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Southwest Airlines offering worker buyouts to cut costs

July 18, 2007|From Bloomberg News

Southwest Airlines Co., already slowing growth to help boost profit, is offering buyouts to 27% of its employees to reduce operating costs.

About 9,000 workers are eligible for the buyouts, which include $25,000 cash, medical and dental benefits and travel privileges, spokeswoman Brandy King said Tuesday. It's the second such program in the Dallas-based airline's 36-year history.

The offer marks Southwest's latest effort to offset rising labor and fuel costs, its two largest expenses. The airline said in June that it would slow capacity growth in this year's fourth quarter and for all of 2008 to maximize revenue on each flight.

"Southwest is a very lean company, so when they do something like this, it's suggesting they see less growth ahead, which is a good thing," said analyst James M. Higgins of Soleil Securities Group.

Southwest, the largest discount carrier, set an Aug. 10 deadline for workers to accept the buyouts.

Southwest doesn't have a goal for buyout acceptances or a savings target, King said.

The airline's cost to fly each seat a mile, a measure of efficiency, has risen 20% in the last four years, threatening its ability to increase profit while charging its signature low fares.

Southwest spent more than $2.14 billion on jet fuel in 2006, a 59% increase from the previous year. Labor costs rose 9.7% to $3.05 billion.

News of the buyout came the same day the government reported that employment at seven of the largest U.S. airlines rose in May for the first time in six years, ending a decline triggered by the Sept. 11, 2001, terrorist attacks.

The so-called network carriers had 0.3% more employees than a year earlier, the first increase since August 2001, the Bureau of Transportation Statistics said.

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