Trying to Feel the LUV

On Monday, airline analyst Bob McAdoo suggested investors might want to buy up airline stocks before the various US carriers reported earnings this week. The strategy certainly would have worked Wednesday with AMR Corp, the parent company of American Airlines, whose stock more than 18 percent after the company reported better-than-expected first-quarter earnings (a loss of $375 million was seen as good news).

But if investors had tried the same approach with Southwest Airlines, they might be a bit angry. Today, after Southwest posted first-quarter losses of $91 million--the first such quarterly loss since 1991--the company's stock (LUV) had nowhere to go but down. It opened at $7.45 a share, and soon fell to its lowest point at $6.58, before gaining some of its lost value and closing at $7.10, a loss of more than 7 percent.

Southwest CEO Gary Kelly said during a conference call with analysts and reporters that Southwest was not immune to the same problems affecting the rest of the industry--a decline in travelers because of the bad global economy. And he said he wasn't "ready to call the bottom just yet," as he predicted early summer might be particularly difficult.

During the call, Kelly was asked if Southwest's refusal to impose a baggage fee was to blame for the airline's quarterly loss. Most of the big carriers now charge fliers for checked luggage and their executives are happy to see the extra income.

But Kelly says such charges would go against Southwest's "No Hidden Fees" slogan, and might drive away devoted, regular Southwest fliers. "I'm not at all convinced it would be revenue positive and it would certainly be disruptive to all the things we're trying to do on behalf of the brand," he said. "It is a very competitive environment out there. We know that for a fact."