Low-cost pioneer feels the pinch

17th Apr 2009

Southwest Airlines, the world’s first and largest low-cost carrier, is facing “the toughest revenue environment” in its history, and has posted its first quarterly loss in 18 years.

Chief executive, Gary Kelly, described the airline’s performance in the period as “disappointing” as it unveiled worse-than-expected results due to a rapid softening in passenger demand, particularly among business travellers.The group racked up a net quarterly loss of $91m from a net profit of $34m in the same period last year.

The airline said it was planning to cut jobs across the group through a programme of voluntary redundancies. It was also embarking a hiring freeze and is freezing pay of senior management.

It had “significantly” revised its planned capital spending by US$1.4bn for 2009 and 2010 by deferring new aircraft deliveries from Boeing. It was also accelerating the retirement of older aircraft and suspending plans to expand capacity.

The result was depressed by special charges of $71m for non-cash, mark-to-market losses incurred by its extensive fuel hedging programme, which has been hit by the plunge in fuel prices from the record peak last summer.


Its financial performance deteriorated in spite of a 16 per cent reduction in its jet fuel costs to $1.76 a gallon, which included paying $65m to settle unfavourable fuel hedging contracts.

The airline said it was planning to cut capacity by about 5 percent this year. It was planning to take delivery of 13 new Boeing 737-700 jets this year and to retire 15 older aircraft.


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