Southwest Reports Q4 Loss on Hedges

Southwest's fourth quarter earnings call was probably one of the more anticipated calls of the quarter. There had been plenty of discussion about how its hedges would hurt the airline and whether it would be able to turn a profit. We now know the answers to both those points.

We knew that the hedges would lose some amount of money for the airline, and it hurt enough to put them into the red for the quarter. The net loss for the airline was $56 million in the quarter, though that swung to a $61 million gain net of the dreaded "special items" that seem to be prominent in every earnings call these days.

On top of these numbers, Southwest has said that growth will be "suspended indefinitely," and that creates all kinds of problems for an airline that has thrived on growth in the past. Its relatively high wages will start to take their toll as growth stops. Fewer new employees (with their lower wages) will be around to help bring costs down. It's great news for capacity constraint in an industry that has suddenly found excellent discipline, but it will be a big adjustment for an airline that has grown significantly in recent years.