Southwest swings to a loss in the first quarter, hurt by fewer passengers
Discount carrier Southwest Airlines Co. is the latest carrier to be hurt by the sluggish economy, swinging to a $91 million first-quarter loss on weak passenger demand.
The Dallas-based carrier lost 12 cents per diluted share for the quarter ended March 31, compared with year-earlier net income of $34 million or five cents per diluted share.
Excluding special charges of $71 million, Southwest lost $20 million or 3 cents per diluted share. Analysts polled by Bloomberg LP expected the company to earn 4 cents per diluted share.
Operating revenue fell 6.8 percent, to $2.36 billion from $2.53 billion in the year-earlier period.
The carrier’s special charges included hedge positions on fuel, which also caused Southwest to post losses in the last two quarters of 2008 after fuel prices fell below the rates it had locked in. Southwest’s fuel costs declined 16.2 percent to $1.76 per gallon in the first quarter. Fuel and oil expenses totaled $698 million in the quarter, down nearly 13 percent from the year-earlier period.
Southwest has begun to rebuild its 2009 and 2010 hedge positions “to provide protection against significant fuel price spikes,” Chairman, President and Chief Executive Officer Gary Kelly said in a conference call.
Southwest’s first-quarter performance was “disappointing” but “not surprising,” said Kelly, citing “a rapid weakening in passenger demand … particularly among business travelers.” The possibility of second-quarter revenue being better than the first is slim, he said, adding that “it could end up being worse.”
Analyst Daniel Ortwerth of Edward G. Jones & Co. said Southwest is a good company floundering in a bad economy.
“You’ve built a great ship, wonderfully designed, but you’ve gone off and sailed it in the stormiest part of the ocean, namely the airline industry,” he said.
Helane Becker, analyst for Jesup & Lamont Securities Corp., said she expected falling fuel prices and decreased capacity to improve the airline’s bottom line in the current and future quarters, adding “a lot depends on how April shapes up.”
After posting losses for three straight quarters, Southwest plans to reduce seating capacity by 5 percent—one percentage point more than originally planned—and lower planned capital spending by $1.4 billion for this year and 2010 combined, Kelly said.
“We have no commitment to grow our fleet and that is indefinite,” he said. “We might have to reduce our fleet.”
Analysts grilled Kelly during a conference call on Southwest’s decision not to introduce baggage fees in an effort to raise revenues as its competitors have done. Kelly said he’s reluctant to “become just another airline that nickels and dimes customers,” particularly at a time when people are “more price sensitive than ever.”
With demand dropping, Southwest has suspended hiring and frozen pay for executives and others in senior management. The employee “early-out program”—the carrier’s third such offer since 2004, according to spokeswoman Brandy King—is designed to “align headcount to current capacity needs,” Kelly said.
Despite the carrier’s financial results, it will start offering five flights from New York’s LaGuardia Airport to Chicago Midway Airport in June, adding five more from Boston’s Logan International Airport in August. Kelly said he expects this to provide “an enormous boost to Chicago business.”
Southwest’s stock closed Thursday at $7.10, down 54 cents or 7 percent from Wednesday’s close of $7.64.
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