Mary Schlangenstein, Bloomberg News
Southwest Airlines Co., the largest low-fare carrier, is planning deeper capacity cuts for a second time this year as demand falls.
Reductions increased to 6 percent from 5 percent, Chief Executive Officer Gary Kelly told shareholders Wednesday at the Dallas-based airline’s annual meeting. Southwest will take unspecified steps in the second half of 2009 to boost revenue, and will make Milwaukee the fourth city added to its system this year, Kelly said.
Southwest and other airlines are trying to lower operating costs as the recession erodes demand and drives down fares. The carrier halted growth this year for the first time and is offering workers incentives to leave the company early.
“Given a more difficult revenue environment than what we saw, we definitely decided to move more aggressively with some revenue initiatives,” Kelly said. Travel demand this month is “very soft,” he said.
Kelly declined to detail potential steps, including imposing any fees. The airline hasn’t charged customers for food, checking bags or selecting certain seats. Southwest says it gains customers by not having fees.
“We’re not going to charge bag fees now,” he said. “But if we need to do it, we’ll be physically prepared.”
Flu reduces travel
Southwest and other airlines may discount fares further to lure travelers in the recession. Lower fares and capacity cuts across the industry mean most airlines aren’t earning money even though planes are flying fuller. Southwest has reported losses each of the past three quarters.
“It’s a low-fare environment,” Kelly said. “We’re preparing for a sustained recessionary environment where low fares will be needed and will carry the day.”
The outbreak of H1N1 virus, also called swine flu, reduced travel demand in April and earlier this month, Kelly said. Southwest doesn’t fly to Mexico, though the first deaths in the U.S. linked to the disease occurred in Texas.
“You could definitely see the impact on bookings and revenue trends once the news really picked up about the flu,” he said. “I’m not ready to suggest we’ve seen a bounce back from that time period yet.”
Southwest is putting four new cities in its route system in one year for the first time since 1994 with the addition of flights at Milwaukee at an unspecified date in 2009. Minneapolis/St. Paul were added in March, and flights will start at New York’s LaGuardia airport in June and Boston in August. The airline now flies to 65 U.S. cities.
In Milwaukee, Southwest will compete mainly against rival low-fare carrier AirTran Holdings Inc. AirTran, based in Orlando, today said it will expand to six more gates a Milwaukee’s General Mitchell International Airport. The gates will be used for as many as 34 daily flights, a 57 percent climb in AirTran’s Milwaukee flights since 2009, the carrier said.