According to an article in the Dallas Morning News, Southwest Airlines Co. has reported a loss of $16 million in the past three months. Southwest CEO, Gary Kelly cited special items such as employee reductions and fuel hedging as the cause of their financial losses.
The article said:
"The results included $66 million for the costs of an early-out program in which 1,400 employees accepted an offer to leave the company, or $27 million net of taxes. Southwest said it paid out $32 million in the third quarter, with the remainder to be paid to employees who departed after Sept. 30... In addition, Southwest said it recorded a net loss of $12 million from costs related to fuel hedging."
Company spokespersons are spinning the airline's losses as an actual win, saying that without counting the early-out program and fuel hedging the airline made a profit and expects to make more profits over the long-term due to the program. However, are Southwest's expectations realistic? Even Frontier Airlines filed Chapter 11 bankruptcy and recently emerged from the proceedings a much stronger company.
Will Southwest Airlines have the ability to compete with a company that has used bankruptcy to drastically reduce its employee costs and debts? Currently, all of the airlines are taking huge financial hits due to the recession which has even business class flyers reducing costs. Airlines that have less debt and less burdensome employee contracts due to Chapter 11 bankruptcy will be poised best to compete in these next few years.