We can now see clearly why Southwest Airlines (LUV) is the best performer in its class.
It is simply the best at capitalizing on cheap fuel prices.
Shares of Southwest jumped 3% in morning trading Thursday, after its CEO Gary Kelly unveiled a look inside last quarter's performance, including record-high margins and an earnings beat that lifted last year's net income to $2.4 billion -- smashing the prior earnings per share record by 75%.
Earnings per share of $0.90 beat Wall Street expectations by 1%, according to Bloomberg consensus data, and quarterly income of $591 million outpaced the pevious year's by 46%. And now, Southwest's exemplary margins are expected to allow Kelly to further hike shares through stock buybacks.
"Based on our current outlook, we expect strong free cash flow to continue in 2016 and intend to repurchase an additional $500 million of Southwest common stock under an accelerated share repurchase program, which will be launched soon," he said in Thursday's announcement.
Meanwhile competitors are falling short: Delta (DAL) and United (UAL) both missed Wall Street's earnings expectations by 1%, based on Bloomberg consensus figures. Delta booked $1.18 in earnings per share Tuesday; United followed with $2.54 in a Thursday release. American Airlines (AAL), which traded down 2% in Thursday morning trading, is next to report earnings -- next Friday.
Perhaps the most notable achievement that came out in Kelly's report was the huge decline in oil expenses. Southwest booked only $798 million for the quarter, down 32% from the same period in 2014.
Southwest shares are down 8% on the year -- significantly less than Delta and American's 10% drops, and much short of the 22% decline at United.
Part of the reason can be seen in Southwest's strong sales growth relative to peers, as its widened its stake in the domestic and international market.
Over the last six quarters, Southwest's revenue has climbed 4%. Over the same period, sales at Delta and United have fallen 15% and 14.5%, respectively.