Lbell911

Southwest Cuts Back Growth


Apr 18, 2008

Southwest is again slowing its planned growth by deferring at least half its aircraft deliveries for next year, but also is reconsidering the planned retirement of as many as 16 aircraft this year to take advantage of potential opportunities created by the troubles, capacity cutbacks and potential consolidation of other carriers, the airline revealed yesterday.

CEO Gary Kelly also disclosed during the airline’s first quarter earnings call that the carrier is considering multiple domestic and international code-share partnerships — perhaps as many as six.

Kelly made the comments as the airline reported another profitable quarter, this time $34 million on a 15.1% increase in revenue to $2.5 billion, even as other carriers are slipping back into the red. But that’s down from its $93 million profit in the first quarter of 2007, and Kelly said rising fuel prices are taking a toll on Southwest, too, even though it’s far better off than competitors because it has hedged 70% of its fuel this year at $51 per barrel.

Southwest said it has decided to reduce its fleet growth by taking delivery on no more than 14 737-700 aircraft in 2009, which would be half its previous plan. Southwest deferred those 14 deliveries to 2015, and also deferred 12 deliveries scheduled for 2010 to 2013 to 2015. It still plans to accept 29 new 737s this year.

The changes cut Southwest’s planned capacity growth next year to 2% to 3% if it decides not to retire any aircraft next year, and Kelly said the airline remains “open” to reducing it further. At one time Southwest planned 8% growth in 2009, but its most recent guidance had been 4% to 5%.

Southwest will be eliminating 20 more routes in August and recently reduced its capacity growth plans for this year to 4% to 5%, but that will fall to 3% to 4% if it retires 22 of its aircraft as originally planned. Kelly, however, said Southwest might decide to keep as many as 16 of them. Kelly indicated the number remaining in operation is more likely to be in the single digits, but said Southwest wants the flexibility to respond to market opportunities.

Regarding the code-sharing, Kelly said Southwest is considering and discussing multiple partnerships for domestic and international service. Kelly said it is possible Southwest ultimately could end up with separate code-share partners for service to Hawaii, Canada, Mexico, the Caribbean, Europe and Asia.

The international code share, as Southwest as previously stated, would not begin until 2009. But Kelly said he hopes to have a replacement for ATA code-share service to Hawaii and the New York area within months. ATA flew to LaGuardia.

“How many airlines we will ultimately code share with we don’t really know yet,” he said. He said the airline would only start with a few, but “by the time we get to the end of 2009, it would be my goal that we have all of these bases covered.”

LuvJockey

Keeping older aircraft instead of buying new ones is about cash preservation. SWA normally pays cash for its new airplanes, and with the economy in a downward spiral, nobody can afford to just park new airplanes. If it gets a lot worse, the older aircraft cost nothing to retire, and our cash position stays strong. It'll be interesting to see if we keep all of the remaining 16 aircraft that we were planning on retiring this year.

Riddler

I can see how SWA could benefit through international code sharing, but how would the other airline benefit? Right now, international revenues are the only things keeping the legacies afloat. If they start code sharing with SWA, it seems that the legacies domestic networks would take a hit. I'm not an expert on this, so someone please explain...

dba74

I don't think any legacies will codeshare w/ SWA. Maybe Hawaiian for one would be a symbiotic match. It gives SWA Hawaii reach and it gives Hawaiian immensely more mainland reach. And I'm still wondering if SWA is going to fly to Hawaii themselves with their -700's from the west coast like Aloha used to do.

threegreen

dba74, i am sure SWA would dominate out of SNA-HNL like aloha did.

dba74

And OAK, LAX, BUR, ONT, SEA, LAS, etc. Sounds like a plan to me! Are you reading this Mr. Kelly?

cfii2007

They could probably get the 700's pretty cheap from Aloha.

Scoop

Those legs would burn about four times as much fuel as most SWA flights and the market is mostly tourists.
Scoop

328dude

Double edge sword in my opinion. True, the AA, UA and DL bunch's bread and butter is the international routes, however, since Southwest flys more people than anyone else in the world, they might want to tap into that traffic.

Just my 2 cents.

dba74

Price the tickets accordingly. I can't imagine any other airline being able to beat SWA. Longer stage lengths burn more fuel, but reduce cycles on airframes, among other things