Southwest Airlines reports a 3Q loss on special items, as revenue falls 7.8 pct
By Joshua Freed, APThursday, October 15, 2009
Southwest reports 3Q loss as revenue falls 7.8 pct
Southwest Airlines lost $16 million during the third quarter, and its CEO said there’s no sign that business travel is on the verge of picking up.
“There’s no reason to believe business travel will return anytime soon to help bail us out,” said Gary C. Kelly, Southwest’s chairman, president, and CEO.
Southwest and other airlines have kept planes full with discounts. But many of those travelers have been vacationers looking for deals. Freer-spending business travel has dropped off sharply, making it hard for airlines to turn a profit even on strong traffic.
The airline reported that about 17 percent of its passengers paid the full fare instead of discounted fares, down from 24 percent during the same period last year.
Southwest pinned the quarterly loss on fuel hedges and an early retirement program. Not counting those, it would have made a $23 million profit. Revenue fell 7.8 percent to $2.67 billion.
Traffic rose 4.7 percent for the quarter. Even with more customers, Southwest trimmed unprofitable routes and capacity dropped 5.8 percent for the quarter. It can be hard to cut costs as fast as flying, though, and Southwest’s unit costs — the expense in flying one person one mile — rose 6.6 percent from a year ago, not counting fuel. Southwest said its unit costs will keep rising as it cuts fourth-quarter capacity by 8 percent.
Kelly said Southwest still has no plans to charge for checking a first or second bag. He said he believes Southwest is picking up business from other carriers that are charging those baggage fees.
Southwest’s fuel hedges got it through last year’s fuel price spike unscathed. But they’re costing it money now, including $78 million in the third quarter to settle fuel price bets that went the wrong way. Southwest said that as of Wednesday it had hedged 45 percent of its fourth-quarter fuel and 65 percent of its 2010 fuel.
That means fuel hedges could play a big roll in Southwest’s finances again next year, depending on where prices go. If they rise, Southwest could again make money on its hedges, or at least break even. But if fuel prices stay where they are now those hedges could cost Southwest a lot. Southwest said its 2010 hedges would have it paying the equivalent of $2.40 per gallon. It would have paid $1.91 per gallon during the third quarter if not for hedges.
Southwest said its fuel hedges for the rest of this year through 2013 have a net liability of about $526 million.
Dallas-based Southwest’s loss for the quarter worked out to 2 cents per share. Not counting special items its profit was 3 cents per share, a penny ahead of the expectations of analysts surveyed by Thomson Reuters.
During the same period last year Southwest lost $120 million.
Southwest said that as of Wednesday it had $2.4 billion in cash on hand.
Southwest shares fell 44 cents, or 4.4 percent, to $9.60 in midday trading. In the past three months, Southwest shares have risen about 37 percent, from $7.07 on July 15.
Tags: Business Travel, Travel