Southwest Loss Bigger Than Expected, Shares Drop
Southwest Airlines posted a larger-than-expected quarterly loss on Thursday as businesses cut travel, sending its shares tumbling 10 percent, and the low-cost carrier said it would offer employee buyouts in a bid to reduce costs.
The Dallas-based company also said it expected its capacity, as measured in available seat miles, to decline by about 5 percent from 2008. This represents a sharper cut than previously announced in January.
The carrier posted a loss of USD$91 million, or 12 cents a share, including USD$71 million on the falling value of its fuel hedges, for the first quarter. This compares with a year-earlier net profit of USD$34 million, or 5 cents per share.
Results marked the third-straight quarterly net loss for the company, which is known for its thriftiness and ability to weather economic hardship. Southwest previously enjoyed more than 17 years of consecutive quarterly profits.
"It's surprising for some people that were investing in Southwest given their history of weathering these storms better and being able to remain profitable under challenging circumstances," said Matt Jacob, analyst for Majestic Research. "It does show that this (weakness) is impacting the entire industry."
Southwest, the second major airline to report during this earnings season, said total operating revenue slipped 6.8 percent to about USD$2.4 billion.
Based on booking and revenue trends so far, Southwest expects another year-over-year decline in operating unit revenue, or revenue per available seat mile (RASM), in the second quarter.
"We face the toughest revenue environment in our history," CEO Gary Kelly said in a statement. He cited "a rapid weakening in passenger demand," especially among business travelers.
In New York Stock Exchange trade, Southwest stock shed 10 percent to USD$6.87, its sharpest percentage drop since January 23.
The airline industry has been hit hard this year as businesses and consumers reduced their travel. On Wednesday, American Airlines parent AMR reported a quarterly loss of USD$375 million.
Southwest said its capacity -- the number of seats for sale -- declined by 4.1 percent, outpaced by an 8.1 percent decline in traffic. Still, Southwest's load factor inched up to 69.9 percent from 69.8 percent.
To further cope with falling demand, Southwest said it planned to cut capital spending by about USD$1.4 billion for 2009 and 2010 by deferring aircraft deliveries, accelerating aircraft retirements and suspending plans to expand capacity.
The company still plans to accept 13 new Boeing 737-700s in 2009 and will retire 15 aircraft by the end of the year.
Southwest also said it has put in place a hiring freeze and frozen pay for officers and senior management. It said it would offer a systemwide voluntary "early-out" program to its workers to reduce and align head count with current capacity needs.
Nearly all of Southwest's approximately 35,000 employees are eligible for the program and must elect to participate by June 19. This is the company's third buyout program and it will include cash, medical and dental benefits based on years of service, company representatives said.
With oil prices on the rise, Southwest said it had begun to rebuild its 2009 and 2010 hedge positions. It has derivative contracts in place for about 50 percent of its second-quarter 2009 estimated fuel consumption, capped at about USD$66 a barrel.
