Southwest Airlines Co. will keep capacity flat this year and focus on boosting revenue to overcome high fuel costs, as the largest U.S. domestic carrier squares up to toughening competition.
Dallas-based Southwest is dialing back expansion for a second year, focusing on a revamp of its aircraft fleet and digesting AirTran Airways after closing its deal for the Atlanta-based rival.
Chief Executive Gary Kelly said Thursday that there are no plans for Southwest to grow this year. "Our network plans, in that respect, are conservative and are geared toward boosting our revenue performance," Mr. Kelly said during a conference call with analysts to discuss the company's fourth-quarter earnings.
Southwest opened the U.S. airline reporting season with results that beat analysts' expectations, though the earnings fell when stripped of special items.
The airline said booking levels indicated the first quarter will be strong, with average passenger revenue likely to rise 7% to 8%.
"The traffic demand looks really good," said Mr. Kelly, who described corporate bookings as "stable."
Southwest will add only Atlanta to its network this year, with 15 daily flights starting from the Delta Air Lines Inc. stronghold next month. Its AirTran unit will add flights to Mexico City and Cabo San Lucas, while cutting several unprofitable cities including Miami, Knoxville, Tenn., and Bloomington, Ill.
"We'll have big schedule changes occurring within the AirTran unit throughout the year," Mr. Kelly said.
The airline expects to receive its single-operating certificate from the Federal Aviation Administration in March, allowing it to integrate AirTran's fleet. When Southwest and AirTran combine their networks this year, they will reach 103 cities.
Southwest said its profit rose 16% to $152 million in the fourth quarter from $131 million a year earlier. Per-share earnings rose to 20 cents from 18 cents. Excluding special items such as fuel-hedge gains, the per-share profit fell to nine cents from 15 cents, beating Wall Street estimates by a penny.
In 2011, the airline earned $330 million excluding special items, its 39th consecutive profitable year.
Last month, Southwest placed a firm order for 150 Boeing Co. 737 Max airplanes, as well as 58 more 737-700s and 737-800s for $19 billion at list prices—the largest order in Boeing history. Southwest will add 33 737-800s this year, while retiring 40 aircraft, dropping its fleet size to 691 planes from 698. The airline said this week it will refurbish the interior of its fleet, fitting in six extra seats on each plane. Southwest expects the fleet changes to save $70 million in 2012.
Capacity is expected to rise 1% in the first quarter of this year, largely due to an extra day because 2012 is a leap year. Southwest said its capacity will hold flat this year compared with 2011 pro forma results.
Southwest's unit cost, the amount spent to fly a passenger a mile, edged up 0.5% over pro forma results for a year earlier—better than previous guidance of a 2% increase. The airline said it expects unit costs to increase again in the first quarter of 2012.
Average fares in the fourth quarter were $140.18, an increase of about 10% compared with a year earlier, including AirTran pro forma results.
When questioned about industry speculation of competitors targeting a merger or acquisition of American Airlines' parent AMR Corp., which filed for bankruptcy-court protection in November, Mr. Kelly said Southwest is preoccupied with closing the AirTran merger, and added that AMR's network strategy didn't fit with Southwest's.
But he said,
"We will pay close attention to any things that do become available, whether it's a simple route or whether it's other assets, and we'll be on our toes to move on those if there are some good opportunities."
Shares in Southwest rose 3.1%, or 28 cents, to $9.30 at 4 p.m. Thursday in composite trading on the New York Stock Exchange. The stock price climbed to its highest level in almost six months during the session.
