Southwest Resumes U.S. Capacity Growth
Bermuda service—and who knows what
their route map will be when we actually close. They’re in charge of themselves,
and they don’t ask me whether to add
new markets. We’ll need to work hard
to integrate all that first. This is pacing
out very nicely. Our concurrent effort
will be installing this new reservations
system, so that hopefully by 2013 we’re
ready to seriously entertain launch-ing international flights on Southwest
Airlines. It could be 2014. All of those
plans just aren’t firmed up yet. But now
everyone knows what the goals are, and
we’ll be able to put into place work plans
that are very logical and figure out the
right sequence. The number-one priority right now has to be getting Air Tran
closed and integrated, and the pacing of
the other items can fall after that.
CONTINUED FROM PAGE 3
Southwest CEO Gary Kelly (right) with Air Tran CEO Bob Fornaro in September during the acquisition announcement
BTN: What’s your 2011 capacity outlook?
Kelly: We’ll be growing in the low single
digits. We’re not adding to the fleet, but
we are increasing the utilization of the
fleet. Of course, our schedules are published well in advance. We’re published
today through August of 2011. This
time a year ago we weren’t sure what
was going to happen. We were definitely
seeing some improvements, but we took
an ultraconservative approach with the
2010 schedule well into the year. In fact,
our business rebounded much more
rapidly than we thought. We just looked
at our 2010 results year-to-date versus
our annual plan, and we’re far ahead of
our plan, so we will be able to add back
some flying [in 2011] that we had cut
[in 2009]. That helps our costs, it gives
our employees more work to do, which
they like since it fattens their paychecks,
and of course customers like it.
BTN: Some legacy carriers say they peg
growth plans to GDP growth. Does that
rule of thumb apply to Southwest?
Kelly: I don’t know that we’ve ever paid
any attention to that. Now, as an analytical tool, we’ve certainly monitored our
growth vis-à-vis GDP. As we’re thinking
about the future, it has some impact,
but we’re much more granular: We’re
thinking about those several dozen cities. We’re thinking about what different
airplanes might bring to us in terms
of growth. We’re monitoring all of our
markets today. Now, the economic factors inform the way we think about our
plans, but we don’t tie it so numerically
to a GDP forecast.
As importantly, or maybe more
importantly, it informs how one would
think about energy prices. I don’t think
we’re any better or worse than anyone
else at trying to predict what energy
prices might be, but there’s a lot being
written right now about how we’re
at record levels of consumption and
demand, and prices have firmed. There
are all kinds of projections about where
prices go from here, but the fundamen-
tals do seem to be driving commodity
prices, and that’s a huge concern going
BTN: You said you see a few dozen cities
where you can expand. Is that indepen-
dent of Air Tran?
Kelly: I think it is, in the sense that after
almost 40 years we served just 72 cities.
With or without Air Tran, we have all
these additional cities that we’d consider. The point is that Air Tran improves
the prospects of adding those new cities
faster and more profitably. If you think
about Atlanta as an example, they’ve already got that business up and running
for us at 200 flights a day. I’m not sure,
absent the Air Tran deal, when we might
add Atlanta—and it could be never.
The other thing that Air Tran does
is that we’ve got the [Boeing] 737-700
sweet spot in our fleet. We’re going to
augment that with a bigger airplane, and
we’re also going to augment that with a
smaller airplane for the sole purpose of
serving smaller communities with less
frequency. That is a market that we had
been unable to crack, if for no other rea-
son than we felt like we didn’t have the
right airplane for it, and it’s really tough
to take that first step. It takes a lot of
effort to bring a new aircraft type onto
the property. By definition, you’re only
going to have a handful of airplanes,
and in the beginning it only provides
some incremental contribution at best.
Here, we’re stepping into a business:
They’ve got it up and running, they’ve
got 86 airplanes, and they’ve already
plowed that ground. We can take what
they’ve got, put the Southwest brand on
it, plug it into our much larger network,
then grow it from there. Air Tran does
a number of different things for us and
that’s why we think it’s such a compel-
BTN: Southwest in 2012 will take delivery
of 20 Boeing 737-800s, which are larger
than anything in your fleet. Will there be
a different cabin configuration?
Kelly: All coach. It will be Southwest
Airlines. Now, we have a green airplane
that we are experimenting with different materials for seat covers, carpeting, seat-back material; they are more
cost-effective and climate-friendly and
they weigh less, so we burn less fuel.
We’ll be continuing to evaluate things
like that, but it’s not unique to the 800.
You’ll continue to see some evolution
in our fleet interiors, but between the
Boeing 717, the 737-700 and the -800,
you should expect to see a consistent
B TN: Where does the res system stand?
Kelly: We had a serious work team under-way. Basically, just to take you back a bit,
in 2004 when we looked at expanding our
presence at Midway with a codeshare relationship with ATA Airlines, we thought
through at that point whether we want
to replace our reservation system. It was
too big. When you say system, it really is
systems. In the meantime, over the last
six years, we have replaced a number of
peripheral systems, so that we’re pretty
much down to the core booking engine.
It is an undertaking that is at least viable.
It’s something that we feel like we can do
without creating too much enterprise risk.
The question was: Where do we want to
go for the next decade with our technology? Do we want to continue to build or do
we want to replace? We decided it’s time
to replace, because it takes us too long and
it’s too expensive to build our own. We
formed a work team, they’re out evaluating options, we’ve narrowed the options
down to two potential suppliers, then the
Air Tran announcement was made and
we asked that team to stand down for one
to two quarters. We’ll pick that back up
early [in 2011], make a decision on which
vendor we want to use, then get to work
on laying out a work plan and beginning
the implementation process. It will take
several years from whenever we start.
B TN: In addition to enabling international
expansion and codesharing, what are you
looking for in your res system?
Kelly: Those are the two main things.
We do have our international connection product in place with Volaris. It
works pretty well. It will bring to us
the vast majority of the benefits that
we would see by having a relationship
with them. But there’s no question
that having a full-up codesharing
capability with a different reservation
system will have some benefit for us.
I don’t think we could pursue a new
reservation system for that reason
alone. The main reason is international. We want to find a way to grow.
We need places added to our prospect
list—this is one of the big enablers.
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