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CEO says Southwest Airlines is ready for consolidation
07:25 AM CST on Friday, February 1, 2008
By TERRY MAXON / The Dallas Morning News
Southwest Airlines Co. chief executive Gary Kelly is talking more about the possibility of acquiring another airline.
Southwest is ready if and when the airline industry begins consolidating, Mr. Kelly said Thursday at an investment conference in New York.
"I think consolidation provides an opportunity for Southwest regardless of what we do," he said.
"We have enough exposure to other airlines in the U.S. that if they shrink, we'll benefit. And of course, I wouldn't eliminate the possibility that we would participate in some form or fashion in consolidation."
Some industry analysts have predicted that an industry shake-up is likely this year.
That speculation has been strengthened with reports in January that Delta Air Lines Inc. was talking to Northwest Airlines Corp. and UAL Corp. about a potential merger.
Even traditionally independent Southwest has joined in the chatter.
Past deals
Southwest bought Salt Lake City-based Morris Air Corp. in 1993 as well as Muse Air Corp. in 1985.
But while Morris was integrated into Southwest, Muse – later renamed TranStar Airlines Corp. – was kept separate until it was shut down in 1987.
Analysts have assumed that Southwest will look for another airline like Morris, a point-to-point carrier that exclusively flew Boeing 737s – which is to say, another airline that looks like Southwest.
But Mr. Kelly said an acquisition target wouldn't have to be an exact twin.
Asked whether Southwest was looking at smaller airplanes than the Boeing 737 for its own fleet, Mr. Kelly turned it into an answer about mergers.
More than the 737?
After repeating Southwest's consistent position that it likes the Boeing 737, Mr. Kelly told listeners at the Raymond James Growth Airline Conference that Southwest is willing to consider a partner that flies other types of airplanes.
"If there's an opportunity to acquire another carrier that does not have 737s, we have plans in mind about how we can deal with that," Mr. Kelly said.
"While that is an impediment to an acquisition, it's not a deal killer."
He said he doesn't know "exactly how we would resolve that. But at least in today's environment, where the aircraft market is still very, very hot, it wouldn't be too difficult thinking about switching out that fleet."
On the other hand, "I wouldn't foreclose the idea that we might operate a second fleet type, either," he added.
"But we have no desire to do that. I just want to point out that wouldn't be a deal killer."
Nothing's automatic
If one big network carrier buys another one, that doesn't automatically mean that Southwest has to do something, he told attendees in New York.
But Southwest "would be crazy" not to look at potential scenarios, he said.
"The problem with all this scenario planning is that they're infinite as to what might happen. You don't know what role the Justice Department might play and whether assets might be required to be divested and things of that nature," Mr. Kelly said.
He noted that when US Airways Group Inc. and America West Holdings Corp. merged in 2005, Southwest wasn't forced to do anything.
"They shrank 15 percent, and we gained market share," he said.
On a day when other airline shares rose, Southwest fell 17 cents to $11.71.
07:25 AM CST on Friday, February 1, 2008
By TERRY MAXON / The Dallas Morning News
Southwest Airlines Co. chief executive Gary Kelly is talking more about the possibility of acquiring another airline.
Southwest is ready if and when the airline industry begins consolidating, Mr. Kelly said Thursday at an investment conference in New York.
"I think consolidation provides an opportunity for Southwest regardless of what we do," he said.
"We have enough exposure to other airlines in the U.S. that if they shrink, we'll benefit. And of course, I wouldn't eliminate the possibility that we would participate in some form or fashion in consolidation."
Some industry analysts have predicted that an industry shake-up is likely this year.
That speculation has been strengthened with reports in January that Delta Air Lines Inc. was talking to Northwest Airlines Corp. and UAL Corp. about a potential merger.
Even traditionally independent Southwest has joined in the chatter.
Past deals
Southwest bought Salt Lake City-based Morris Air Corp. in 1993 as well as Muse Air Corp. in 1985.
But while Morris was integrated into Southwest, Muse – later renamed TranStar Airlines Corp. – was kept separate until it was shut down in 1987.
Analysts have assumed that Southwest will look for another airline like Morris, a point-to-point carrier that exclusively flew Boeing 737s – which is to say, another airline that looks like Southwest.
But Mr. Kelly said an acquisition target wouldn't have to be an exact twin.
Asked whether Southwest was looking at smaller airplanes than the Boeing 737 for its own fleet, Mr. Kelly turned it into an answer about mergers.
More than the 737?
After repeating Southwest's consistent position that it likes the Boeing 737, Mr. Kelly told listeners at the Raymond James Growth Airline Conference that Southwest is willing to consider a partner that flies other types of airplanes.
"If there's an opportunity to acquire another carrier that does not have 737s, we have plans in mind about how we can deal with that," Mr. Kelly said.
"While that is an impediment to an acquisition, it's not a deal killer."
He said he doesn't know "exactly how we would resolve that. But at least in today's environment, where the aircraft market is still very, very hot, it wouldn't be too difficult thinking about switching out that fleet."
On the other hand, "I wouldn't foreclose the idea that we might operate a second fleet type, either," he added.
"But we have no desire to do that. I just want to point out that wouldn't be a deal killer."
Nothing's automatic
If one big network carrier buys another one, that doesn't automatically mean that Southwest has to do something, he told attendees in New York.
But Southwest "would be crazy" not to look at potential scenarios, he said.
"The problem with all this scenario planning is that they're infinite as to what might happen. You don't know what role the Justice Department might play and whether assets might be required to be divested and things of that nature," Mr. Kelly said.
He noted that when US Airways Group Inc. and America West Holdings Corp. merged in 2005, Southwest wasn't forced to do anything.
"They shrank 15 percent, and we gained market share," he said.
On a day when other airline shares rose, Southwest fell 17 cents to $11.71.
