Southwest Airlines plans to shrink for first time in history

Southwest Airlines plans to shrink this year for the first time in the company's history as it navigates a stormy financial environment.

The Dallas-based discount carrier reported a $56 million loss for the fourth quarter, its second quarterly loss ever. Southwest, which carries more passengers than any other U.S. airline, said the sharp drop in fuel prices during the three-month period forced it to take a $117 million charge against earnings.

For the year, Southwest reported a $178 million profit, down sharply from $645 million in 2007.

Gary Kelly, the airline's chief executive, called 2008 "one of the most difficult years in aviation's 100-year-plus history."

While past years have been about aggressive expansion, Southwest is circling the wagons this year.

"Given this very dramatic environment, our immediate goals will be to protect our financial health and profitability," he said. "Our adjustments will be guided by those two overarching goals."

Excluding the charges related to its hedging of fuel costs, Southwest earned a profit of $61 million, or 8 cents per share, slightly better than forecast by analysts.

Airlines have been struggling with roller-coaster fuel prices and a significant drop in travel demand. Fort Worth-based AMR Corp., parent of American Airlines, reported a $340 million loss for the fourth quarter on Wednesday, and Chicago-based United Airlines said it lost $1.3 billion during the period.

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