Southwest Loss Prompts Job-Cut Offers
Andrew Compart andrew_compart@aviationweek.com 
Southwest lost $91 million in the first quarter and is offering to pay employees to leave their jobs voluntarily so it can reduce its staffing, the airline reported today.
In its first quarter earnings release, Southwest also said it has implemented a hiring freeze and has frozen pay for its officers and senior management. As for the early-out program, Southwest CEO Gary Kelly said the intent is to "reduce and align headcount to current capacity needs."
The offer will be open to nearly all employees, who will be offered a combination of cash, health and travel benefits and will have until June 19 to decide whether to participate.
Southwest has never laid off employees, but it has offered early-out options before. It did a targeted early-out offer for reservations employees in 2004 when it consolidated reservation centers from nine to six, and a broader one that same year in which just over 1,000 employees participated, a Southwest spokeswoman said. In 2007, just over 600 senior employees made use of an early-out program targeted to them in an attempt to reduce the company's overall wage rates.
In a conference call on the first quarter earnings, Kelly said the airline has not set a target for how many employees it would accept in the newest round of early out offers, which it has dubbed "Freedom '09." Kelly suggested the airline will be satisfied with however many employees take it and is not anticipating any layoffs.
"However many people take it, it certainly will help us address the modest overstaffing problem we have," he said. The airline's headcount was up 2% year-over-year in the first quarter, even though it cut its capacity by 4.1%. With a hiring freeze, attrition also could contribute to Kelly's stated desire to bring those numbers "in synch." Southwest now anticipates a full-year capacity cut of 5%.
In explaining the struggles of an airline that has almost always been profitable--even in hard times--Kelly said the airline is facing "the toughest revenue environment in our history."
"A rapid weakening in passenger demand during first quarter, particularly among business travelers, led to our first quarter net loss," Kelly said. "Although competitively strong and financially resilient, we are not immune to the challenges the worldwide recession is having on air travel."
The first quarter results mark the third straight quarterly loss for a carrier that otherwise had a remarkable string of profitability. It has reported 36 consecutive years of profitability and its third quarter loss in 2008 was its first quarterly loss in six years. In the third and fourth quarters of 2008, however, the airline still turned a profit when special items such as fuel hedge value adjustments were excluded. That wasn't the case in the first quarter of 2009.
Southwest's first quarter loss of $91 million compared to a $34 million profit in the first quarter of 2008. Even excluding special items related to fuel hedges, the airline lost $20 million, and its first quarter operating loss of $50 million compared to an $88 million operating profit in the first quarter of 2008.
Southwest, however, also pointed to what it considered positive signs. Kelly said recent promotions and fare discounting have stimulated traffic, resulting in a record-high first quarter load factor for the carrier of 69.9%, even though Easter fell in April this year instead of March.
The airline's revenue fell 6.8% year-over-year, with yields down 2.8% and unit revenue down 2.9%, and Kelly said the airline expected another year-over-year decline in unit revenue in the second quarter, based on revenue and booking trends so far. But Kelly asserted that Southwest is still doing better than its competitors on revenue.
"Our revenue trends continue to outperform our U.S. competitors," Kelly said.
The airline also ended the quarter with $2.1 billion in cash and short-term investments.
Kelly also pointed to the early-out offer, the hiring and pay freezes and the airline's previously announced actions to reduce capital spending by about $1.4 billion in 2009 and 2010 by deferring aircraft deliveries, accelerating aircraft retirements and suspending plans to grow the airline's capacity.
"While our balance sheet is strong, we believe these actions, along with our previous decision to suspend growth plans, and our ongoing efforts to bolster our cash reserves, will enable us to weather the current financial storm and remain strong," he said.
Photo credit: Southwest
