By Jennifer Yousfi
Southwest Airlines Co. (LUV) has always been extremely proud of its string of profitable quarters, which began in the spring of 1991, and traversed a major recession and the massive drop-off in air travel that followed the 2001 terrorist attacks.
But when the much-admired carrier bet that oil prices would continue their record climb – and they plummeted instead – the Dallas-based Southwest was forced to report its first quarterly loss in 17 years.
Southwest yesterday (Thursday) reported a net loss of $120 million, or 16 cents per share, for the third quarter, down from a net gain of $162 million, or 22 cents per share, for the same period the year prior.
Despite the loss, the airline's shares were up 48 cents each, or 4.15%, to trade at $12.04 at 11:54 a.m. in New York – even though the Dow Jones Industrial Average was down 1.25%. Southwest shares closed up 93 cents yesterday, with an 8% gain, at $12.49.
Jet fuel costs for Southwest increased 52% during the quarter, but oil's dramatic fall from its record highs in July forced Southwest to write down its jet-fuel hedging portfolio by $247 million. Applying mark-to-market accounting rules to its bets against rising oil costs resulted in a quarterly loss for the Dallas-based air carrier.
Excluding one-time charges, Southwest posted a profit of $69 million or 9 cents per share, which would have been enough to beat median analyst expectations of 7 cents per share, according to Reuters data.
Southwest revenue increased 12% to $2.89 billion.
"Falling energy prices are a great thing for Southwest Airlines," Chief Executive Officer Gary C. Kelly said on a call with reporters, Bloomberg News reported. "We simply have to manage our hedges as a component of our overall fuel costs."
Southwest's fuel-price hedging program helped the airline dodge the fallout from high summer fuel costs, when crude oil traded as high as $147 per barrel. Southwest says it has hedged its fuel needs through 2012, MarketWatch reported.
Southwest has been one of the only airlines that has yet to implement such unpopular charges as fees for checked bags. Struggling rivals have been forced to charge passengers special fees for services that used to be complimentary, in order to try to make up some of the profit shortfall caused by high jet fuel costs.
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