A Different view from someone that may know....
UPDATE 2-Southwest CEO sees net rising, mergers 'bullish'
Mon May 2, 2005 08:28 PM ET
(Adds additional quotes from interview)
By Christian Plumb
DALLAS, May 2 (Reuters) - Southwest Airlines Inc. (LUV.N:
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Southwest is trying to keep its profit streak alive even as losses widen at rivals plagued by record oil prices and an excess supply of seats that makes it tough to raise fares.
"With the hedge that we have and assuming we don't have anything extraordinary happen to our revenue trends, our (second-quarter) profits will be up against last year," Southwest CEO Gary Kelly told Reuters.
He added that, based on current trends, full-year 2005 profits were likely to rise from last year's $313 million, but there are "any number of things that could happen on the revenue side, even on the fuel side, to throw that off."
Southwest, the largest U.S. airline by market value, has managed to stay profitable because of its practice of hedging, or buying contracts that lock in pre-arranged fuel prices.
Kelly, commenting on reports that two rivals are considering a merger that could rock the industry by creating a big new discount carrier, also said mergers would be good news for the industry as a whole.
"If we do have some serious industry consolidation this year, I think that would be very bullish for healthy airlines like Southwest," he said in the interview at Southwest's headquarters next to Dallas' Love Field airport.
'COSTLY AND COMPLICATED'
Recent reports that America West Holdings Corp. (AWA.N:
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Kelly said he was so far unconcerned about the competitive impact of a deal.
"Combining the two would obviously be very costly and complicated," he said. "We compete with both carriers today and putting the two systems together, I don't see why that would change the competitive matchup."
Southwest itself has no plans to buy another airline, Kelly said, though it is seeing good results from its more limited partnership with ATA Holdings Corp., another carrier operating under Chapter 11 bankruptcy protection
For now, rather than buying an entire airline, Southwest is interested in selectively buying additional gates at airports like Philadelphia or jets to add to its all-Boeing 737 fleet which might be sold by an airline in bankruptcy.
"That would not be our desire," he said, referring to full acquisitions. But he added: "never say never."
The airline, which began flying in 1971 between big Texas cities like Dallas and Houston, has mostly expanded organically, though it has made exceptions, as with its 1994 acquisition of Salt Lake City-based Morris Air.
Looking beyond this year, Kelly, who took over as Southwest's CEO last July, said he was concerned about the high fuel prices which the hedges will not protect it from forever.
"We'd be crazy not to be preparing ourselves for $55-a-barrel crude oil," he said.
An overall economy which is looking less healthy is another worry for Southwest and its rivals, he said. "The economy is definitely slowing and it is definitely possible that we could see a very soft patch in 2006 based on current trends," he said. "They're inconsistent, so they may not continue to be trends, but that certainly would have a depressing effect on business travel."
