Southwest CFO says first-quarter loss likely, cites fuel costs

Southwest Airlines (SWA) anticipates it will incur a rare net loss in the 2012 first quarter due to higher-than-expected fuel costs.

The revelation came Tuesday in New York from SWA senior VP-finance and CFO Laura Wright at a JP Morgan investors' conference. "Fuel unfortunately is the story of the quarter," Wright said, according to a transcript of her comments. "We were planning for stable, albeit high, fuel prices [in the March quarter]. To date that has not held true" as fuel prices have escalated.

She said SWA's estimated first-quarter fuel cost per gallon will be $3.50, about 4.5% (or 15 cents) higher than anticipated as recently as January. "This fuel increase is a significant hurdle for us to overcome," Wright conceded. "And based on the current revenue and fuel estimates, we currently do not anticipate a profit in the first quarter."

While SWA has earned a full-year net profit for 39 consecutive years , it did endure a stretch of four loss-making quarters out of five starting with the 2008 third quarter. The deficit in the September 2008 period marked the Dallas-based LCC's first quarterly net loss since 1991.

SWA also incurred a third-quarter 2011 net loss owing to non-cash fuel hedging mark downs .

Wright said SWA's "outlook for the rest of the year remains favorable," but is "highly dependent on a stabilized fuel environment, as well as an economic environment that continues to provide the opportunity for revenue growth." She reiterated that SWA plans flat capacity in 2012 compared to 2011.

"We have … increased revenues and increased fares to cover higher fuel costs, there is no question about it," Wright said. "If you look at the past year, we've had a pretty aggressive round of fare increases. I think 10 in the last 12 months to address higher fuel prices. What we can tell you is if you look at the last few fare increases, they’ve become less effective."

Article Source : ATW Daily News