Southwest Airlines

Southwest continues to show conservative approach to growth with deferral of 737s

Southwest’s move to defer deliveries of 30 Boeing 737-800s scheduled for 2013/14 to 2017/18 is a concerted effort to continue a disciplined approach to capacity management and a way to accelerate the company’s often-touted goal of achieving a 15% return on invested capital that it enjoyed in the 1990s. The move illustrates Southwest’s classic conservative approach in running its business as it believes an uneasy economic recovery and volatile fuel prices are creating uncertainty in how the airline business will evolve during the next couple of years.

The carrier first committed to the 737-800 in Dec-2010, opting to substitute 20 of the larger 175-seat aircraft for 137-seat 737-700s it had on order. Southwest expanded its Next Generation 737 order a year later and now has 73 737-800s on firm order with Boeing, plus an additional five leased from a third party scheduled for delivery later in 2012.

US carriers gain access to their strongholds through new Washington National slot allocation

Four US carriers have won rights to launch flights from slot-controlled Washington Reagan National Airport to serve markets where they are dominant or have a strong presence. Southwest Airlines and Virgin America are gaining access to National for the first time, while JetBlue will expand its blossoming presence at the airport. The new services should usher in some fare rationalisation in those markets as the carriers seek to challenge United’s dominance in the Washington market from its hub at Dulles International Airport, which is about 56km from National.

US lawmakers in the latest FAA Reauthorisation bill signed into law earlier this year included a provision freeing up four outside perimeter (beyond 2,011km) slot pairs for new entrant or limited incumbent carriers at National, which is located only about 6km from the US capitol. Carriers already having an ability to operate flights outside the perimeter were also allowed to trade in a single pair of inside perimeter slots for new outside perimeter service. A slot pair consists of one take-off and one landing slot.

Frontier encouraged by its strategy of dodging Southwest in Denver, but looks for new bases

Frontier Airlines believes its tactic to target markets from its main Denver base not served by rival Southwest Airlines remains the best method in fortifying its major hub. But at the same time Frontier is looking to lessen its reliance on a single hub and is exploring new bases, two of which are opening this summer supported by a single aircraft.

Southwest returned to the Denver market dominated by United and Frontier in 2006, and since that time has built its presence at the airport to 159 daily departures to 51 destinations. Based on US Department of Transportation (DoT) data, Southwest had a 22.5% market share at the airport from Feb-2011 to Jan-2012.

Southwest beats unit costs estimates despite posting a first quarter loss

A first quarter loss at Southwest Airlines was accompanied by a better-than-expected result in the carrier’s unit cost performance driven in part by labour productivity improvements. The carrier is striking a cautiously optimistic tone regarding the rest of the year, indicating it should record a favourable financial performance if fuel prices remain at current levels. But until Southwest completes the integration of AirTran Airways into its operations by 2014, the carrier will be constrained in reaching its full revenue potential.

Favourable gains on the settling of certain fuel hedge contracts helped Southwest to record a first quarter profit of USD98 million. But excluding special items the carrier’s loss was USD18 million compared with a USD20 million profit the year prior. The airline’s operating income tumbled USD100 million to USD10 million as the carrier recorded fuel and oil expense of USD1.5 billion, a 45.5% rise from 1Q2011. On a combined basis with AirTran, Southwest’s operating revenue was USD86 million.

Houston airport operator envisions Hobby offering international flights in 12 markets

Studies carried out on behalf of the Houston Airport System (HAS) to examine the viability of international flights from Houston Hobby airport contemplate a two-phased introduction of 12 markets to Mexico and Central America. Southwest Airlines is pushing for facilities at Hobby to support international flights, but research conducted shows that Mexican low cost carriers VivaAerobus and Volaris would also have an interest to operate international service from Hobby. It is not surprising United has mounted vehement opposition to Southwest’s campaign, as it enjoys majority carrier status in most of those markets with its service offerings from Houston Intercontinental Airport.

Earlier this year Southwest asked Houston Airport System (HAS) to conduct a feasibility study for the addition of a five-gate terminal at Houston Hobby Airport to support international flights. Houston is Southwest’s sixth largest city based on daily departures, and the city’s geographical location makes it an ideal destination for short-haul international flights to Mexico and Central and South America. Data in the study conducted on behalf of HAS show that Houston was the point of entry for 64% of Mexican visitors travelling by air to the US in 2010. Through its acquisition of AirTran, previously domestic-only Southwest is gaining knowledge of international operations now that it is managing AirTran’s network, which includes flights to the Caribbean and Central America.

Southwest intensifies its campaign to launch international service from Houston Hobby

Southwest Airlines has bolstered its efforts to introduce international fights from Houston Hobby Airport through the introduction of an elaborate campaign – freehobbyairport.com – to encourage Houston residents and its larger passenger base to lobby city officials to allow it to forge ahead with plans to carry out its often talked-about desire to serve near international destinations from the US through the construction of a USD75 million-USD100 million international terminal at the airport. Not surprisingly, Southwest has won support from the Houston Airport System (HAS), which operates both Hobby and Houston Intercontinental Airport. It is now up to the city council to decide how it will balance Southwest’s request against the opposition of United Airlines, which dominates air passenger traffic in the Houston metropolitan area and at Houston Intercontinental specifically. If Southwest succeeds in its quest to launch new international flights from Hobby, it must ensure the new facility meets the expectations of US passengers, who have a general distaste for bare-bones airport facilities.