April 26, 2018 / 11:14 AM / a year ago

UPDATE 2-Tax benefits, strong demand lift Southwest Air first quarter

(Adds details from the filing, background)

By Alana Wise

NEW YORK, April 26 (Reuters) - Southwest Airlines Co reported an 18 percent increase in quarterly net profit on Thursday, as strong demand and changes to the U.S. corporate tax code boosted its bottom line.

Southwest, the carrier at the center of a mid-flight engine explosion last week that killed one passenger, posted a first-quarter profit of $438 million, excluding special items, up from $372 million a year earlier.

The airline posted earnings of 75 cents per share, topping the Wall Street consensus projection of 74 cents, according to Thomson Reuters I/B/E/S.

Southwest, the fourth largest U.S. carrier by passenger traffic, reported a modest increase in unit costs of 0.1 percent year over year. The carrier forecast a 1 percent to 2 percent increase in unit costs, excluding fuel and some items, in the current quarter.

Shares fell 3.6 percent in premarket trading.

The Dallas-based airline has been under intense scrutiny in the days since an engine on one of its Boeing 737 jets blew apart mid-flight, killing a passenger and raising concerns about the safety of similar engines.

"It remains a somber time for the Southwest Family following the Flight 1380 accident," Chief Executive Officer Gary Kelly said in a statement. "We continue to cooperate with the National Transportation Safety Board's thorough investigation to understand the cause of the accident."

The incident marked the first fatality on a U.S. commercial passenger airline since 2009, and the first such passenger death in Southwest's 51-year history.

Southwest has said that over the next month it would over begin inspecting other CFM56-7B engines, manufactured by CFM International, the engine involved in last week's accident.

It was not immediately clear exactly how much expenses related to the engine blowout would impact Southwest's bottom line over the next several months.

The carrier included preliminary estimates in its second quarter unit cost outlook, which also includes some pressure from employee wage and benefit increases.

Southwest has sent $5,000 checks to passengers of the April 17 flight and canceled dozens of other flights as part of its effort to voluntarily ramp up engine inspections.

The airline has thus far declined to answer questions about its CFM56-7B inspection program, including how many engines were inspected prior to the accident and if the engine that failed had been inspected.

A Southwest flight in August 2016 with the same type of CFM56-7B engine made a safe emergency landing in Pensacola, Florida, after a fan blade separated and debris ripped a hole above the left wing.

After that incident, the European agency gave airlines nine months to check engines. U.S. regulators were still were considering what to do after proposing some checks. (Reporting by Alana Wise; Editing by Jeffrey Benkoe and Chizu Nomiyama)

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