Southwest Airlines reported a larger-than-expected quarterly loss on Thursday as demand weakened in the recession and said it would offer voluntary employee buyouts in a bid to reduce costs, sending its shares down more than 11 percent.

The low-cost airline posted a loss of $91 million, or 12 cents per share, for the first quarter, compared with a year-earlier net profit of $34 million, or 5 cents per share.

Excluding special items from a portion of the company's fuel hedge portfolio, the loss came to 3 cents per share. The results missed analysts' expectations of a loss of 1 cent per share, according to Reuters Estimates.

The Dallas-based company, the second major airline to report during this earnings season, said total operating revenue slipped 6.8 percent to about $2.4 billion.

Southwest said its capacity -- the number of seats for sale -- declined by 4.1 percent, outpaced by an 8.1 percent decline in traffic. Still, Southwest's load factor, which measures how full a plane is, inched up to 69.9 percent from 69.8 percent.

Based on booking and revenue trends so far, Southwest expects another year-over-year decline in operating unit revenue in the second quarter.

The airline industry has been hit hard this year as businesses and consumers reduced their travel. On Wednesday, American Airlines parent AMR Corp reported a quarterly loss of $375 million.

But with oil prices on the rise, Southwest said it had begun to rebuild its 2009 and 2010 hedge positions. It has derivative contracts in place for about 50 percent of its second-quarter 2009 estimated fuel consumption, capped at about $66 a barrel.

To further cope with falling demand, Southwest said it planned to cut capital spending by about $1.4 billion for 2009 and 2010 by deferring aircraft deliveries, accelerating aircraft retirements and suspending plans to expand capacity.

The company still plans to accept 13 new Boeing 737-700s in 2009 and will retire 15 aircraft by the end of the year.

Southwest said it expected its capacity, as measured in available seat miles, to decline about 5 percent from 2008.

The company has also put in place a hiring freeze and frozen pay for officers and senior management. It said it would offer a systemwide voluntary early-out program to its workers to reduce and align headcount with current capacity needs.

In early New York Stock Exchange trade, Southwest stock was down 11.4 percent at $6.77.

(Reporting by Deepa Seetharaman; Editing by Lisa Von Ahn)