Southwest Airlines said Thursday that it lost money in the fourth quarter of last year as its fuel-hedging strategy, brilliant when oil prices were rising, lost punch with tumbling energy prices.
It was discount carrier Southwest's second losing quarter of 2008 after 16 straight years without finishing a three-month period in the red.
Southwest lost $56 million, or 8 cents per share, in the fourth quarter, compared with a gain of $111 million, or 15 cents per share, a year earlier.
The loss included net charges of $117 million related to the falling value of its fuel-hedging positions. Without the charges, Southwest would have earned $61 million, or 8 cents per share, which beat expectations of analysts surveyed by Thomson Reuters, who forecast a gain of 5 cents per share excluding special items.
Recently, Southwest has cut back sharply on fuel hedging. It also said Thursday that it plans to reduce capacity this year by 4 percent and will rein in fleet-expansion plans.
The results underscored the fragile state of the airline industry, which was hit last year by skyrocketing fuel prices and then, as fuel prices eased, a recession and slump in air travel demand.
Chairman and Chief Executive Gary C. Kelly called it "one of the most difficult years in aviation's 100-year-plus history."
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Kelly gave a mixed outlook for financial performance in the new year at Southwest, which carries more U.S. passengers than any other.
Kelly said Southwest saw a 7 percent increase in revenue per seats times miles flown -- a measure of financial efficiency in the airline industry -- in November and December, and he forecast a similar growth rate for January.
But he cautioned that Southwest sees "notable softness in post-January bookings" and said the company is "not confident" that January's performance will be maintained throughout the first quarter.
Dallas-based Southwest lost money in the fourth quarter despite boosting revenue 9.7 percent, to $2.73 billion, which topped the $2.65 billion forecast of analysts.
That's because Southwest's biggest expense, fuel, rose 23 percent from a year earlier, to $918 million. That surpassed the amount the company spent on labor, $846 million.
Southwest had long been the model for how airlines could cope with rising energy prices. The company aggressively hedged against such increases, in effect locking in lower prices than its competitors were paying at the pump.
But when oil prices fell in the second half of last year, those hedges lost value and led to the fourth quarter charges that dragged Southwest into the red for the fourth quarter.
Even with the fourth-quarter loss, Southwest kept alive its streak of 36 straight years of profit, finishing 2008 with a gain of $178 million, or 24 cents per share. But that paled in comparison to the 2007 profit of $645 million, or 84 cents per share.
Southwest is pinning growth hopes on new markets, including Minneapolis and New York's LaGuardia Airport this year and service soon to Canada and Mexico on partner airlines.
However, Southwest trimmed its fleet-expansion plans. It said Thursday that it expects to take delivery of 10 new Boeing 737 jets in 2010 instead of the previously planned 22. The company said it cut aircraft capital spending by nearly $700 million for both 2009 and 2010.
Southwest shares rose $1.43, or 17.1 percent, to close at $9.81.