Southwest Posts Net Loss, Cites Challenges

Southwest Airlines reported a third-quarter loss and said slow corporate travel and the prospect of rising fuel costs meant recovery was not yet at hand, sending its shares down nearly 6 percent.

The low-cost carrier said its net loss narrowed to USD$16 million, from USD$120 million a year earlier.

Revenue fell 7.8 percent to about USD$2.7 billion, while total operating expenses fell 5.7 percent.

Excluding special items, third quarter net income was USD$23 million, compared to USD$69 million for the third quarter 2008.

"A profit is a profit, and in this terrible environment, we'll certainly take it," chief executive Gary Kelly said.

The US airline industry has suffered from a drop in travel demand in the past year. Lower fares and a decrease in capacity have helped keep planes full, but revenue has still declined.

RISING CRUDE

Airlines have benefited from cheaper fuel this year, but oil prices have started to climb. On Thursday, crude oil soared above USD$77 a barrel.

"I don't believe the worst is behind us if for no other reason (than) because of higher energy costs," Kelly said. "There's no reason to think that business travel will return any time soon to help bail us out."

Analysts have noted signs of improved demand in the past month, which a run-up of airline stocks has reflected. But sales have been largely driven by discounting, and there has been no evidence of a significant change in full-fare demand, Kelly said.

Jesup & Lamont analyst Helane Becker, who has a "sell" rating on the shares, said investors might want to take some money off the table, given the stock's gains. Southwest shares have jumped nearly 21 percent since September.

The company's revenue per available seat mile fell 2.2 percent in the third quarter. Load factor rose 8 points to 79.6 percent.

Southwest has cut 10 percent of its most unprofitable and least popular flights in the past year and plans to reduce fourth-quarter capacity by 8 percent.

NEW REVENUE STREAMS, CHARGES

Southwest unveiled a USD$10 charge to board flights early last month, a move that generated USD$2 million in revenue during September, said Chief Financial Officer Laura Wright.

Another USD$10 million during the quarter came from new pet fares, unaccompanied minor service charges and fees for excess and heavy baggage.

On the cost side, Southwest had a USD$27 million charge for its employee buyout programme, which has about 1,400 participants.

There were also charges of USD$12 million for a portion of the company's fuel-hedge portfolio. Southwest saw about USD$78 million in unfavourable cash settlements from derivative contracts in the third quarter. The Dallas-based carrier has hedged more than 45 percent of its estimated fourth-quarter fuel consumption.

"We think most of the problems with the hedging programme are largely behind it due to expirations and higher oil prices," S&P analyst Jim Corridore wrote in a note.

(Reuters)

Asian Carriers' Business Class Filling Up - IATA

Asian airlines are starting to sell more premium as well as economy seats, outperforming other regions where economic fears continue to weigh on travel, the International Air Transport Association said on Thursday.

In its latest industry snapshot, IATA said that increasing numbers of passengers were taking long-haul flights within Asia alongside the export-driven economic rebound that has put China and other countries on a steadier footing.

"The strongest rise in economic and business activity has been seen in the Asia-Pacific regions, where private sector balance sheets are less encumbered with debt and bad assets," it said, describing full cabins in the Far East.

However, the Geneva-based group cautioned that short-haul European business travel "remains extremely weak" and North Atlantic flights are just starting to show improvement.

"The turnaround in economy travel has been driven by consumer confidence in major economies, which has been rising since hitting a low in February," it said, while warning that the breakaway Asian results reflect "the uneven nature of the current economic upturn."

IATA Director-General Giovanni Bisignani said earlier this week in New York that global airlines would have to wait until the middle of 2010 for sustained improvement in business class demand, which powers profits in the sector.

International trade flowing from and to developed economies must pick up "to warrant a substantial improvement in premium travel," Thursday's Premium Traffic Monitor said.

"The upturn in premium travel numbers still appears fragile, given the still modest rise in international trade and other cross-border business activity," it said.

"Given the volatile month to month past pattern in premium traffic and the relatively weak upturn in world trade, some fall back in premium travel in September would not be unexpected."

In economy class, which makes up 90 percent of traffic but a lesser share of revenues -- around 70 percent -- IATA said that "a further rise in consumer confidence will be necessary to generate positive growth."

"Premium revenues are now improving but, at an estimated 30 percent down year-on-year in August, there is an awful long way to go before positive growth resumes," it said on Thursday.

(Reuters)

US Airlines Launch Widespread Fare Increases

An industry-wide increase of domestic air fares appears well on its way to becoming the fourth of 2009, a fare analyst said on Wednesday.

The fare increase, initiated on Tuesday by American Airlines, represents a boost in round-trip ticket prices by up to USD$16 for an unusually large number of US city pairs, said Rick Seaney, chief executive of Farecompare.

The increase saw matches from Continental Airlines, Southwest Airlines, Delta Air Lines, United Airlines and US Airways, Seaney said in a research note.

"Most airfare hike attempts occur late in the week and either stick or fizzle over the weekend as carriers decide whether or not to match," he said. "It is unusual to see an airfare hike early in the week, which is typically reserved for discounting and sales."

US airlines this year have struggled with falling demand as businesses cut back on travel during the economic recession. Carriers lately have reported an uptick in demand that makes it easier to boost fares.

The most recent increase comes on the heels of a USD$10 each-way surcharge implemented by some carriers for travel during busy holiday periods.

(Reuters)

FAA Proposes Safety Fines Against United, US Air

US aviation regulators proposed on Wednesday USD$9.2 million in safety related fines against US Airways and United Airlines.

The Federal Aviation Administration proposed a USD$5.4 million fine against US Airways for allegedly operating eight planes while out of compliance with certain safety directives or its own maintenance programmes.

The proposed USD$3.8 million fine against United alleged the airline flew one plane on more than 200 flights after violating its own maintenance procedures.

Both companies can appeal the fines.

(Reuters)