SWA more than 14 planes for 2003?

firstthird

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Interesting article on the wires this morning. Looks like it was taken from the conference call yesterday. Down towards the bottom Gary Kelly (CFO) seems to say that 14 airplanes next year may not be enough (the highlighting was me not the writer). Not exactly new classes or renewed interviewing, but better than a swift kick in the head.

Thursday May 16, 9:22 am Eastern Time
Reuters Company News
INTERVIEW-Southwest sees opportunit, may take more planes

By Kathy Fieweger

DALLAS, May 16 (Reuters) - While larger airlines struggle with ongoing heavy losses, perennially profitable Southwest Airlines Co. (NYSE:LUV - News) sees an era of opportunity with room for domestic expansion that could result in delivery of more planes in 2003 than on are now on tap.

Chief Financial Officer Gary Kelly told Reuters on Wednesday he sees the current period in airline history as very similar to what happened in the early and mid 1990s.

Early in the decade, the Gulf War and recession created havoc for U.S. carriers. Some stalwarts like Pan Am and TWA filed bankruptcy, while others abandoned markets in giant swoops. It wasn't until 1995 that the industry made money again, Kelly said.

"Business travel gets cut during the recessionary times and it just doesn't snap right back," he said from Southwest's headquarters adjacent to Dallas' Love Field. "It's a long recovery cycle on the business travel side."

Kelly said the percentage of Southwest's travel that is full-fare -- typically paid by business fliers -- is 35 percent to 40 percent, generating about 55 percent of total revenue and net income.

Like bigger rivals, the company is feeling the pinch of plunging business travel after the Sept. 11 attacks. Such travel was already weak industrywide before four commercial jets were hijacked and crashed.

Southwest is adding no new cities to its roster in 2002 and the jury is still out for 2003.

CRANKING THE PROFITS

But because Southwest's low-cost model allows it a cushion to absorb a downturn in revenues, its finances and balance sheet have remained fairly healthy. The company turned net profits of $511 million in 2001, including gains and charges, and $21 million in the first-quarter, alone among the top eight airlines. Chief Executive James Parker said he sees a full-year 2002 profit as well.

Southwest's cost per available seat mile, at around 7.3 cents, is well below that of the biggest two U.S. carriers, AMR Corp.'s (NYSE:AMR - News) American Airlines and UAL Corp.'s (NYSE:UAL - News) United Airlines, which both posted losses of more than half a billion dollars in the first quarter.

"Our business is built to withstand that kind of pressure on margins," Kelly said. "We can make money without raising prices. In the past, we've seen an acceleration in our growth, as there were just a lot more ready opportunities that got developed much faster."

Southwest's colorful founder and chairman, Herb Kelleher, told shareholders at the annual meeting on Wednesday that international routes were doubtful, as he sees many "luscious and lucrative domestic opportunities."

MORE THAN A BAKER'S DOZEN

Southwest is scheduled to take delivery of 14 planes in 2003 from Boeing Co. (NYSE:BA - News). But with plenty of excess aircraft parked in the desert at cheaper than normal prices, "it's as fluid for us as it has been for many, many years," Kelly said. "I don't know whether that's going to be the right number or not."

The best scenario is for Southwest to be able to get planes straight from Boeing, the world's largest commercial airplane manufacturer that is Southwest's exclusive provider of its 737 fleet suited to the short haul market.

In 1990, Southwest had 100 airplanes, and in the ensuing period took on 60 more than expected, Kelly noted. "This period feels similar to that. I would certainly admit that we have to be thinking about it (taking more planes.)"

Although Southwest recently announced plans to fly its first nonstop transcontinental flights -- from Baltimore/Washington International to Los Angeles, Kelly feels the 737-700 fleet is still right for both long and short haul flights. If it ever went to the 800 series, 180 passengers could be accommodated.

STILL ON THE UPSWING

While other carriers cut back this year, Southwest's capacity measured by available seat miles is projected to grow by 5 percent in 2002, and long-term plans for 8 percent annual growth remain on track, Kelly said.

The airline, which posted its 29th consecutive year of profit in 2001, analyzes brand new routes by checking what other carriers fly and at what average fare. It then determines what the increase in traffic will be when it introduces its lower-cost fares and decides whether to fly a route, Kelly said.

Most of the airline's growth, however, still comes from building frequencies between existing city pairs or introducing nonstops between such cities.

Southwest shares closed on Wednesday at $17.91 on the New York Stock Exchange, up almost 5 percent since the Sept. 11 attacks. The shares have outperformed the Standard & Poor's airlines index (^GSPAIR - News) by 17 percent since the attacks.
 
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