Southwest May Expand Fleet in 2013 to End Longest No-Growth Era in Decades

Southwest Airlines Co. (LUV), the world’s biggest operator of Boeing Co. (BA) 737 jets, may start to expand its aircraft fleet again in 2013 to end its longest no-growth period in 40 years of flying.

“We’re trying to restore profitability to the point where it is finally justified to commit to buying airplanes,” Chief Executive Officer Gary Kelly said yesterday in an interview at Bloomberg’s world headquarters in New York. “2013 is an active idea in our minds.”

The airline’s likely choice would be Boeing’s 737-800, which is bigger than Southwest’s current 737 model, Kelly said. Southwest agreed in December to buy its first 737-800s to add seats on some routes, fly farther and boost fuel efficiency.

Southwest put the brakes on fleet growth in 2009 as travel demand crumbled during the recession, reversing a tradition of annual expansion. The Dallas-based airline has 552 jets, all 737s, and has been taking planes in the past two years only to replace older aircraft being retired.

No final decision has been made on resuming growth in 2013, Kelly said, and that may dictate what aircraft type Southwest buys. Seating capacity will rise as much as 6 percent this year as Southwest flies its aircraft more.

‘Little Aggressive’

“We don’t have any plans to grow our fleet in 2011,” said Kelly, 56. “I think 2012 is probably a little aggressive to think about a step-up in our fleet mix.”

Southwest rose 14 cents, or 1.1 percent, to $12.68 at 4:15 p.m. in New York Stock Exchange composite trading. The stock has fallen 2.3 percent this year.

“When they do decide to accelerate growth, it will probably be at the right time,” Jim Corridore, a Standard & Poor’s equity analyst in New York, said today in an e-mail. Southwest has shown it knows when to add capacity profitably, Corridore wrote.

Kelly, who became CEO in 2004, agreed in September to buy AirTran Holdings Inc. (AAI) for about $1.4 billion in cash and stock, bolstering Southwest’s status as the biggest discount carrier. One of his challenges will be integrating AirTran’s Boeing 717s, which are smaller single-aisle jets than Southwest’s 737s.

The airline is awaiting regulatory approval for the acquisition and expects it to close during the second quarter. Acquiring Orlando, Florida-based AirTran will allow Southwest to begin flights at Atlanta and Washington’s Reagan National airport and expand service from New York’s LaGuardia.

Newark, LaGuardia

Southwest will begin flights from New Jersey’s Newark Liberty International March 27, and Kelly said the carrier is interested in growing there and at LaGuardia if more takeoff and landing slots become available.

Service will continue at Long Island MacArthur Airport in Islip, New York, even as Southwest boosts service at the larger New York-area airports, Kelly said. Southwest has 24 daily departures from Islip.

Southwest has said its new 737-800s will come from a conversion of existing orders for 737-700s, with deliveries starting in the first quarter of 2012. The airline hasn’t specified how many of the current orders were being shifted.

Kelly said Southwest eventually expects to operate 80 to 120 737-800s. The bigger plane has 175 seats, 28 percent more than the 737-700, is about 10 percent more fuel efficient and should trim costs to fly each seat a mile (1.6 kilometers) by about 15 percent.

Southwest will “wait for an answer this year” as Boeing decides whether to upgrade the 737 with more fuel-efficient engines or design a new plane to succeed the model that is the world’s most widely flown jetliner, Kelly said.

‘Not Fast Enough’

“They are not moving fast enough for Southwest,” Kelly said. “I’ve read all kind of things from Boeing. It’s all over the map. I’m not paying attention to anything that I read, other than what I hear from the CEO.”

Boeing is leaning toward developing a successor to the single-aisle 737 instead of offering new engines, Mike Bair, who leads the planemaker’s team studying the concept, said March 1. That jet may enter service as soon as 2019, he said.

Airbus SAS said Dec. 1 it would offer an option of more fuel-efficient engines for its rival narrow-body A320s, delivering the so-called A320neo starting in 2016.

“When we have all the real facts, we’ll have to decide at that point, ‘Are we going to talk to other manufacturers to seriously study what our alternatives are?’” Kelly said. “I don’t see any reason to prejudge that yet.”

Southwest has raised ticket prices six times this year, a rate that Kelly said probably is unprecedented, to help cover a 33 percent jump in the price of jet fuel in 2011 through yesterday. At this point, the airline isn’t considering joining its biggest U.S. peers in trimming planned 2011 growth to curb spending on fuel, he said.

“If fuel will moderate from here, we won’t be forced to seek higher fares to offset that,” he said.

To contact the reporter on this story: Mary Schlangenstein in New York at maryc.s@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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