Southwest Airlines gears up for profits, raises capacity despite ATF price

While major airlines around the world are making loses, Southwest Airlines, the low-cost airline based in Dallas, Texas, the United States, is preparing to reap  profits. Southwest Airlines, the only major airline in the United States to earn profits in the first quarter of 2008, expects to raise capacity by about 4% in 2008 even as other airlines are cutting flights and laying off workers.

According to Gary Kelly, chairman and CEO of Southwest Airlines, the company hopes to “grow modestly through 2009, but may freeze its expansion plans if oil prices and the economy remain challenging.”

Kelly warned investors at a Merrill Lynch transportation conference held in New York recently that high costs of jet fuel would force Southwest Airlines to continue raising fares. Though plans for 2009 are not set, the airline still expects to add 14 new jets in 2009. The number of planes to be retired has not yet been decided.

Southwest, added Gary Kelly, has lower costs than other carriers, mainly because it hedged against rising fuel prices several years ago. Still, the carrier raised fares as many as 3 times in April and May 2008. And, more fare hikes are in the offing.

The airline, he stressed, has changed direction from its old course of just expanding to “growing more selectively” – like, for example, adding flights in Denver, from where other carriers are withdrawing. Simultaneously, it is discontinuing less profitable routes.

Kelly told the gathering: “We now board more passengers annually than any other airline in the world.”

He detailed two major plans that Southwest Airlines, founded in 1972, intends to implement:

* The airline will outfit four of its aircraft with the prototype of a new wireless internet service that uses satellite technology. If the test goes well, the internet service could start rolling out across Southwest Airlines’ fleet early in 2009. The new internet service could also be used to provide passengers with a variety of onboard entertainment options.
* Southwest Airlines is “aggressively negotiating” with several international carriers to provide codeshare service to Canada, Mexico, the Caribbean and Hawaii by mid-2009. Southwest had a codeshare deal with ATA to provide Hawaii service, but that ended when ATA suddenly stopped operating in April 2008. New codeshare deals with international carriers would give customers of Southwest Airlines access to popular vacation destinations that are not part of Southwest’s domestic route structure. (The airline has now services to 64 airports.)

The Southwest Airlines chief said the carrier expects to buy over 25 of the latest, fuel-efficient Boeing 737 aircraft over the next few years.