shares were up 18 cents, or 5.1 percent, to $3.69; and Continental shares were down 95 cents, or about 9.3 percent, to $9.22.

Contact staff writer Linda Loyd at 215-854-2831 or lloyd@phillynews.com.