1Q: Slim profit for Southwest, big loss for Continental

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DALLAS — Boosted by a modest rebound in business travel, Southwest Airlines Co.

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DALLAS — Boosted by a modest rebound in business travel, Southwest Airlines Co. eked out a slim profit in the first quarter, while Continental became the third major carrier this week to post a big loss for the same period.

The first quarter is typically the slowest in the airline business, falling between the winter holidays and summer vacations. Analysts expect things to improve the rest of this year as the economy gets stronger and consumers and businesses buy more airline tickets.

Southwest CEO Gary Kelly provided some reassurance for that view on Thursday, saying that bookings for May and June look “very strong.”

Kelly said Southwest saw a modest pickup in full-fare traffic as the January-to-March quarter went along. Southwest doesn’t have separate business-class seating on its planes, but it assumes that many of those full-fare customers are business travelers.

Southwest, which carries more U.S. passengers than any other airline, turned a profit because first-quarter revenue jumped 11.6 percent over the same period last year. But the gain was just $11 million — a penny per share — because of higher jet fuel costs.

Oil prices hovered around $83 a barrel on Thursday after a long climb that began in December 2008.

“What we’re worried about … is $120 crude oil,” Kelly said in an interview. “That’s where the company is in peril.”

Southwest expects its total fuel-related spending to rise another 3 percent to 5 percent in the second quarter, compared with the first quarter. Since fuel is second only to labor among Southwest’s costs, that will put even more pressure on the discount carrier to boost fares and cut costs where it can.

Southwest has reduced the number of employees per plane by 3 percent compared with a year ago, and it doesn’t plan to do any hiring this year.

Continental Airlines Inc., the nation’s fourth-largest carrier, didn’t match Southwest’s ability to earn money during the slow season. It lost $146 million in the first quarter — a wider loss than analysts expected.

Continental joined the two largest U.S. airlines in reporting big first-quarter losses this week despite an uptick in passenger traffic. Delta Air Lines Inc. lost $256 million, while American Airlines parent AMR Corp. lost $505 million.

The carriers took in more revenue than a year ago — at Houston-based Continental, sales rose 7 percent — but spent more on fuel too. Continental’s average price for a gallon of jet fuel jumped 17 percent.

CEO Jeff Smisek said the loss was disappointing, but rising revenue points to a slowly recovering global economy.

Continental is talking to United Airlines, the third-largest U.S. carrier, about combining in a deal that would create the world’s largest airline, according to people who have been briefed on the talks.

CEO Jeff Smisek declined to discuss possible deals other than to say that as responsible managers, his executives “are examining Continental’s options and will take whatever action we believe to be in the best interests of our co-workers, stockholders, customers and the communities we serve.”

Continental discussed combining with United in 2008 but walked away. High oil prices and the airlines’ weak financial condition made such a deal risky.

“United is a better airline than they were two years ago,” said Darryl Jenkins, a consultant who has worked for several of the leading carriers. “Before they were scary (as a potential partner), and now they’re not.”

Alaska Air Group Inc., which operates Alaska Airlines and Horizon Air, also reported first-quarter results Thursday — a profit of $5 million. Revenue rose 11.8 percent.

Alaska Airlines said it will add $5 to its fee for checking a first bag, bringing the fee to $20. The change takes effect for travel after June 15 on tickets bought starting May 1.

Baggage and other fees are increasingly important to the airlines. Continental expects bag fees to bring in $350 million this year.

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Editor in chief is Linda Hohnholz.