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Sep. 05, 2008
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Navigating the unsettled skies

Southwest says key indicators fall; airline losses pegged at $5.2 billion

By BENJAMIN SPILLMAN
REVIEW-JOURNAL

A Southwest Airlines plane approaches McCarran International Airport in late August. The airline says two key indicators fell during the month.
Photo by John Gurzinski

Two new reports this week provide insight into how slumping economies and high oil prices are taking a toll on airlines in the United States and overseas.

On Thursday, Southwest Airlines announced revenue miles flown fell 5.2 percent in August nationally and load factors on its aircraft fell from 80 percent to 75 percent.

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The announcement came one day after the International Air Transport Industry Association estimated airlines around the globe would lose a combined $5.2 billion in 2008, thanks largely to high oil costs.

It's no surprise to anyone who's been following the airline situation in Las Vegas, where traffic has been on the decline for nine consecutive months.

"The situation remains bleak," said Giovanni Bisignani, director general and CEO of the Montreal-based International Air Transport Association. "The toxic combination of high oil prices and falling demand continues to poison the industry's profitability."

Even Southwest, which has turned a profit every quarter since 1991, appears to be slowing down in recent months.

The airline, which operates more than 200 daily flights from McCarran International Airport, is still posting small gains in key traffic figures for the year. But those numbers have slipped into negative territory in recent weeks, according to its latest monthly traffic report.

For the year Southwest has hauled about 61 million paying passengers, a 2.2 percent increase above the pace of 2007. The nearly 803,000 trips flown year-to-date nationally by the airline is up 4.4 percent from the 2007 pace.

Lately, however, the numbers have turned downward.

In August the number of paying passengers decreased 6.3 percent to about 7.6 million nationally. The number of trips flown was flat at about 101,000.

Southwest's percentage of full seats per aircraft, or load factor, also fell in August from 80 percent to 75 percent.

Despite the recent declines, the prospects for Southwest aren't nearly as bad as they are for many other airlines.

The global airline report stated fuel now represents about 36 percent of the cost to operate an airline, up from 13 percent in 2002.

It also stated passenger demand globally increased 1.9 percent in July, a five-year low, and that capacity increased 3.8 percent. That suggests airlines need to cut even more routes to stay afloat.

The fiscal losses are expected to be greatest on this continent.

North American carriers are expected to lose $5 billion in 2008, according to the air transport association.

In Asia, airline profits will shrink from $900 million to $300 million.

European profits are expected to decrease from $2.1 billion to $300 million. Latin American and African carriers will see their losses increase from $300 million in 2007 to $700 million this year, the association reported.

The consequences of higher fuel prices are already showing in the United States.

Four airlines have closed up shop this year and another, Frontier, filed for bankruptcy.

The Air Transport Association of America reports its member airlines lost $10.89 per passenger in the first quarter of 2008, an increase from the $9.12 per passenger loss member airlines posted from 2001 to 2007.

Only recently has the culture of airline management begun to shift in earnest from a focus on gaining and holding market share to finding and increasing profits.

In Las Vegas, managers at Allegiant Air readily admit they will sacrifice growth to maintain profits.

"(It) has taken the industry almost three decades to get to this point since deregulation at the end of the '70s," said Robert Ashcroft, a former airline analyst who is now Allegiant's vice president of planning.

"It takes a long time to correct bad habits," Ashcroft added.

But Ashcroft says airlines in the United States are responding more quickly to high fuel costs than those in other countries.

That's because it is a matter of survival.

"(The) rest of the world deregulated later than the U.S., and in some places, there really has been little deregulation," he said.

Contact reporter Benjamin Spillman at bspillman@reviewjournal.com or 702-477-3861.

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Please enter your name Name: Please enter your email Email: Please enter a comment COMMENTS : (word count limit is 300) You have reached the maximum number of words allowed Current Word Count: jakeblaine wrote on September 06, 2008 09:20 AM: None of the commercial airlines in this country are profitable at 100+ dollars a barrel of oil. Southwest airline fuel hedge gambling will be at its end within the next couple of years and it too will be losing money. The domestic oil companies control less than 8 percent of the world oil reserves at this point and there costs are escalating as well, don't expect a big upsurge in production. Brad L. wrote on September 05, 2008 03:27 PM: Four airlines have closed up shop? Plenty more than that this year: Aloha. Champion. Skybus. ATA. Big Sky. MaxJet. Eos. It's going to get worse before it gets better. ex gambler wrote on September 05, 2008 02:37 PM: To the Corporate Leaders - go back to yester-year and start giving your customers what made Vegas famous to begin with - VALUE. Corporate leaders could care less what the consumers want. Their attitude is the same for customers as it is for employees. 'If you don't like it, there are plenty more willing to work for offered wages and plenty of suckers willing to buy into our greed. Just don't let the door hit you in the asp on your way out.' Paul wrote on September 05, 2008 02:34 PM: There's no value for money anymore. People are getting sick of being robbed by all these venues. A beer cost $9, whilst a cocktail can cost $18. When you have to spend that much on a drink, you're less likely to gamble. I'm surprised the locals casinos aren't trying to compete with the strip properties, because they can give tourists a better bang for their buck. TimeRanger wrote on September 05, 2008 01:52 PM: Fuel costs and the economy are not the only factors affecting Vegas. Take into consideration the conditions in Vegas that have changed over the years - Remember the time when a person could go to a hotel/casino and actually receive a little value for their $$$? Hotel/casino restaurants ran their operations as "loss leaders" to entice folks to eat and stay at their properties - You could have a great dinner buffet for less than $5. Now, you have to include the cost of a buffet into your weekly/monthly budget instead of being "pocket change". Entertainment - gone are the days of inexpensive shows. The corporate leaders have taken these shows out of the reach of most folks - residents and tourists alike. To the Corporate Leaders - go back to yester-year and start giving your customers what made Vegas famous to begin with - VALUE. Vegasd8 wrote on September 05, 2008 01:41 PM: The airlines should get a break-even subsidy from the 2008 profits of the oil companies. Robert London wrote on September 05, 2008 01:14 PM: No mention in the article of one of the primary reasons for Southwest Air's profit - hedging oil. They made a great bet on the future price of oil and locked their fuel cost in at far below the current market rate. Unfortunately these hedges will expire gradually until Southwest will be forced to either play the oil futures market again or pay the going rate. A negative for SA and for Las Vegas as well. Paco wrote on September 05, 2008 12:35 PM: "The heading of this article is misleading. The entire airline industry is projected to lose $5.2 billion, not Southwest Airlines." I thought same thing. "Industry losses..." sounds better. Scott wrote on September 05, 2008 07:48 AM: The heading of this article is misleading. The entire airline industry is projected to lose $5.2 billion, not Southwest Airlines. Roger wrote on September 05, 2008 03:28 AM: It looks like charging for sodas, water, baggage, etc. is backfiring.