It wasn't really a bad quarter for Southwest Airlines
For the quarter, revenues increased to $2.6 billion from $2.45 billion in the second quarter of 2006. But with jet fuel costs taking off faster than those revenues, earnings slid to $278 million, or $0.36 per share, vs. $333 million, or $0.40 a share, last year. While there are several ways to judge relative fuel costs, I'll minimize the confusion here by noting only that the average per-gallon cost for the quarter -- excluding taxes -- was up 14.1% year over year.
Southwest's results contrasted to those of its rival Delta
But Southwest's management isn't without a flight plan for dealing with the rising costs. For instance, the company has offered buyouts to 8,700 of its most experienced employees, amounting to approximately a quarter of its work force. Employees who accept the buyouts would then be replaced by new lower-cost personnel.
At the same time, Southwest will materially reduce the number of new 737-700 aircraft deliveries from Boeing
When I think of Southwest, I recall that its founder Herb Kelleher once pointed to a strong sense of humor as the most desirable attribute for an employee of the company. On one of my most recent trips with the airline, a flight attendant distributed peanut packages by simply placing them on the floor near the forward galley during takeoff and allowing the gravity of the ascent to push them down the center aisle. Those passengers sitting in aisle seats could then grab them for themselves and their seatmates as they slid by.
With that sort of enjoyably impish approach as a backdrop, frankly I was somewhat surprised that the company's earnings release lacked clarity vis-a-vis its description of fuel cost hedging and even airplane delivery schedule revisions.
As for Southwest as a vehicle for Foolish investments, the airline clearly has encountered some turbulence lately. Until that turbulence subsides, and with the direction of fuel prices very much open to question, I'd recommend at least temporarily remaining at the gate on this one.
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