Eagle757shark
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Southwest upbeat about growth after AirTran merger
[SIZE=-1]12:00 AM CST on Friday, December 17, 2010
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[SIZE=-1]By TERRY MAXON / The Dallas Morning News
[email protected] [/SIZE]
Southwest Airlines Co. wants its merger with AirTran Holdings Inc. to add up, not down.
Speaking to industry analysts Thursday, chairman and chief executive Gary Kelly said that Southwest doesn't intend to follow the path of other mergers in which the surviving carrier wound up smaller than its two predecessors.
Consolidation usually means "that you take Airline A plus Airline B, and one plus one is less than two," Kelly said. "That's not what we're contemplating here with AirTran."
Dallas-based Southwest officially is in a no-growth mode, and Kelly reiterated that that will remain the company's stance until Southwest closes its merger with AirTran, probably in the first half of 2011.
However, Southwest is already licking its chops about what it might add to its traffic and revenue by connecting Southwest's cities to AirTran's cities, even before adding airplanes to the combined fleet.
AirTran's routes are already profitable, but "most of those new markets are not fully developed and are in need of further expansion. I would point to Atlanta in particular," Kelly said. "This creates for us immediately significant growth opportunities."
In addition, "AirTran brings significant profit synergies simply by virtue of connecting our two route networks. This has the effect of creating hundreds of new itineraries. It may be a thousand new itineraries when we actually get around to doing that," he said.
Simply linking the two networks will drive hundreds of millions of dollars in new traffic, and "all of that can be done without raising fares or without adding a single airplane," Kelly said.
Southwest, which is strictly a domestic carrier, has grown tremendously since 2000 – adding 200 airplanes – even as most of its large competitors reduced their domestic networks, he said.
"As I listen to the industry talk, they're very pessimistic, and certainly very pessimistic about the opportunities domestically," Kelly said. "We have the exact opposite view."
He said he agreed with Southwest chief financial officer Laura Wright that "business travel has been the real weak spot in travel. To a large degree, the softness there has been somewhat replaced by stronger leisure travel."
About the time he was speaking to analysts in New York, American Express Business Travel issued a report that said business travel fares were almost back to pre-recession levels.
The American Express Co. division said average fares on domestic routes reached $228 in the third quarter, up from $215 in third quarter 2009 and nearly back to third quarter 2007's $231. The highest fares, $253, came in third quarter 2009, as fuel prices were peaking and the sharp drop in business travel had yet to be felt.
Wright said Southwest set a goal in 2007 to increase its revenue by $1 billion by 2010. However, that goal turned out to be too little, she said.
Southwest now expects its operating revenue in 2010 to be more than $2 billion above its 2007 revenue, with the majority brought by higher fares. Wright said more than $1 billion is coming from higher yields, or revenue charged per passenger per mile; about $700 million from carrying more passengers; and the rest from new services like the "Early Bird" fee that lets people board ahead of other passengers.
