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)
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