SWA posts first-ever quarterly loss

TangoWhiskey

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SWA posts (first-ever?) quarterly loss

http://news.prnewswire.com/DisplayR...CT=104&STORY=/www/story/04-16-2009/0005007012

DALLAS, April 16 /PRNewswire-FirstCall/ -- Southwest Airlines (NYSE: LUV) today reported a first quarter 2009 net loss of $91 million, or $.12 loss per diluted share, compared to net income of $34 million, or $.05 per diluted share, for first quarter 2008. First quarter 2009 results included special charges totaling $71 million (net), relating to non-cash, mark-to-market and other items associated with a portion of the Company's fuel hedge portfolio.
 
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Hedging fuel with large future purchases commits and price lock in made SWA enormously profitable when the other airlines were getting killed by higher fuel prices.. I guess when the price of fuel dropped, or their contracts ran out, they got burned.

You would think they had the locked-in fuel price factored in to fares, but maybe the locked-in higher fuel cost made the fares non-competitive and they have to match the competition.
 
You would think they had the locked-in fuel price factored in to fares, but maybe the locked-in higher fuel cost made the fares non-competitive and they have to match the competition.

Since when has ANYTHING been locked into the fares? And FWIW, my wife has been shopping fares for a long time and has not found SWA to be any cheaper than anyone else, typically. At least not for what she was looking for.
 
Hedging fuel with large future purchases commits and price lock in made SWA enormously profitable when the other airlines were getting killed by higher fuel prices.. I guess when the price of fuel dropped, or their contracts ran out, they got burned.

You would think they had the locked-in fuel price factored in to fares, but maybe the locked-in higher fuel cost made the fares non-competitive and they have to match the competition.

I was wondering about that... I know they were prescient with hedging, but wasn't sure if they were due to expire any time soon.
 
Since when has ANYTHING been locked into the fares? And FWIW, my wife has been shopping fares for a long time and has not found SWA to be any cheaper than anyone else, typically. At least not for what she was looking for.


Interesting facts (perhaps I am better-acquainted with SWA because they are my hometown airline).

Southwest never claims to be the cheapest and, in fact, they usually are not. Other than when they are opening up a new city, they generally price their inventory at a rate which is sustainable.

You'll notice that they don't have dozens of fare buckets, ranging from "give-away" to "holy cr*p!"- instead, they have very simple fares, long lead advance, advance, and walk-up.

But, where they really excel is in several key areas:

1. While they may not be the cheapest, they are never ridiculously high, even when they have little or no competition on a given city pair. If you want to see this in action, compare fares between SWA and another carrier on a pair they both serve, then check the fare for the traditional carrier on a trip of similar length on which SWA does not compete- you'll almost always find that, if SWA is not there, the fare is MUCh higher.

2. Fare rules- no change fee ever- if you have to change your flight, the worst you do is paying the additional fare, if it's higher, but you never ever lose the money outright. Most carriers these days have either non-refundable "use it or lose it" fares, or they charge $100.00/head.

Southwest started as a carrier catering principally to business travelers, and these sorts of policies have helped them keep them.

Also, don't forget about baggage- SWA does not charge to check bags; I forgot about that when we booked our recent vacation, and booked AA- $15.00 first bag, $25.00 second bag. Each way. Zowie.


---

Not like they're perfect, but they treat passengers with a reasonable measure of respect, which (I believe) follows from the fact that they treat each other with respect. Any SWA employee can walk in to the HQ on Love Field, and walk into the President's office, w/o an appointment. Fact. And, as you walk down the hallways in the HQ, there are all sorts of displays on the wall, showing all about various employees' lives- their family, history, hobbies, whatever matters to them.

If I have to fly commercial, they do well- I can book with them secure in the knowledge that I am not getting gigged, and if my plans change, I am not throwing money in the dumper. It's reassuring.

All that said, I'd rather fly myself in most cases.
 
Southwest never claims to be the cheapest and, in fact, they usually are not.

Oh, I can't disagree with any of that. I wish everyone's business model was so well thought out.

My comments were addressed to Mike. My point was that fares are pretty much competition driven and not many, if any, outside factors, such as fuel price, affect what that fare is.

Hind sight being perfect, I wish I would have spent the money on a 737 type rating and applied to SWA. :frown3: But then again, I would not have had the opportunity to fly where and what I have been flying. :smile:
 
I wonder about the impact of new accounting rules, and if they are reporting the additional cost of fuel for the quarter based on their hedge strategy (which are probably take or pay) is higher than they would have paid on the spot market. In any event, their fuel strategy for the past few years has saved their bacon, so I'm guessing they aren't crying too much about one down quarter.

I was wondering about that... I know they were prescient with hedging, but wasn't sure if they were due to expire any time soon.
 
I wonder about the impact of new accounting rules, and if they are reporting the additional cost of fuel for the quarter based on their hedge strategy (which are probably take or pay) is higher than they would have paid on the spot market. In any event, their fuel strategy for the past few years has saved their bacon, so I'm guessing they aren't crying too much about one down quarter.

I believe that $71M of the quarter's losses are the result of the hedge contracts. And you're surely right- they have done so very well with teh hedging in the past that, while no fun, the hickeys just now are not disastrous.
 
A friend of mine is a pilot for American. Another friend left the Navy (he was a Tomcat driver) a few years back (well, jeez, it was maybe 12-14 years ago now, time flies!) and signed with Southwest. That prompted some chuckles from the American pilot, given the longer work month and lower pay scale. Who's laughing now? Hint - it's not the guy with the 2/3 pay cut....
 
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