Southwest's Momentum 'Stalls'; Used Boeing 737-700 Joins Fleet
By Steven Lott/Aviation Daily
10/06/2006 09:02:45 AM
Southwest will likely take 2007 to build frequencies within its existing markets rather than add new cities, reports CEO Gary Kelly, especially due to concern over a recent slowing of the strong revenue and yield growth seen during the summer.
"The momentum has stalled," Kelly told The DAILY yesterday in Washington. "We're not hitting our earnings targets." Southwest in early September warned that unit revenue growth in the third quarter would be less than 10% due to traffic and revenue trends (DAILY, Sept. 7). Kelly said yesterday the stalled growth is directly tied to the Aug. 10 terrorism scare that led to new airport security restrictions. "You couple that with the fare increases and perhaps slower growth in the economy and it's knocked the momentum back a little bit."
The carrier earlier in the week reported no load factor change in September, and Kelly predicted little change in the trends through yearend. Southwest and other carriers are also battling high fuel prices and despite the recent dip to $60 per barrel, "I believe this is temporary and it will snap back up."
Despite the slowdown, Southwest is still profitable and is in no danger of dipping into the red, Kelly said. He said the carrier is still planning about 8% capacity growth in 2007 thanks to 35 new deliveries expected next year. In addition to the new planes, the carrier is moving ahead with its plan acquire some used 737-700s, the first of which was recently acquired, Kelly reported. The aircraft was formerly part of the Ford Motor Co. corporate fleet, operating mostly in Europe. The 737 is now in Dallas getting retrofitted to the Southwest configuration.
Kelly this summer said the airline could add as many as 20 used planes, but yesterday said it now looks like it will add only a "handful" of used planes in the near term. Southwest has its eye on another five used planes, with a deal on a second -700 expected to be signed before the yearend. Depending on the pace of negotiations, additional planes could be added next year.
Kelly was in Washington for an event to launch service at Washington Dulles, which became the airline's 63rd city. The carrier is starting with two gates and 12 daily flights from Dulles but is not expected to ramp up Dulles as quickly as other cities, such as Denver. "There are other things we need to attend to around our system," he said. However, initial Dulles bookings are strong and loads are high.
As Kelly said in July, the top priorities remain adding capacity in Denver, Philadelphia, Las Vegas and Chicago (DAILY, July 20). Southwest always has a long list of possible new cities, but it hasn't made any decisions for 2007. "In a lot of ways, we would like to go through next year without any new cities," he said. "We have so many needs in our existing system, it just makes it harder to justify adding yet another new city in the near term."
Southwest launched Denver service in January with 13 daily flights, and 10 months later, the airline has 32 daily services. "We've been able to fund our Denver growth rapidly, but it's caused other things to suffer a little bit," he said. Kelly wants to focus on some other cities where demand is strong. "It's a nice problem to have with more demand than we have airplanes," he said.
It even happens to the best of them.
By Steven Lott/Aviation Daily
10/06/2006 09:02:45 AM
Southwest will likely take 2007 to build frequencies within its existing markets rather than add new cities, reports CEO Gary Kelly, especially due to concern over a recent slowing of the strong revenue and yield growth seen during the summer.
"The momentum has stalled," Kelly told The DAILY yesterday in Washington. "We're not hitting our earnings targets." Southwest in early September warned that unit revenue growth in the third quarter would be less than 10% due to traffic and revenue trends (DAILY, Sept. 7). Kelly said yesterday the stalled growth is directly tied to the Aug. 10 terrorism scare that led to new airport security restrictions. "You couple that with the fare increases and perhaps slower growth in the economy and it's knocked the momentum back a little bit."
The carrier earlier in the week reported no load factor change in September, and Kelly predicted little change in the trends through yearend. Southwest and other carriers are also battling high fuel prices and despite the recent dip to $60 per barrel, "I believe this is temporary and it will snap back up."
Despite the slowdown, Southwest is still profitable and is in no danger of dipping into the red, Kelly said. He said the carrier is still planning about 8% capacity growth in 2007 thanks to 35 new deliveries expected next year. In addition to the new planes, the carrier is moving ahead with its plan acquire some used 737-700s, the first of which was recently acquired, Kelly reported. The aircraft was formerly part of the Ford Motor Co. corporate fleet, operating mostly in Europe. The 737 is now in Dallas getting retrofitted to the Southwest configuration.
Kelly this summer said the airline could add as many as 20 used planes, but yesterday said it now looks like it will add only a "handful" of used planes in the near term. Southwest has its eye on another five used planes, with a deal on a second -700 expected to be signed before the yearend. Depending on the pace of negotiations, additional planes could be added next year.
Kelly was in Washington for an event to launch service at Washington Dulles, which became the airline's 63rd city. The carrier is starting with two gates and 12 daily flights from Dulles but is not expected to ramp up Dulles as quickly as other cities, such as Denver. "There are other things we need to attend to around our system," he said. However, initial Dulles bookings are strong and loads are high.
As Kelly said in July, the top priorities remain adding capacity in Denver, Philadelphia, Las Vegas and Chicago (DAILY, July 20). Southwest always has a long list of possible new cities, but it hasn't made any decisions for 2007. "In a lot of ways, we would like to go through next year without any new cities," he said. "We have so many needs in our existing system, it just makes it harder to justify adding yet another new city in the near term."
Southwest launched Denver service in January with 13 daily flights, and 10 months later, the airline has 32 daily services. "We've been able to fund our Denver growth rapidly, but it's caused other things to suffer a little bit," he said. Kelly wants to focus on some other cities where demand is strong. "It's a nice problem to have with more demand than we have airplanes," he said.
It even happens to the best of them.
