Southwest Airlines ( LUV) reported a first-quarter loss, missing estimates as demand fell, and owing to the recession the carrier said it will offer buyouts to all employees.

Excluding special items, Southwest lost $20 million, or 3 cents a share, in the quarter. Analysts surveyed by Thomson Reuters had estimated a loss of 1 cent. Revenue fell 6.8% to $2.4 billion and was in line with estimates.

Including items, Southwest lost $91 million, or 12 cents a share. In the first quarter of 2008, before items, the airline earned $43 million.

"We face the toughest revenue environment in our history," said CEO Gary Kelly, in a prepared statement. "A rapid weakening in passenger demand during first quarter, particularly among business travelers, led to our first quarter net loss."

Southwest has reduced its planned capital spending by $1.4 billion for 2009 and 2010, deferring aircraft deliveries, accelerating aircraft retirements and suspending capacity growth plans. To better cope with expenses during the economic slowdown, the carrier on Thursday offered a systemwide voluntary buyout program to its workers.

"Our plans to reduce staffing via our voluntary early-out program will help mitigate cost pressures next year," Kelly said. Additionally, Southwest has frozen pay for officers and senior management.

In the first quarter, revenue per available seat mile fell by 2.9% and yields declined 2.8%. Load factor was 69.9%, a first-quarter record. Cost per available seat mile, excluding fuel and special items, rose by 8.4%.

Looking ahead, Kelly said booking trends indicate that second-quarter unit revenue will also decline, even though Easter fell in April rather than March.

First-quarter hedging losses were $65 million, but Southwest has revived its hedging program to protect against spikes in fuel costs. It has hedged approximately 50% its second-quarter estimated fuel consumption at $66 a barrel, 40% of needs for the remainder of 2009 at $71 a barrel and 30% of next year's forecast amount at about $77 a barrel.

The carrier will take delivery of 13 Boeing ( BA) 737-700s in 2009 and retire 15 aircraft by the end of the year. Ratings, recently cited for Best Stock Selection from October 2007 through February 2009 , is an independent research provider that combines fundamental and technical analysis to offer investors tremendous value in volatile times. To see how your portfolio can use this research, click here now!