Southwest Airlines plans to keep capacity flat next year from 2009 levels, following a 5 percent cut in available seat miles this year, said chairman, president and CEO Gary Kelly during the carrier's third-quarter earnings call this month.
This quarter, it took out considerable capacity, as announced previously
(BTNonline, April 16). The bulk of reductions are occurring this month, with a 10 percent drop in October 2009 capacity compared with October 2008. November and December will see 8 percent and 6 percent cuts, respectively, CFO Laura Wright said.
Meanwhile, Southwest saw record-high load factors nearing 80 percent in the third quarter, which ended Sept. 30. September load factors rose 11 percentage points from September 2008. "Favorable year-over-year load factor comparisons are continuing thus far in October 2009, with month-to-date passenger unit revenues up approximately 1 percent from the respective year-ago period," Kelly said.
October's high load factors came from leisure travelers responding to discounted fares, said Kelly, noting that advance bookings for the rest of the quarter are "quite good."
He said there are no indications that business travel will rebound to "bail us out. There is no evidence of any significant change in business travel demand, i.e. full-fare demand."
The carrier's net quarterly loss of $16 million was a vast improvement over the $120 million net loss for the quarter in 2008. While it had a net income of $23 million, a year-over-year 62 percent decrease, a $27 million charge from its early-out employee program and a $12 million loss associated with fuel hedging drove the net loss. "A profit is a profit and in this terrible environment, we'll certainly take it," Kelly said.
Kelly also pointed to Southwest's new EarlyBird Check-In product, which allows travelers to pay for an assigned boarding position before general checkin. It generated $2 million in quarterly revenue and had no effect on the airline's Business Select fare category, which contributed $18 million, Wright said.
"Because travel demand was much worse than planned, a number of audibles were called," Kelly said. "Our sophisticated aircraft schedule optimization process eliminated approximately 10 percent of our flights over the last year, which were unprofitable, less popular flights. We decided to keep our fleet essentially flat in 2009 to prepare for weak travel demand. Even so, we produced capacity through optimization efforts redeployed in the past year to Minneapolis/St. Paul, New York LaGuardia and Boston Logan, which fit well within our route system. We look forward to adding Milwaukee next month."
Southwest's quarterly operating expenses decreased 5.7 percent from the third quarter of 2008, driven by lower energy prices, as fuel costs decreased 17.4 percent to $2.13 per gallon, including taxes. As of Oct. 14, it had derivative contracts in place for more than 45 percent of its estimated fourth-quarter consumption, which gives an estimated fuel cost per gallon, based on current market prices, around $2.25.
For 2010, the company has derivative contracts in place for over 65 percent of its estimated fuel consumption, resulting in an estimated 2010 fuel cost per gallon, based on current market prices, around $2.40.
Kelly said, "I don't believe the worst is behind us, if for no other reason than higher energy costs."