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Southwest CEO Gary Kelly on managing higher energy costs, talking exclusively with Boeing for a 787, and how the economy impacts the company's future ...
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Welcome back everybody well it has been a rocky year so far for Southwest Airlines second quarter earnings missing expectations this morning shares are down 30% -- today.
Higher fuel costs hurting industry overall.
CEO and president Gary Kelly joins me now here it's great to see is our.
Great see you sure -- let me ask you this traffic was up 28% yet capacity up 23%.
Planes -- full.
What -- the biggest headwind for the quarter in your opinion.
Oh it's -- -- one thing and it's a fuel prices are.
Jet fuel price per gallon was up 39% vs a year ago and and that is to all time.
High levels and you know -- The west Texas intermediate published prices very misleading have the the current price has -- closer to a 120 dollars a barrel.
All quarter long and and that's the story it's just a very high fuel cost.
But used very southwest has always been known in the industry for being great it's fuel hedging -- your hedge strategy.
Change to the last couple of quarters or you just kind of staying on track for now it's just that that they can't fight the tape the prices higher and that's just what it it.
Well we still fuel hedge.
And we did have a fuel -- benefit but fuel hedging.
Doesn't doesn't provide a 100% solutions so it's just a different way of saying that we're essentially hedged at.
These current prices.
And we do hedge in west Texas intermediate which is which is another.
Creates a basis.
Risk if you will compared to what we ultimately burden and our -- jet fuel so.
It's it's complex but were 50% hedged for the rest of this year 65% next year in.
And 50% again and 4013 so now but it's pretty much of that.
At about a hundred dollars a barrel.
And -- we'll have to continue to work on ways to reduce our fuel consumption.
Which is as has the added benefit of being very climate friendly to but.
We will attack on both fronts but in the meantime.
You know -- were not able to grow revenues fast enough to to offset that ever higher fuel costs -- -- -- revenues you and of course all the other airlines bringing in some extra revenue thanks to be partial shutdown of the FAA without that tax in the tickets.
Most airlines including yourself.
Raise prices.
How are you gonna do what that going forward I mean -- the remedy it is kind of bring in and what if there is a retroactive tax on you as.
Secretary Ray LaHood is has threatened recently.
Well -- we obviously will comply with the law.
We're doing that now we're we're we're not authorized to collect the tax we're not required to -- -- because of that we don't remit attacks and and that's exactly where we're doing.
But you see the the earnings results here for the industry for the quarter earnings are down.
Here in 2011.
We're supposed to be in an economic recovery.
And not sliding back into recession so.
One way or the other -- the industry is gonna gonna have to manage.
Higher energy cost and where we're refunding of course.
Any customers who had purchased tickets with taxes and them and are now flying.
We're we're taking care of those refunds but.
There's just an opportunity for us to keep the posted fares at the same levels and avoid any further fare increases try to deal with higher fuel costs certainly certainly.
Let me ask you about this this syrup -- -- out of Paris.
And that you've had some conversations with Airbus you have been a lifelong.
For forty years now -- Boeing customer 730 sevens.
Is there any in truth to news reports that your discussions with Airbus to maybe buy at 8320 for example.
No no there's no true to that at all and of course we.
We know.
Leaders.
Of aerospace companies around the world and certainly including -- -- there -- great company.
And and a great friend of Southwest Airlines and and we certainly correspondent certainly interact with those folks but it's.
We're talking exclusively with Boeing.
And I think that that's only fair because that's so what we want to make work and waiting to hear from the Boeing company about.
What opportunities we have with this -- Newly re engined -- 737 where the largest 737 operator in the world in.
Not just kind of chuckled -- all that because we we know each other very well and we and we trade notes and -- somehow someone has has extrapolated that into we're having discussions that's fault.
Ha well you know rumors rumors -- -- have been very Asian over AOL before -- I do wanna ask you about next year you have kind of pullback on forecast for.
2012 I know at this point you don't plan to do any expansion you don't plan to hire.
Is as a of that because of what you're seeing with regards to the economy also kind of the the the lack of clarity coming out of Washington right now.
Absolutely.
Yes on both and unfortunately the economy is performing -- about as I had feared.
And we we wanted to wait and see how this year transpired before we set our plans set for next year so work.
We're not trying to be crystal ball readers we're just trying to do the best we can manage our business but right now the evidence is pretty clear that.
Despite a very deep recession we're not in a strong economic recovery.
I don't see any reason to believe that it will get any better next year.
And on top of that you've got very high fuel costs.
And a lot of fiscal problems -- and then monetary.
All the monetary bullets have been there have been deployed it seems like so it's.
It's a very tough outlook and we're gonna have to be very cautious -- manager flight scheduled.
Accordingly.
Well you -- you're managing a lot of things including forty years.
A Southwest Airlines happy anniversary very to you then of the company and -- employees.
Well thank you very much it's been a great forty years and we're looking forward to another great forty years and we've got challenges but I know -- people overcome them so we're we're we're very excited about our future.
Gary Kelly southwest's CEO and president Gary thank you very much for speaking with Fox Business today.
