Southwest is set to return to profitability
By Chris Isidore, CNN Business
Southwest Airlines posted a first-quarter loss, but the company said that will be the last time it loses money for awhile.
The airline had gone more than 11 years without a money-losing quarter and reported 47 straight years of annual profits before the pandemic. But Southwest said that it made money in March, and that it expects to make money the rest of this year.
It’s another sign that the massive, unprecedented losses across the US airline industry caused by the pandemic are finally over, even if the health crisis itself is not yet concluded.
Southwest reported a $191 million loss in the first quarter, far less than the $1 billion loss it posted in the first quarter of 2021. The airline reported $4.7 billion in sales — more than double what Southwest brought in a year ago, also roughly in line with forecasts. But that was still about 9% below the revenue the carrier brought in during the first quarter of 2019.
Sales were also slightly lower than the fourth quarter of 2021, when the company posted a modest profit. The first quarter is traditionally the period with the least US air travel, and the fourth quarter is one of the busiest. This year’s first-quarter results were also hurt by the surge in Covid cases early in the year caused by the Omicron variant.
CEO Bob Jordan said that if not for Omicron, Southwest believes it would have been profitable for the entire first quarter. The company said that March saw cash sales set a record for the airline, including bookings for both the spring and summer travel season.
“We are very encouraged with the bookings and revenue trends we are experiencing for the second quarter, which indicate operating revenues will be fully restored to quarterly record levels on stronger leisure and business demand,” Jordan said.
First quarter results were also hurt by a rise in fuel prices caused by Russia’s invasion of Ukraine. But Southwest is less affected than its rivals by the rising fuel prices. It has long-term fuel purchase contracts that partly protect it from price spikes.
Southwest paid an average of $2.30 a gallon for jet fuel in the period, up from $1.70 a gallon a year earlier. But that was well below what rivals American, United and Delta airlines paid in the first three months of the year — an average of between $2.79 to $2.88 a gallon. Although Southwest expects to pay between $3.05 to $3.15 a gallon in the second quarter, it expects its fuel contracts to be worth about $1.4 billion in the second quarter, given current pricing expectations.
“The current energy environment is exactly why we hedge fuel,” said CFO Tammy Romo. “Even though the hedging gains in the second quarter won’t fully offset the rise in market fuel costs, our hedging portfolio is providing meaningful cost mitigation.”
Shares of Southwest gained about 1% in afternoon trading Thursday.
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