Insisting that his carrier has "a number of weapons to choose from," Southwest Airlines CEO Gary Kelly told reporters and analysts at the company's Dallas headquarters this week that a 15% increase in year-end earnings remains a goal for both 2006 and 2007.
On the heels of a difficult third quarter during which net profit fell 77% (ATWOnline, Oct. 20), Kelly said Southwest expects fuel prices to continue to rise for the next four years and that "we know our focus now, and for the next several years, is to drive revenue growth."
The airline was enjoying another banner year before the third-quarter profit plunge, caused in part by the August terrorist scare and expenses that rose 19.5% from the year-ago quarter against a 17.7% increase in revenues. Nine-month profit of $442 million was up just 6.8% over the year-ago period, but Kelly is confident of a rebound despite some analyst skepticism. "We wouldn't mention it if we didn't believe we could do it," he declared.
Saying he did not want to "give a road map for competitors to follow," he would not reveal Southwest's specific revenue-enhancement strategy. But he claimed the carrier is "in position to [increase revenue] better than other airlines due to competitive advantages."
Kelly added that costs are under control and said the airline is in the process of reviewing airport operations and looking for savings and efficiencies. He noted that there are plenty of growth opportunities in markets Southwest already serves, starting with Dallas. In conjunction with the announcement of a fare sale out of Dallas Love Field, he said load factors on flights leaving the airport have been approximately 65%, but the repeal of the Wright Amendment means Dallas "is like a new city for us."
The carrier remains reluctant to raise fares but will consider "modest" hikes in some markets. Kelly maintained that its low-fare brand is worth more than any individual increase and said he does not foresee an across-the-board fare hike in this quarter.
Southwest also would consider another codeshare agreement that might help boost loads (its deal with ATA Airlines is worth $50 million in revenue), but Kelly said one of the problems with partnering with other carriers is that "most of them have very unfriendly customer service and that doesn't work for Southwest Airlines."
It also will not start charging passengers for extras, and he said it has no plan to establish and charge for assigned seating. It continues to conduct tests in San Diego on a variety of boarding procedures but will not reveal the results. He said assigned seating only will be implemented if it is revenue neutral, ensuring no costs would be passed on to the customer.
"We're accelerating our growth at a time that our competition is decelerating," Kelly concluded. Southwest plans to take delivery of 37 aircraft next year.
On the heels of a difficult third quarter during which net profit fell 77% (ATWOnline, Oct. 20), Kelly said Southwest expects fuel prices to continue to rise for the next four years and that "we know our focus now, and for the next several years, is to drive revenue growth."
The airline was enjoying another banner year before the third-quarter profit plunge, caused in part by the August terrorist scare and expenses that rose 19.5% from the year-ago quarter against a 17.7% increase in revenues. Nine-month profit of $442 million was up just 6.8% over the year-ago period, but Kelly is confident of a rebound despite some analyst skepticism. "We wouldn't mention it if we didn't believe we could do it," he declared.
Saying he did not want to "give a road map for competitors to follow," he would not reveal Southwest's specific revenue-enhancement strategy. But he claimed the carrier is "in position to [increase revenue] better than other airlines due to competitive advantages."
Kelly added that costs are under control and said the airline is in the process of reviewing airport operations and looking for savings and efficiencies. He noted that there are plenty of growth opportunities in markets Southwest already serves, starting with Dallas. In conjunction with the announcement of a fare sale out of Dallas Love Field, he said load factors on flights leaving the airport have been approximately 65%, but the repeal of the Wright Amendment means Dallas "is like a new city for us."
The carrier remains reluctant to raise fares but will consider "modest" hikes in some markets. Kelly maintained that its low-fare brand is worth more than any individual increase and said he does not foresee an across-the-board fare hike in this quarter.
Southwest also would consider another codeshare agreement that might help boost loads (its deal with ATA Airlines is worth $50 million in revenue), but Kelly said one of the problems with partnering with other carriers is that "most of them have very unfriendly customer service and that doesn't work for Southwest Airlines."
It also will not start charging passengers for extras, and he said it has no plan to establish and charge for assigned seating. It continues to conduct tests in San Diego on a variety of boarding procedures but will not reveal the results. He said assigned seating only will be implemented if it is revenue neutral, ensuring no costs would be passed on to the customer.
"We're accelerating our growth at a time that our competition is decelerating," Kelly concluded. Southwest plans to take delivery of 37 aircraft next year.
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