Apr 21, 5:04 PM EDT

Southwest Airlines says 1st-quarter net income rises to $511 million on lower fuel prices, fewer empty seats


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DALLAS (AP) -- Southwest Airlines packed even more people on its planes, notched a record first-quarter profit of $511 million, and said solid bookings have continued into April.

The Dallas carrier topped Wall Street expectations, and Southwest shares rose on Thursday while every other major U.S. airline stock fell.

Southwest has been adding flights and bigger planes, contributing to investor concern about fast growth leading to lower prices. Indeed, Southwest's average fare dipped 3 percent to $153.75 each way.

Passenger traffic grew faster than Southwest added seats, however, and 80.5 percent of seats were filled on the average flight, a Southwest record for the first quarter in what is typically a weak time of year for travel.

CEO Gary Kelly said that the solid bookings and revenue trends continued in April. For the second quarter, he predicted modest growth in revenue for every mile passengers fly - American, Delta and United all saw that number shrink from last year.

Southwest's $511 million profit compared with $453 million a year earlier. Excluding one-time gains and charges, the company said it earned 88 cents per share, which was 4 cents better than analysts had expected, according to polls by Zacks Investment Research and FactSet.

Revenue rose 9 percent to $4.83 billion.

Kelly called it the best start that Southwest has had to a year in more than two decades.

Southwest spent $852 million on fuel in the quarter and continued to get a break from lower oil prices. However, its fuel savings of 3 percent were slimmer than at other airlines because of hedging contracts, which act like insurance against an oil price spike. Southwest reported $275 million in hedging losses, enough to boost its all-in cost of fuel from $1.22 to $1.78 a gallon.

Labor is now easily Southwest's biggest expense, and that grew nearly 9 percent in the quarter, to $1.54 billion.

Southwest also announced that it will speed up the retirement of its oldest Boeing 737 models by one year, to 2017. That way the old 737-300s will be gone before Southwest begins receiving the newest version of the plane, called the 737 Max, from Boeing.

Kelly said that would reduce planned growth in 2017.

Shares of Southwest Airlines Co., the nation's fourth-biggest airline, gained 68 cents to close at $47.73.

Compared with the 1990s when it was a stock market favorite, Southwest today faces tougher competition on all sides.

A new breed of ultra-low-cost carriers like Spirit can undercut it on fares. Other rivals are perceived to have better amenities, like JetBlue Airways, or better operations, like Alaska Airlines. The big three of American, Delta and United have cut their costs and can compete better with Southwest for leisure travelers while retaining an advantage in corporate accounts.

Southwest is in drawn-out negotiations with unions that could lead to higher labor expenses.

But the airline retains a loyal customer base and claims to be gaining passengers by not charging fees for checked bags and ticket changes.

Barclays analyst David E. Fintzen, who recently upgraded the carrier to "neutral," estimates that Southwest has taken about $1.6 billion in revenue away from other U.S. airlines since the peak of the industry's last cycle. Fintzen and Credit Suisse's Julie Yates say the Dallas carrier could do better in a recession than airlines that depend more on high-end business travel.

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