Southwest Airlines reported a loss of $91 million yesterday. Unlike the last two quarters, where Southwest really made money, but reported net losses due to bad fuel hedges, this loss was the real deal. What does this mean? My take is that this is a sure sign that domestic passenger traffic and revenue are off the cliff. To be sure, other airlines will report losses that are far larger as American did on Wednesday (-375 million). If it’s this bad for Southwest, things are far worse at the other carriers.
That said, I think there are some signs out there that seem to indicate things may no longer be getting worse. I believe we’ve seen the bottom, both in airline passenger traffic, and economic conditions in general. We might bounce along the bottom a bit…maybe more than “a bit” but the sun will eventually shine again. And when it does, Southwest looks to be in a good position to take advantage of the rebound in traffic that will come with it.
One area of concern: labor costs. Southwest’s productivity has historically enabled it it to be the overall low-cost leader. I can’t help but wonder if costs aren’t getting a tiny bit out of hand with the latest round of labor contracts? I’m not naive enough to believe that the folks at Southwest aren’t smart enough to come up with a solution that works, but it is an area to watch closely.
