Southwest Airlines Reports Loss

[GuppyWN]

Let's get it on. I'll be the first to admit I've cherry picked lines and bullet points in the past. Fact is GAAP's or not, it's a loss. We can't expect to toot our own horn killing them with hedges if we don't take our lumps when we're late pulling the trigger on them.

BUT! I'm not voing for a pay freeze! $69 million profit on half empty planes is a good sign to me.

Gup

 

[Bavarian Chef]

It goes like this:

Month 1 : You have $20 mil in fuel hedges (the value has been the same for months, oil has been stable). You bring in $100 mil in revenue and your expenses are $90 mil. Your profit for the month is ($100mil - $90mil) $10 mil.

Month 2 : Oil prices skyrocket (your $20 mil hedges are now worth $40 mil). You bring in $100 mil in revenue and your expenses are $90 mil. Your profit is still $10 mil, but you are now required to report unrealized gains from your hedging positions so you get a second number, a profit of $30 mil ($10 mil + the change in value of hedges of $20 mil). Keep in mind you did not buy or sell any hedges.

Month 3 : Oil prices tank (your $40 mil hedges are now worth $1 mil). You bring in $100 mil, expenses are $90 mil, profit is $10 mil. Once again you have to report another number with one time losses from decline in hedges. ($10 mil - $39 mil = net loss of $29 mil).

As you can see, you are still making the same amount of money month to month, but it looks different because of accounting rules. I know this is simplistic, but that's the general idea behind the two numbers.

I didn't argue the operating profit. But a bottom line loss (or profit) is a loss or a profit.

The fundamentals contained therein are, of course, a different matter.

If a company loses money, they lose money. It's that simple, imho.

 

[Bavarian Chef]

Let's get it on. I'll be the first to admit I've cherry picked lines and bullet points in the past. Fact is GAAP's or not, it's a loss. We can't expect to toot our own horn killing them with hedges if we don't take our lumps when we're late pulling the trigger on them.

BUT! I'm not voing for a pay freeze! $69 million profit on half empty planes is a good sign to me.

Gup

Good point.

At least you can be wise enough to realize that every post in this thread is not an attack on luv or its hedges.

Good luck.

 

[RedDogC130]

Who cares? That wasn't my point. JB did the same for me last year (or was it the previous).

Apparently you do..you have more posts on SWA than I do and I work here.

 

[(HCDAW)]

I didn't argue the operating profit. But a bottom line loss (or profit) is a loss or a profit.

The fundamentals contained therein are, of course, a different matter.

If a company loses money, they lose money. It's that simple, imho.

Well, if someone bases their financial decisions on paper gains and losses they are not very wise (my opinion only). The point is there wasn't money lost any more than there was money gained when oil was at $140/bbl. But, that is why there are two numbers, so that you can interpret the results as you see fit.

 

[(HCDAW)]

Let's get it on. I'll be the first to admit I've cherry picked lines and bullet points in the past. Fact is GAAP's or not, it's a loss. We can't expect to toot our own horn killing them with hedges if we don't take our lumps when we're late pulling the trigger on them.

BUT! I'm not voing for a pay freeze! $69 million profit on half empty planes is a good sign to me.

Gup

Well I for one am glad we don't have a finance department trying to "pull the trigger" on hedges at just the right time. That is a gamble, you're trying to time the market. Now, a long term hedging plan that allows you to fix your fuel costs out into the future is a planning tool. And, while you may no doubt lose money on those hedges at times (which oh by the way we didn't) it is still a wise move to try to stabilize costs for planning purposes and to even out the swings in your commodity expenses.

 

[The Prussian]

I didn't argue the operating profit. But a bottom line loss (or profit) is a loss or a profit.

The fundamentals contained therein are, of course, a different matter.

If a company loses money, they lose money. It's that simple, imho.

Which reminds me...I better get right on it and report my 401k loss this quarter according to Gaap standards.

 

[Andy]

LUV, congrats on the operating profit. As another poster mentioned, pretty damned impressive considering the loads that you've carried. I've jumped on you guys a few times this last year and the planes haven't been packed. Always class people at LUV.

