DALLAS - Southwest Airlines Co. lost money for the first time in 17 years as falling oil prices forced the company to write down the value of its fabled fuel-hedging transactions in the third quarter.
Southwest said Thursday it lost $120 million in the three months ended Sept. 30 even as revenue jumped 11.7 percent.
The airline took $247 million in charges, mostly to write down fuel-hedging contracts that are less valuable now that oil prices have plunged by nearly half since July.
Without the charges, Southwest managed its 70th straight quarter of operating profit — $69 million, or 9 cents per share, which was 2 cents per share better than Wall Street expected, according to a survey of analysts by Thomson Reuters.
A year ago, Southwest earned $162 million, or 22 cents a share, in the third quarter.
Revenue rose to $2.89 billion from $2.59 billion, beating analysts' forecast of $2.83 billion.
Southwest is extremely proud of its string of profitable quarters, which began in spring 1991 and spanned a recession and the decline in travel after the 2001 terror attacks.
The third-quarter loss occurred because accounting rules require Southwest to constantly update the potential value of some of its fuel-hedging contracts. On the last day of September, those contracts were worth about $2.5 billion — down from $6 billion on June 30, just before oil peaked at $147 a barrel.
"Those gains have evaporated; we never counted on them anyway," Chief Executive Gary Kelly said in an interview.
Kelly said falling energy prices "are a very good thing for Southwest Airlines." The company paid $2.44 a gallon for fuel in the third quarter — far less than its competitors paid — and expects to spend $2 a gallon in the fourth quarter.
Southwest has hedged large amounts of its fuel needs through 2012, which offers protection against another surge in oil prices.
"The main thing now is the recession and the impact on travel demand," Kelly said. "We haven't seen any impact yet. My biggest concern now is January."
Southwest also disclosed that it decided to tap $400 million in additional cash through a bank revolving credit account — it still has $200 million available. The company said it had $2.2 billion in unrestricted cash and short-term investments as of Wednesday. About half of that cash is in deposits used as collateral against fuel-hedging contracts.
While other airlines have been cutting capacity, Southwest announced this month that it would add Minneapolis to its service.
But the company has also made concessions to the weakening economy by delaying delivery of a few new aircraft. It has also slowed its own capacity growth to under 2 percent for the second half of 2008, and has eliminated some less-profitable flights, shifting those planes to faster-growing markets such as Denver.
Southwest has also attempted to lure customers from other airlines by heavily promoting its lack of fees for services such as checking a piece of luggage.