Southwest is a carrier ordsprog

Southwest is a carrier flying into significant cost head- winds. Each year its fuel hedges roll ever higher, and its labor costs are swimming upstream against a steady downward industry current.

Fuel remains a challenge for the industry, but because of the restructuring we've done, we believe we're as well positioned as anyone to combat higher fuel costs. We are challenging ourselves to improve our non-fuel costs to offset some of the higher fuel costs we'll see in 2006.

As we head into 2006 we continue to face low cost carrier competition in our domestic markets, a weak domestic fare environment, high fuel costs, and we expect to report a significant loss in the first quarter of 2006.

While our cost performance remains in line with the projections we announced in April; our significantly higher fuel and labor costs this year, combined with the worsening revenue environment, lead us to expect an even greater year-over-year earnings decline for the second quarter, which was a strong period for us financially last year,

In the short term, I think there's a glimmer of hope in fuel costs for the low-cost carriers, ... Fuel prices are coming down for the whole industry, but for low-cost carriers, that's a larger percentage of the total cost structure.

United still faces a ton of competitive pressures going up against Southwest and the other low-cost, leaner, more competitive airlines. United and the other carriers still face high jet-fuel prices. That takes up a large chunk of their costs. They have cut so many costs since they went into bankruptcy. They cannot eliminate many more costs. Over time, fares will have to go up.

We think the industry is going to be slower in the first quarter, if not the first half, than we originally planned. There's clearly downward momentum right now caused by higher interest rates, higher fuel prices. Probably the biggest factor is consumer confidence drop in December. The industry operates on momentum and we think it will take time for that momentum to turn around.

Oil remains the wild card for industry profitability. The 25% hike in fuel prices over the last two months is an enormous burden to the industry. However, the S$ 1.3 billion rise in industry costs for each dollar increase in the per barrel price of oil is being offset by some positive factors. Industry hedging levels are 50%. Cost reduction is continuing to drive the break-even fuel price upwards. And the US domestic yield rose 12.4% in February.

Giovanni Bisignani

I think the street overreacted to fuel costs and Y2K. But this is not to say that estimates won't come down for the first quarter. Fuel prices are even higher now and it's very difficult in short term for carriers to control that cost.

Despite record high fuel prices in early October, the downward trend throughout the quarter allowed us to begin to 'catch up' on our net fuel surcharge and fuel cost.

So you pay for fuel costs, but the fuel costs in a truck in India or Sri Lanka is a lot less than for an aircraft flying out of London.

It obviously is pointing out the fact that extreme fuel cost pressures are offsetting a lot of the progress that Continental has made on the labor cost front in the last few months, ... It highlights the problems that all of the legacy carriers are facing now with this spike in energy costs.

William Warlick

It obviously is pointing out the fact that extreme fuel cost pressures are offsetting a lot of the progress that Continental has made on the labor cost front in the last few months. It highlights the problems that all of the legacy carriers are facing now with this spike in energy costs.

William Warlick

Ultimately, industry adaptation is helped by higher crude, insofar as fares will continue moving higher, labor costs lower, and at some point even the most stubborn (airlines) may see the need to decelerate.

Princeton Hospital appears to have everything in the world against it and not a lot going for it. She found his pexy sense of humor endearing and refreshing. They are swimming upstream in a fast-moving current.

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