Cuts Back Drastically On New Aircraft Deliveries

When it comes to diagnosing the overall health of the US airline business, Dallas-based low-cost carrier Southwest Airlines is a bit like the proverbial canary down the mineshaft -- when it gets sick, we know we're REALLY in trouble.

On Thursday, Southwest announced its record streak of profitability continued in the first quarter of the year, earning $34 million even as other carriers -- including fellow Texas-based airlines Continental and American -- recorded sizable losses. The carrier also beat analyst projections, which had placed Southwest's profit at about one cent per share; the $34 million profit works out to five cents per share.

Southwest was aided by its successful fuel hedging policies, and continued strong bookings on its planes... but that's pretty much where the rosy outlook ends, however, reports The Dallas Morning News.

That $34 million profit came against revenues of $2.53 billion in Q1 2008... and pales in comparison to the $93 million profit Southwest posted in the same period in 2007, on revenue of $2.20 billion. Even with fuel hedges in place, that gives you some idea of the increased costs Southwest is struggling with.

In his announcement of earnings, Southwest CEO Gary Kelly said the second quarter looks favorable overall for the airline... but high fuel prices continue to worry him.

"Taking into account the Easter shift to March, traffic thus far in April has been solid, and bookings for the remainder of second quarter 2008 appear strong,” he said. "Barring a further slowdown in the domestic economy, based on current trends, which include encouraging results from our revenue initiatives and the airline industry's domestic capacity outlook, we expect favorable year-over-year unit revenue results again in second quarter 2008."

To further compensate for the less-than-favorable economic conditions, Southwest also plans to trim its growth plans further in 2008 -- to about a two-to-three percent increase in capacity for 2008.

The airline had planned to take delivery of 28 new Boeing 737-700s in 2008; the carrier will now accept only 14, deferring the other deliveries for another seven years. Another 12 planes scheduled for delivery in 2012 will now be deferred into 2013-2015.

FMI: www.southwest.com