Southwest Airlines is planning job and capacity cuts and a tweak to its business model to help restore its falling profits.
After reporting a 17% drop in second quarter profits to $278 million in mid-July, Southwest announced it will offer voluntary buy-out packages to one-fourth of its workers. It also unveiled plans to slow growth in the fourth quarter and in 2008 as it tries to cut costs to offset the impact of rising fuel prices.
Faced with a fuel bill that doubled last year and is on course to increase dramatically this year as its industry-leading fuel hedges gradually expire, Southwest plans to slow the addition of new Boeing 737s from 34 to 19 next year and slow fourth-quarter capacity growth from 8% to 6% as it trims 39 flights from major airports like Phoenix and Baltimore/Washington. Many of the cuts will come in highly competitive cross-country markets.
Southwest chief executive Gary Kelly says: "Our profits are lagging and we intend to adjust and fix that. Our model isn't broken it's just a little bent."
Among the fixes that Kelly plans to implement are the introduction of reserved seating and in-flight entertainment, more ancillary sales through its website and the aggressive pursuit of corporate accounts. The low-cost carrier has recently led US carriers in raising fares, in part to discourage low-yield leisure flyers and leave more seats for late-booking business flyers.
The 9,000 Southwest workers eligible for voluntary redundancy have until the middle of August to accept the buyouts, which mark the second time the carrier has taken such action in its 36-year history. Southwest, which has been a record-setter for continuous profitability among US carriers, has never imposed involuntary furloughs.
Meanwhile, the Dallas-based airline has announced that co-founder Herb Kelleher will step down as executive chairman next May and Colleen Barrett, who in 2001 succeeded Kelleher as president, will step down next July. Kelly, who remains upbeat about second-half booking and revenues, will stay on as chief executive.
Source: Airline Business
