Wednesday, Southwest Airlines Co. (LUV), a low-cost carrier, reported 0.7% rise in traffic for the month of June as capacity improved by 5.7%. However, the load factor, an industry measure of occupancy, slipped 3.9 points for the period.
The Dallas, Texas-based airline announced that it flew 6.9 billion revenue passenger miles, or RPMs, in June 2008, a 0.7% increase from the 6.8 billion RPMs flown in June 2007. RPMs refers to how many seats were actually sold on an airline's flight, or simply put, a measure of an airline's revenue based on its traffic.
Capacity for the month grew 5.7% to 8.8 billion available seat miles, or ASMs, from the June 2007 level of 8.3 billion ASMs. Available seat miles refers to how many seat miles were actually available for purchase on an airline. If all of the seats on the plane are not sold, then the ASM indicates the overall capacity the airline is operating at.
Meanwhile, the Southwest Airlines' load factor, a measurement of total occupied seats to total available seats, was 78.2%, down from 82.1% for the same period last year.
Among Southwest's competitors, Continental Airlines Inc. (CAL) said its consolidated traffic for June 2008 decreased 0.1% to 8.63 billion revenue passenger miles or RPMs from 8.63 billion RPMs in the year-ago month. Capacity rose 2.5% to 10.32 billion available seat miles or ASMs from 10.07 billion ASMs in the preceding year month. Passenger load factor declined by 2.1 points to 83.6% from 85.7% in June 2007.
For the second quarter 2008, Southwest flew 19.8 billion RPMs, compared to the 19.0 billion RPMs recorded for the same period of 2007, an increase of 4.2%. Available seat miles improved 5.4% to 26.3 billion from 25.0 billion in the second quarter of 2007. Load factor came in at 75.2%, lower than 76.1% for the same period last year.
For the first half of 2008, Southwest flew 37.4 billion RPMs, an increase of 6.5% over the 35.1 billion RPMs in the year-ago period. Available seat miles advanced 5.9% to 51.5 billion from 48.7 billion in the first-half of 2007. The year-to-date load factor was 72.6%, compared to 72.2% in the corresponding period last year.
Among the recent developments, Southwest Airlines last month revealed plans to optimize its flight schedule by canceling 31 existing roundtrip flights, but adding 40 new roundtrip flights in key growth cities such as Denver and Ft. Lauderdale/Hollywood. The move indicates Southwest's financial strength amid spiraling fuel prices and increasing operating costs, when many of its competitors are resorting to rampant capacity reduction and job-cuts.
Prices of Jet fuel, which is the main operating expenditure of an airline, are currently at near new record highs, with prices of crude oil surging upon speculation and fears of supply disruptions. In the week ended June 13, jet fuel price was $166.8 per barrel, an increase of 90.5% rise from last year. The airline industry purchases about 80% to 95% of its jet fuel requirements directly from refiners on a formula pricing basis.
Southwest' resilience stems from its hedging strategy, with most of the fuel requirements and purchased fuel options hedged years in advance to smooth out fluctuations in fuel costs. The carrier hedged 95% of its fuel usage at $50 a barrel last year and nearly 70% of its fuel requirement at about $51 per barrel this year.
Meanwhile, beginning June 1, the world's leading airlines have switched to e-ticketing, which translates into major cost savings in terms of paper. Industry observers encourage airlines to emulate e-commerce companies and increase the number of services they offer online, such as travel insurance, hotel reservations and rental cars, all services available to passengers after booking a ticket.
The U.S. airline industry is struggling to combat the turbulence of financial and operational crisis. Fleet cancellations, grounding of planes, massive workforce reduction and bankruptcy filings are among the problems compounded by skyrocketing fuel prices. To make matters worse, consumer confidence and travel demand have been receding, indicative of the overall slowdown in the U.S. economy.
Southwest Airlines stock is up 37 cents or 2.85% and currently trading at $13.36. In the past 52-weeks, the stock has been trading between $11.02 and $16.96.
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