Southwest cuts flights as losses mount

For more than 30 years, Southwest Airlines has experienced nonstop growth combined with unprecedented profits and a corporate culture that managed to avoid the contentious nature of relations with unions that characterize the industry.

As 2009 progresses, however, the Dallas, Texas-based budget carrier is facing pressures that it has never encountered before.

During the second half of 2008, Southwest lost $176 million, making the final two quarters of the year the first time in its history that the carrier ever reported losses.

Also for the first time, the carrier is cutting back on flights and slowing its fleet growth, after years of continuous expansion.

For some months, Southwest’s fuel-hedging program gave it a major advantage over its competitors, but the impact became negative when the price of fuel plummeted, and cost the airline hundreds of millions.

Known for its low operating costs, Southwest now faces increasing expenses as it pares back the size of its operation.

Investors are concerned, as seen in the 40 percent drop in the company’s shares over the past three months. On one day alone, the share price dropped by 18 per cent, after Southwest reported earnings for the fourth quarter.

www.southwest.com