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Southwest Airlines Co. (NYSE: LUV) may be one of the few remaining profitable airlines.  The company posted earnings this morning with a $34 million profit, or $0.05 EPS, and $0.06 EPS before one-time items.  Its revenues rose by 15% year over year to $2.53 Billion.  First Call had estimates of $0.01 EPS on $2.49 Billion in revenues.  Southwest did note that it would take possession of its 29 new planes for 2008 but is cutting 2009 deliveries in half to 14 and is putting off 2010 orders.  Bookings remained strong for May and June and it noted that unless the economy softens too much further, it expects per-passenger revenues to climb again in the coming quarter from last year.  Southwest saw its fuel prices rise by some 33%, and it is reviewing its flights to determine unprofitable flying.

Analysts that cover Southwest have a $0.20 EPS target for next quarter on $2.84 Billion in revenues, which seems a bit high in the current climate and in light of cancellations and charges that have already been seen.  But as of now, this may be the only profitable carrier and it has perhaps better brand loyalty than others.  Southwest shares are indicated up almost 1% pre-market.

Continental Airlines Inc. (NYSE: CAL) posted a loss of $80 million, or -$0.81 EPS, early this morning.  Outside of a gain on a small sale, it would have seen -$0.86 EPS, although this is actually slightly better than the -$0.93 EPS that First Call was expecting. Revenues rose by 17% year over year, but a fuel price surge of over 50% will bite into that in a hurry.  Continental is likely going to trim 5% of its capacity to focus on more profitable flying.  Analysts continue to expect a profit for Q2, although the fuel surge may create a need to bring those targets down.  As results were actually slightly above estimates, shares are up almost 2% pre-market.

Traders just are not reacting well to the Delta (NYSE: DAL) and Northwest (NYSE: NWA) merger, with Northwest shares down more than 10% since last Friday. Shares of Delta (DAL) are also down more than 10% since last Friday.  As one trader sent a quote this week to us: "Great, the combined giant can lose half the money and twice the baggage combined, and then hope they make it up on volume."

AMR Corp. (NYSE: AMR), American Airlines’ parent, posted a loss of $328 million on Wednesday led by fuel prices.  That didn’t even include the latest SNAFU for its massive flight cancellations.  It maintains that it can compete whether it pursues a merger of its own or not, although it is selling off 90% of its investment arm called American Beacon Advisors for some $480 million.

Jon C. Ogg
April 17, 2008

Jon Ogg produces the Special Situation Investing Newsletter.  He can be reached at [email protected] and he does not own securities in the companies he covers.