Southwest Airlines next year plans to keep capacity flat from 2009 levels, following the 5 percent cuts in available seat miles undertaken this year, said chairman, president and CEO Gary Kelly today during the carrier's third-quarter earnings call.
The airline this quarter has taken out considerable capacity as announced earlier this year
(BTNonline, April 16). The bulk of the reductions are occurring this month, with a 10 percent drop in October 2009 capacity compared with October 2008. November and December will see cuts of 8 percent and 6 percent, 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 increased 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 in a statement.
October's high load factors came from leisure travelers responding to discounted fare promotions, according to Kelly, who noted that advanced bookings for the rest of the quarter are "quite good."
He added that 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."
During the quarter, the carrier had a net loss of $16 million, a vast improvement over the $120 million net loss in the third quarter of 2008. While Southwest had a net income of $23 million, a year-over-year 62 percent decrease, the $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.
Along with some revenue-generating leisure initiatives launched this year, Kelly pointed to Southwest's new EarlyBird Check-In product, which allows travelers to pay for an assigned boarding position before general checkin. The preferred boarding program generated $2 million in revenue during the quarter and had no effect on the airline's Business Select fare category, which contributed $18 million, according to Wright.
"A number of revenue initiatives were planned for 2009, and because travel demand was much worse than planned, a number of audibles were called," Kelly said in a statement. "First and foremost, through our sophisticated aircraft schedule optimization process, approximately 10 percent of our flights were eliminated from our system over the last year, which were unprofitable and less popular flights. We made the decision to keep our fleet essentially flat in 2009, to be prepared for weak travel demand. Even so, we produced available capacity through optimization efforts that was redeployed during the last year to substantial new markets: Minneapolis/St. Paul, New York LaGuardia and Boston Logan. These large markets fit well within our expansive route system, and have achieved instant success. We look forward to adding Milwaukee next month."
Southwest's quarterly operating expenses decreased 5.7 percent compared with the third quarter of 2008, driven by lower energy prices, as fuel costs decreased 17.4 percent to $2.13 per gallon, including taxes. According to the company, 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."