Dallas-based Southwest, the No. 4 U.S. airline by traffic, said its quarterly profit jumped nearly 13% to $511 million, on a 9% increase in revenue to $4.8 billion.
“This is absolutely the best start to a year we’ve had in two decades,” said Gary Kelly, Southwest’s chairman and chief executive.
The discount airline, which had an 18.7% pretax margin in the latest quarter, said it expects positive unit revenue in the current quarter, despite softer prices.
Alaska Air Group, parent of Alaska Airlines, said its profit rose 23% to $184 million, on a 6% increase in revenue to $1.3 billion. The Seattle-based company, the sixth-largest U.S. airline by traffic, had a pretax margin of 21.5% in the latest period, its seventh consecutive profit for the seasonally weak first quarter. But, like most big carriers, its unit revenue for the quarter—the amount it collects for each seat flown a mile—declined by 6% compared with a year earlier.
Early this month, Alaska Air Group said it planned to acquire Virgin America Inc. for $2.6 billion. The combination, if approved by Virgin America shareholders and antitrust regulators, would vault the combined carrier to fifth-largest by traffic, displacing JetBlue Airways Corp. from that perch. JetBlue competed to acquire Virgin America but dropped out when the price was bid up. An Alaska-Virgin alliance would bolster the airlines’ West Coast presence.
In a conference call on Thursday, Alaska Air Group CEO Brad Tilden said he is hoping regulators grant a “swift clearance to close, which could be 60 days or less.” Even if the Justice Department decides the deal needs a closer look, Mr. Tilden said, “we hope to have clearance well before the end of the year.”
The two carriers submitted paperwork last week) outlining the transaction to the government. Kyle Levine, Alaska Air Group’s general counsel, said of the nascent regulatory review, “So far, so good. We’re answering their questions. We’re working really hard to show them why we think this is such a good combination for consumers and competition.”
Alaska Air Group plans to raise $2 billion in new debt to fund the purchase, along with $600 million of cash. Asked about the financing, the company told analysts that the loan will be 100% secured by aircraft, as that will give it the lowest interest rate. The company has more than 70 new Boeing Co. 737s that are unencumbered.
Initial talks with potential lenders “are very encouraging, both in terms of the number and diversity of lenders that want to work with us,” said Brandon Pedersen, the chief financial officer.
Southwest’s Mr. Kelly said he couldn’t comment on whether the combination would have any effect on his company, already a large operator along the West Coast. “We’ll wait and see what the government approval process reveals,” he said. “If there are assets for sale, we’ll do our duty and look at them.”
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