SWA to cut some transcon routes

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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 boost profitability.

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 travelers.

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.

The 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 gains.

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 miles.

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.

Kelly estimated 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 service.

By 2009, Southwest will have upgraded its technology to handle codesharing for international itineraries.

For the first time, Kelly suggested international codeshare partnerships could expand beyond ATA, its domestic codeshare partner.

To contact reporter Andrew Compart, send e-mail to [email protected].

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