Business

DALLAS (AP) ― Southwest Airlines Co. reported a surprisingly large loss in the first quarter as traffic fell in what the CEO called the carrier's toughest revenue environment ever.

The company said Thursday it was freezing hiring and offering buyouts to employees to trim its work force.

But Southwest still expects a key revenue measurement to fall again in the second quarter.

Southwest said it lost $91 million in the first quarter, or 12 cents per share, including $71 million due to the falling value of its fuel hedges.

Without the fuel-hedges item the airline would have lost $20 million, or 3 cents per share, on $2.36 billion in revenue. A year ago, the company earned $43 million, or 6 cents per share, excluding special items.

Analysts, who usually exclude items from their forecasts, had expected Southwest to lose a penny per share on revenue of $2.4 billion in the first quarter, according to a survey by Thomson Reuters.

Over the first three months of the year, Southwest's traffic fell 4 percent, a smaller decline than at most other U.S. airlines. And traffic seemed to stabilize in March, when it declined only 0.4 percent from March 2008.

But the more-lucrative business travel remained weak, contributing to the loss at Dallas-based Southwest, which went 17 years without a losing quarter until last fall but now has posted three straight losing periods.

"Our first quarter 2009 financial results are disappointing but not surprising given the current economic environment," Chief Executive Gary C. Kelly said in a statement. "We face the toughest revenue environment in our history."

Kelly said the rapid weakening in traffic during the first quarter, particularly among business travelers, showed that Southwest is "not immune to the challenges the worldwide recession is having on air travel."

Revenue per available seat, a key measure of earning power in the airline industry, fell 2.9 percent. Even with Easter falling in the second quarter this year, the company said that based on booking trends it still expects another decline in so-called unit revenue for the second quarter.

To adjust, the company is planning to cut capital spending through 2010 by $1.4 billion by delaying aircraft deliveries, retiring some planes sooner than scheduled and suspending plans to increase capacity.

Southwest told employees Thursday it would offer voluntary buyouts to reduce its work force. The company didn't say how many jobs it wants to eliminate, and it didn't detail the offers but said they applied to nearly all employees, who have until June 19 to accept.

The airline said it also froze hiring and froze pay for top officers and senior management.

Kelly said the airline was going ahead with already announced expansion plans, which include new service at New York's LaGuardia Airport and Boston's Logan Airport later this year.

Falling oil prices lowered Southwest's fuel bill by 16.2 percent. But the company's once-prized fuel hedges, which protected Southwest when oil prices were rising, again turned negative.

The company paid $65 million to settle derivative contracts tied to energy in the first quarter. Southwest, however, is worried that oil prices will rise again, so it started to rebuild its hedges for this year and 2010.

For the second quarter, Southwest has contracts that would cap about 50 percent of its fuel needs at the equivalent of $66 a barrel for crude oil -- still above current prices of around $50 a barrel. The company hedged 40 percent of its fuel needs for the rest of this year and 30 percent for next year at even higher caps.

Southwest said the new hedges don't add new cash-collateral requirements.

In premarket trading Southwest shares lost 29 cents, or 3.8 percent, at $7.35.

(© 2009 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.)

Here's What's Hot On CBS11TV.COM:

• Hollywood Hair
• Strange Photos 2009
• In To Be Out: Gay Celebrities
• H1N1 Flu Coverage
• Must-See Video