Southwest Airlines Preps for Turbulence
Southwest Airlines Co. posted a 44% rise in its second-quarter profit but executives stated they program to cut flights subsequent year as they fretted over high fuel costs.
The largest carrier of U.S. domestic passengers stated Thursday it does not believe it can pass by means of additional ticket price increases, soon after unrolling eight fare increases because mid-December to counter soaring fuel prices.
Instead, the airline said subsequent year it will freeze or shrink capacity-the number of planes it puts within the sky and airline seats it makes out there, which could mean exiting particular airports or discontinuing flights.
“We have pushed fares about as a lot as we need to perfect now to be productive,” Southwest Chief Executive Gary Kelly told investors throughout an earnings call. While the carrier isn’t preparing on an economic recession, revenue growth is “slowing,” mentioned Mr. Kelly. He added that the airline has noticed “softening” organization travel this summer.
Thursday, shares of Southwest had been down 81 cents, or 8.4%, to $8.84 in four p.m. trading on the Nasdaq Stock Market place, amid a broad market place selloff.
Southwest Airlines, which completed its acquisition of AirTran Airways in Might, still plans to increase capacity this year among 4% to 5%. The carrier had previously eyed related increases for next year.
Southwest Airlines and AirTran Airways are still operating independently of one another. The carriers don’t expect to receive Federal Aviation Administration certification, permitting them to work as one carrier, until the very first quarter of 2012.
Southwest Airlines saw its second-quarter profit rise to $161 million, or 21 cents a share, from $112 million, or 15 cents a share, a year earlier. But excluding fuel hedging as well as other particular items, profit slid to 15 cents from 29 cents.
Revenue, meanwhile, jumped 31% to $4.14 billion. The company’s fuel costs rose 64% from the prior year.
“We had been planning on $90 [per barrel] crude oil” this year, Mr. Kelly stated. “And effectively, it is been closer to $120.”
The combined business will have its challenges. Analysts have expressed concern over how Southwest plans to restore the lost revenue at AirTran, once it stops charging baggage and ticket-change fees. Southwest, unlike most airlines, does not charge for baggage.
Southwest Airlines on Monday said it’ll close down service at 4 AirTran-operated airports, halting nearly 90 weekly flights. Future closures appear likely, Mr. Kelly mentioned, if energy costs remain high.
Behind the scenes, the two airlines are working to blend corporate cultures and setting plans on tips on how to craft the airlines’ combined network.
The two low-cost carriers had been once playful rivals, even sparring over ad campaigns. Southwest poked enjoyable of AirTran’s baggage fees. AirTran responded by filming a video of passengers wearing cow costumes boarding a Southwest Airlines plane-a nod to Southwest’s absence of assigned seating
But now, a barnstorming Southwest Airlines crew has embarked on a eight-city “One LUV” tour, a reference to the airline’s stock symbol. Amongst other factors, Southwest employees educate AirTran workers on customer service pointers and have introduced the carrier’s more relaxed dress code-that’s fine with sneakers and khaki pants.
Beth Wronski, an AirTran flight attendant based in Milwaukee, says about 90% of her colleagues have already adopted a a lot more casual look. Other flight attendants are wearing their hair down or shedding AirTran scarves or blazers.
Bob Jordan, a Southwest Airlines executive who became AirTran’s president in May well, stated not all of the Southwest culture has yet to take. “We got a hugging culture at Southwest Airlines,” he said. “I’ve stunned a number of people today, I think. Given that then, I’ve learned to be slightly additional careful.”
The two carrier’s pilots’ unions struck a tentative agreement last month, pending board approval from Air Tran pilots’ union and ratification from both carriers’ pilot membership.
But final month, the AirTran’s pilots’ union had to briefly shut down its website’s message board over angered comments about the agreement. The message board has since been restored, a union spokeswoman said.