On your hedges, I think that you've got some of the sharpest guys in the business. I hope that they're starting to sell forward hedges as it is likely that oil will be below $50/bbl sooner than later. The winning airlines going forward are going to be the ones who are unhedged.

All the best to you.

 

[Bavarian Chef]

Apparently you do..you have more posts on SWA than I do and I work here.

Huh? On this thread, or in general?

This just in -- Continental did not lose money.

 

[FatesPawn]

Huh? On this thread, or in general?

This just in -- Continental did not lose money.

Because they have far less hedges than SWA and didn't have to report them as GAINS in previous quarters to now have to report them as LOSSES in current quarters. Andy's comments are good enough kudos for me.

I do realize these aren't attacks on SWA or our hedges. GAAP accounting is NOT how I run my household budget, but it IS the way airlines have to report profits and losses.

 

[The Prussian]

LUV, congrats on the operating profit. As another poster mentioned, pretty damned impressive considering the loads that you've carried. I've jumped on you guys a few times this last year and the planes haven't been packed. Always class people at LUV.

On your hedges, I think that you've got some of the sharpest guys in the business. I hope that they're starting to sell forward hedges as it is likely that oil will be below $50/bbl sooner than later. The winning airlines going forward are going to be the ones who are unhedged.

All the best to you.

Thanks Andy....BTW, you pretty much called this financial debacle that we're in...over a year ago. Any thoughts on how the airline business is going to be looking a year or two out from now?? I know you don't have a crystal ball, but what's your gut telling you?? Thoughts???

 

[Quimby]

Huh? On this thread, or in general?

This just in -- Continental did not lose money.[/quote]

http://www.continental.com/web/en-US/apps/vendors/default.aspx?i=PRNEWS

really?

 

[Mr.B]

Plus it shows the pilots during negotiations that the lost money and can't afford to pay us any more $$$

Welcome to the jungle.

 

[TZtoSWA]

Plus it shows the pilots during negotiations that the lost money and can't afford to pay us any more $$$

Not just the pilots...try 5 different employee groups in negotiations right now. I am a little surprised it took them this long to report we are losing money.

 

[Andy]

Thanks Andy....BTW, you pretty much called this financial debacle that we're in...over a year ago. Any thoughts on how the airline business is going to be looking a year or two out from now?? I know you don't have a crystal ball, but what's your gut telling you?? Thoughts???

Prussian, I haven't been following the airlines for a while; I've concentrated on other financial sectors that have been profitable trades for me. I'd like to say investing, but to try to invest in this environment is suicidal.
Applying to the airlines what I expect to unfold, I would say that there will be several airlines that will not survive. Those that are heavily in debt and are in expansion mode are extremely vulnerable.
I'm not going to name particular airlines that I see likely to close doors, other than to say that United is a possibility. The only thing that I see saving United is that they have been aggressively cutting capacity and have no new aircraft orders. Those that cut - cut deeply - will probably survive.
United's cuts should put me out of work next spring; I'll likely be out on the streets for a minimum of another 5 years. That's assuming United survives. I've got other plans, so it doesn't matter to me.

The one saving grace for the airlines is oil prices. I am watching inventory numbers right now, and it has driven oil down near the 60s. I can see oil moving below $50 in the near term and even lower longer term. That will help the airlines, but it doesn't get passengers on aircraft.
Passenger travel is likely to fall through the floor which is why I think that those airlines that cut dramatically now will probably survive. I see no bounce in the economy or passenger travel. And this is likely to last for several more years than mainstream forecasters are calling for.

A lot of people called me a pessimist when I first started writing this stuff on this board. I simply looked at the data and applied my forecasts to what should have been obvious for those that dug deep enough into the numbers. Prussian, I noted that you were one of the people who were open minded on my posts. While we've had disagreements in the past on other matters, I appreciate the support.

Bottom line for the airline industry - those that cut early are going to survive. Those that are continuing to expand are going to go out of business. There will be opportunities as airlines fall, but the amount of capacity that defunct airlines leave behind will not offset the decreased passenger traffic.