SWA Says June Financial Forecast Looks Grim

The chief executive of Southwest Airlines said Thursday that June looks weaker than May, judging by a key measure of revenue, and he doesn't yet see signs of a turnaround.

"It's a very, very difficult time, and earnings are going to be very stressed until the economy changes," CEO Gary Kelly said.

Kelly said that revenue divided by capacity, a key measure of financial performance in the airline business, was weaker in June than in May, when unit revenue fell about 9 percent.

Business travel remains weak, which is cutting into the number of last-minute, full-fare tickets and traffic on shorter routes, Kelly said at an investor conference in New York.

Southwest is responding by cutting unprofitable flights, adding fees for unaccompanied minors and pets, and offering incentives for employees to leave the airline.

The Dallas-based airline plans to shrink capacity by about 6 percent for all of 2009, although reductions so far this year have been smaller -- suggesting that deeper cuts are ahead.

Kelly said airlines must make schedule decisions far in advance, not knowing what the economy will bring. Southwest will soon publish its schedule for flights beginning in November.

"No one at this conference can tell anybody what business is going to be like on Nov. 1," he said, adding that "there is no clear evidence" yet of improvement in the economy.

"I think it is crazy to assume and bet on things improving anytime soon," he said.

Southwest has lost money the past three quarters and it now grappling with industrywide weakness in traffic.

Kelly said Southwest is in better financial shape, with about $2.3 billion in unrestricted cash, than it was entering the 1991 recession, the last time the low-fare carrier lost money.

Southwest officials say that the weak economy will help them attract travelers looking for low fares. But rivals are imitating Southwest's longtime strategy, even with a smaller supply of airline seats than existed just a year ago.

"We're continuing to run fare sales," Kelly said. "Our competitors, even if we don't want (them) to run fare sales, our competitors have a plethora of low fares out there in virtually all of our markets."

Copyright AP - Associated Press
Contact Us