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Thu, Apr 16, 2009

Southwest Posts Larger-Than-Expected Q1 Loss

Streak Of Profitable Quarters Ends At 71; Workforce Reductions Coming

As if we all needed another sign how awful the economy has been of late. On Thursday, Southwest Airlines reported a first quarter 2009 net loss of $91 million... its third straight quarterly loss, and the first time in nearly 18 years the carrier wasn't able to juggle the numbers to show at least a small profit.

The Q1 2009 hit works out to a 12 cent loss per diluted share, compared to net income of $34 million, or $.05 per diluted share, for first quarter 2008. That includes $71 million net in special charges, related to non-cash, mark-to-market and other items associated with the airline's fuel hedge portfolio.

Excluding special items -- and this is where Southwest has been able to eck out "profits" in the past -- the Dallas, TX-based carrier's first quarter 2009 net loss was $20 million, or $.03 loss per diluted share, compared to net income of $43 million, or $.06 per diluted share, in first quarter 2008.

Operating losses for first quarter 2009 totalled $50 million, compared to operating income of $88 million in first quarter 2008. Excluding special items, operating income was $31 million in first quarter 2009 compared to $99 million for the same period last year.

"Our first quarter 2009 financial results are disappointing, but not surprising given the current economic environment," said Southwest CEO Gary Kelly. "We face 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. Although competitively strong and financially resilient, we are not immune to the challenges the worldwide recession is having on air travel."

Further proof of that lack of immunity came ahead of Southwest's formal announcement, as the carrier told employees Thursday morning it would reduce worker headcount in the coming months through a systemwide voluntary early-out program. The airline has also frozen all hiring, and capped executive pay raises for the foreseeable future.

Those decrees came as Kelly (above) conceded Southwest will suspend all further plans to grow capacity, past this week's announcement of the start of service into Boston. Increased service on new or existing routes will come at the expense of decreased service on others. The story is much the same when it comes to new aircraft deliveries, as 2009 will see Southwest accepting 13 new Boeing 737-700s, while retiring 15 older planes.

One year ago, ANN noted that in many respects, Southwest serves as the proverbial canary in the mineshaft... in that if it appears "sick," other carriers had better pay close attention to their own "health."

Well, the canary isn't dead yet... but it does appear to have lost several feathers, and may even have a slight cough. Other airlines should probably be very concerned.

FMI: www.southwest.com

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