Southwest Airlines Co. reported a surprisingly large loss in the first quarter due to weak traffic in the recession, and the company said it was freezing hiring and offering buyouts to employees to trim its work force.
Shares of the discount carrier were battered in Thursday trading, pushed down 54 cents, or 7.1 percent, to end at $7.10 after dipping to 6.58 earlier in the day.
Southwest said it lost $91 million in the first quarter, or 12 cents per share, including $71 million due to the falling value of its fuel hedges.
Without the fuel-hedges item the airline would have lost $20 million, or 3 cents per share, on $2.36 billion in revenue, a 6.8 percent decline. A year ago, the company earned $43 million, or 6 cents per share, excluding special items.
Analysts, who usually exclude items from their forecasts, had expected Southwest to lose a penny per share on revenue of $2.4 billion in the first quarter, according to a survey by Thomson Reuters.
Over the first three months of the year, Southwest's traffic fell 4 percent, a smaller decline than at most other U.S. airlines. And traffic seemed to stabilize in March, declining just 0.4 percent from March 2008.
But the more-lucrative business travel remained weak, contributing to the loss at Dallas-based Southwest, which went 17 years without a losing quarter until last fall but now has posted three straight losing periods.
Sales of higher-priced tickets — those bought close to the day of travel — fell sharply in February and haven't recovered, officials said.
Chief Executive Gary C. Kelly called the financial results "disappointing but not surprising given the current economic environment." He said it was the toughest revenue environment in the company's history.
Kelly also said he saw no reason to expect business travel to improve anytime soon.
Revenue per available seat, a key measure of earning power in the airline industry, fell 2.9 percent. The company said it expects another decline in so-called unit revenue for the second quarter — maybe worse than the January-March drop, Kelly said.
To adjust, the company is planning to cut capital spending through 2010 by $1.4 billion by delaying aircraft deliveries, retiring some planes sooner than scheduled and suspending plans to increase capacity.
Southwest also froze hiring and executive pay, and it told employees it would offer voluntary buyouts to all its 35,000 workers except top officials.
Kelly said the airline is "modestly overstaffed" but declined to say how many jobs he wants to cut. In 2004 and 2007, Southwest offered employees cash, health insurance and travel benefits if they would leave. In 2007, less than 10 percent of eligible employees took the bait, and that was during better times when workers were more confident of finding another job.
Southwest might even ask its union workers to forgo pay raises that they recently won in contract negotiations. Kelly admitted it would be awkward to ask workers to give up the raises, but "if we need relief we'll seek that."
Mechanics recently ratified a contract calling for 17 percent in raises and bonuses over four years. Pilots, flight attendants and other workers are voting on tentative contracts that the unions say include raises.
Southwest has never made layoffs, but Kelly said it couldn't avoid them if it had to ground 50 planes, or about 9 percent of the fleet. The company predicts it will cut capacity 5 percent and reduce its fleet by two, to 535 by year end.
Kelly said the airline was going ahead with already announced expansion plans, which include new service at New York's LaGuardia Airport and Boston's Logan Airport later this year.
Lower oil prices reduced Southwest's fuel bill by 16.2 percent. But the company's once-prized fuel hedges, which protected Southwest when oil prices were rising, again turned negative.
The company paid $65 million to settle derivative contracts tied to energy in the first quarter. Southwest, however, is worried that oil prices will rise again — they have climbed about 30 percent since mid-February but are barely one-third of their July 2008 high — so it started to rebuild hedges for this year and 2010.
For the second quarter, Southwest has contracts that would cap about 50 percent of its fuel needs at the equivalent of $66 a barrel for crude oil — still above current prices of around $50 a barrel. The company hedged 40 percent of its fuel needs for the rest of this year and 30 percent for next year at even higher caps.
Southwest said the new hedges don't add new cash-collateral requirements.
Kevin Crissey, an analyst for UBS, called Southwest's second-quarter outlook weak and suggested that Southwest's disappointing revenue was a bad sign for other airlines.
Southwest's results came a day after American Airlines parent AMR Corp. reported a $375 million loss for the first quarter. However, AMR's loss was smaller than analysts expected and its shares rallied for a second day, up 27 cents, or 5.4 percent, to close at $5.28 Thursday.