Southwest to cut flights as it dials back on growth
— -- In a conference call with analysts and media Thursday, Kelly also suggested that Southwest could have less capacity for the full year, which would also be a first.
Southwest, the USA's most-profitable carrier over the past decade, on Thursday reported its first quarterly loss in more than 17 years — because of an accounting rule that forced it to write down the previously bloated value of its fuel hedges for future deliveries to reflect the more recent dramatic drop in oil prices. The company lost $120 million, or 16 cents a share, vs. a net profit of $162 million, or 22 cents a share, in the third quarter of 2007.
Its profit excluding special items of $69 million, or 9 cents a share, beat analysts' consensus by 2 cents a share, according to Thomson Reuters. That profit was helped by $448 million in cash gains on fuel-hedging contracts.
Continental Airlines also reported a third-quarter loss on Thursday: $236 million, or $2.14 a share. Excluding special items, the loss was $145 million, or $1.32 a share. Revenue grew nearly 9% despite the shutdown of its largest hub, at Houston, for more than two days because of Hurricane Ike.
During a Thursday conference call with analysts and reporters, Kelly was almost dismissive of Southwest's net loss. He pointed to record third-quarter revenue, its better-than-expected third-quarter operating profit and healthy demand for seats in the fourth quarter.
Southwest's write-down was required by "mark-to-market" accounting rules that previously allowed the carrier to report gains when rising oil prices inflated the value of contracts for future delivery of fuel held in the carrier's hedging portfolio. Because oil prices fell dramatically in September, the value of Southwest's hedging portfolio fell, and accounting rules required it to take write-downs on a portion of those contracts.
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