Carrier eyes Denver expansion, dominance in L.A.

While most second-quarter airline financial reports issued in the past two weeks have been awash in red ink, Southwest Airlines once again reported a profit. The carrier said it earned $321 million for the quarter, up from $278 million for the same period a year ago, thanks mainly to its strategy of fuel hedging – locking in prices at known levels into the future. In the second quarter, for instance, the airline paid about $2.19 a gallon for jet fuel, vs. more than $3.50 paid by the rest of the industry, on average. The money-losing legacy airlines have piled on several new passenger fees in the past year, an approach that Southwest has deliberately avoided – and hasn’t needed, due to its big fuel cost advantage over competitors. “We continue to raise fares to avoid nickel and diming our customers with added fees,” said CEO Gary Kelly. For example, Southwest is the only major airline that still lets passengers check two bags for free. That’s not to say Southwest’s future plans are unaffected by rising fuel costs: The airline said that it will scale back its 2008 capacity growth plans to a maximum of 4 percent, and might show no growth during 2009. During the first six months of 2008, Southwest’s capacity increased by 5.9 percent, and its flights are significantly less crowded than the big network carriers – from January-June, Southwest’s percentage of seats occupied (load factor) was 72.6 percent, about 10 points less than other big airlines.

Still, it is continuing to grow this year while other major carriers will shrink their domestic systems. And it may continue to expand next year in what it called “developing markets” like Denver. “Customers have responded exceptionally well to Southwest service in Denver,” Kelly said. “As a consequence, we will grow to 115 daily departures to 32 markets in November.” The Los Angeles Times reported that due to cutbacks by other airlines in southern California, Southwest will soon be the number one airline in terms of flight capacity at four airports. By November, the paper said, Southwest will jump from the number three spot at LAX to number one, with 17 percent of the market, as Delta, United and American shrink their operations there. Likewise, Southwest’s market share is expected to increase from 43 percent to 56 percent at Ontario International Airport, the newspaper said; and it will control 63 percent of flights at Burbank and 29 percent at Orange County’s John Wayne Airport.