Nothing will change until system capacity goes away. Too much capacity out there to sustain higher prices. It's got to come from somebody.

From January:

Could Southwest's run of profitability be coming to an end?

TodayswaBy posting a profit in 67 consecutive quarters, Southwest has set a standard for U.S. airlines. But is the airline's profitability streak be about to come to an end? The carrier is projected to turn a small profit during the current quarter, according to a Bloomberg News survey of Wall Street analysts, but Southwest CEO Gary Kelly warned rising fuel, labor, maintenance and airport costs are putting a squeeze on the carrier. "We are not planning for a loss,'' he said on a conference call with analysts and investors, according to Bloomberg News. "I'm not trying to alert or alarm anyone other than to say I can't give you a guarantee there won't be a loss in the first quarter."

"We would not have made money in the fourth quarter if not for fuel-hedging gains," the Fort Worth Star-Telegram (free registration) quotes Kelly as saying on the conference call. Kelly said the airline's fuel hedges boosted the carrier's bottom line by $300 million in the quarter. Still, January booking and traffic trends are optimistic enough that "we're not predicting a loss," Kelly said. "But at the same time, I'm not going to tell you that we're not at some risk there," he added. Kelly said that to avoid a loss, Southwest will have to find a way to boost revenue. That effort appears to be off to a good start, with Bloomberg writing "the airline flew more passengers at higher prices, helped by a new fare class aimed at attracting more business travelers."

It's been more than a decade since Southwest had an unprofitable quarter. The Dallas Morning News (free registration) notes Southwest "last posted a net loss in the first quarter of 1991, when the Iraq-Kuwait conflict drove up energy prices and prompted a drop in passenger traffic." Already, Southwest is responding to changing conditions, with the Morning News' Airline Biz blog writing that 2008 will be the carrier's "slowest-growing year in two decades." And if a loss does materialize for Southwest, the Star-Telegram says that "would be an ominous sign for the airline industry. … (Southwest) continued to report profits even in the years after 9-11, while rivals bled billions of dollars and many went bankrupt." Ironically, the talk of a possible loss comes as Southwest recorded its highest annual earnings ever in 2007, with a full-year profit of $645 million.