Southwest posts third consecutive loss

Southwest Airlines Co. reported its third consecutive quarterly loss yesterday and said it would trim staff through voluntary buyouts.

The low-fare carrier, which is Philadelphia's second-busiest airline, said it slashed capital spending and had a freeze on hiring and pay for senior management.

"We have reduced our flying this year; we need to right-size our staffing," chief executive officer Gary Kelly said during an earnings conference call.

The Dallas airline has reduced daily flights about 5.5 percent since November and plans to trim capacity - seats and flights - 5 percent this year.

Since August 2007, Southwest has eliminated more than 500 unprofitable flights, but it added 300 flights to new markets, including San Francisco, Denver, and Minneapolis; in June it will add La Guardia Airport in New York and in August, Boston.

Management said the coming months would be difficult because in May and June last year the carrier raised fares. This year, the airline cut fares to spur travel.

Southwest, which transports 14 percent of passengers at Philadelphia International Airport, said it would offer voluntary buyouts to nearly all 35,500 employees.

Chief financial officer Laura Wright said there was no set target of how many employees the company hoped would leave. "We don't know how many people will take this offer in this environment," she said.

Southwest lost $91 million, or 12 cents a share, in the quarter that ended March 31, compared with a profit of $34 million, or 5 cents a share, a year earlier.

Like other airlines, Southwest has had a sharp slowdown in business travel. Those passengers typically book close to travel time and at higher fares.

In February, passenger traffic "continued to get worse on a weekly basis," Kelly said. "That seems to have bottomed out in March," but "I'm certainly not ready to call the bottom just yet."

About $71 million in losses in the latest quarter were attributed to Southwest's fuel hedges, which are contracts that lock in fuel prices far in advance.

Hedging contracts benefited Southwest when crude oil peaked at $147 a barrel in July but hurt the airline later when jet-fuel prices fell precipitously. Oil is now around $50 a barrel.

Excluding write-offs in its fuel-hedging program, Southwest said it would have lost $20 million, or 3 cents a share, on revenue of $2.36 billion. Revenue in the first quarter of 2008 was $2.53 billion.

Analysts, who exclude special items in their projections, had expected a first-quarter loss of 1 cent on revenue of $2.40 billion.

JPMorgan Chase & Co. analysts Jamie Baker and Mark Streeter said in a research note that Southwest's voluntary employee buyout was a good start, but that in this recession, "we do not anticipate a deluge of takers."

The analysts said they were modestly alarmed by the financial terms of Southwest's new pilot contract, which keeps its 737 crews "the highest paid in the nation measured by hourly wages."

The contract with pilots obligates management to add six aircraft next year and an additional 27 in 2011 and 2012. "While 2009's downturn will hopefully be an unpleasant memory by such time, we generally prefer airlines to avoid making contractual growth promises to employees," the analysts said.

Southwest shares closed down 54 cents, or 7.07 percent, to $7.10.