Southwest Air Rises Most Since 1980 After Paring Expansion Plan
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By Mary Schlangenstein
Jan. 22 (Bloomberg) --
Southwest Airlines Co., the largest discount carrier, rose the most since at least 1980 after saying it will cut seating capacity this year as the recession slows travel demand.
The plan for a 4 percent reduction in flying snaps a 20- year expansion streak in which the Dallas-based airline relied on lower prices to win customers while full-fare carriers struggled. Southwest also delayed some 2010 jet deliveries.
“The best news is they are planning a capacity cut,” said
Ray Neidl, a Calyon Securities analyst in New York. “That’s very wise in this environment. They are planning for a slow recovery, which is what they should be doing.” He
rates Southwest as “underperform.”
Southwest disclosed the move as it posted a second straight
net loss on fuel costs. Excluding those expenses, it had a fourth-quarter profit of 8 cents a share, beating the 5-cent average estimate of 14 analysts surveyed by Bloomberg.
The net loss was $56 million, or 8 cents a share, compared with a year-earlier profit of $111 million, or 15 cents, Southwest said. The carrier’s third-quarter net loss ended a 17- year profit streak.
“Now is not the time to be growing,” Chief Executive Officer
Gary Kelly said in an interview. “Passenger traffic is declining. We’re slowing our growth at just the right time.”
Shares Advance
Southwest rose $1.30, or 16 percent, to $9.68 at 10:33 a.m. in New York Stock Exchange composite trading. The shares touched $9.83 earlier for a 17 percent advance, the biggest intraday gain in Bloomberg data dating to 1980. The stock declined 30 percent in the past 12 months through yesterday.
Southwest’s results mean that all of the nine biggest U.S. airlines probably will report net losses for last quarter as consumers pare travel plans and business passengers move from premium seats to coach.
American Airlines parent
AMR Corp. and United Airlines parent
UAL Corp., the second- and third-largest U.S. carriers, both announced losses yesterday and said 2009 demand was weakening.
“We have seen notable softness in post-January bookings,” Kelly said in a statement.
Southwest’s run of quarterly profits was driven in part by its ability to trim costs with fuel bought in advance. Those bets soured after
jet fuel fell 65 percent in 2008’s second half, forcing the airline to put up cash collateral for the contracts and spurring the third- and fourth-quarter net losses.
In December, Southwest reduced most of its so-called hedges, slashing the amount of cash it had to pay by $600 million to $230 million.
“We’ve made dramatic adjustments to our fuel hedging to take advantage of collapsing prices,” Kelly said. “Prices are going to be soft for quite some time.”
Fourth-quarter costs related to fuel hedging were $117 million, Southwest said.
Southwest last reduced flying on a year-over-year basis in 1988, when it shrank by 0.1 percent. Airlines measure capacity in available seat miles, or the number of seats on their planes multiplied by the number of miles flown.
To contact the reporter on this story:
Mary Schlangenstein in Dallas at
[email protected]
Last Updated: January 22, 2009 11:01 EST
