Southwest will slow growth, cease service
on a few transcontinental routes and unveil a new seating and
boarding method in the fourth quarter as part of an attempt to
Also in the fourth
quarter, the airline plans to "enhance its low-fare structure,"
although it didn't specify what that meant. Southwest also intends
to alter its frequent-flyer program to make it more appealing to
business travelers and launch an ad campaign aimed at business
It is widely
assumed the new boarding and seating method will include some
assigned seating, which Southwest has been testing. While CEO Gary
Kelly didn't quite confirm that, he did say that the technological
upgrades Southwest had to make to enable assigned seating would be
ready if needed.
transcontinental routes Southwest will scrap on Oct. 4 are
Baltimore-Los Angeles, Philadelphia-Los Angeles and
Baltimore-Oakland, Calif. It also is ceasing Chicago Midway-Orange
County, Calif., and Cleveland-Phoenix on Oct. 4.
They are among the
39 flights Southwest is taking out of its schedule. But it is
adding 46 flights in October and November in what it called "growth
markets," such as Denver and New Orleans. Denver is getting the
most new routes, including new service to Albuquerque, N.M.;
Amarillo and Austin, Texas; Oklahoma City; and Seattle.
Fuel costs on the rise
Southwest has been
profitable for 34 consecutive years and 64 consecutive quarters,
but it is beginning to feel financial pressure as its fuel hedges
decline and, consequently, its fuel expenses rise. Kelly said the
airline's unit cost increase of almost 20% over the past four years
had been driven almost entirely by higher fuel expenses, with labor
wage increases having been largely offset by productivity
The rise in fuel
expenses, combined with a softer-than-expected U.S. economy, are
contributing to Southwest's need to reduce its growth, "optimize"
its schedule and redeploy some aircraft to more profitable routes,
Kelly said. But he insisted the cessation of a few transcontinental
routes did not signal a shift away from long-haul flying, noting
more than a third of the airline's routes are more than 750
Southwest plans a
6% capacity increase for the fourth quarter and for all of 2008,
which is two percentage points less than under its previous plan.
Southwest plans to grow its fleet by 19 aircraft in 2008, 15 fewer
than previously planned.
"In this economic
environment, we simply need to take less risk and grow more
slowly," Kelly said.
He said the push to
increase business travel on the airline is another way to help the
airline fill more seats -- its load factor lags about five
percentage points behind the U.S. airline average -- and increase its revenue per passenger since
business travelers typically buy more flexible fares.
that 40% to 45% of Southwest's traffic is from people traveling on
business, but he thought Southwest could do better. He said
Southwest's seating and boarding system and loyalty to competitors'
frequent-flyer programs have been impediments to increasing the
number of business travelers.
Southwest also has
been looking at ways to increase ancillary revenue with items such
as hotel bookings and perhaps in-flight Internet
By 2009, Southwest
will have upgraded its technology to handle codesharing for
For the first time,
Kelly suggested international codeshare partnerships could expand
beyond ATA, its domestic codeshare partner.
contact reporter Andrew Compart, send e-mail to [email protected].