Southwest aims to expand by 10 percent

/ Source: Financial Times

Southwest, which is looking for further growth opportunities such as the low-cost carrier's acquisition of assets from ATA, intends to expand capacity by a further 10 percent this year without adding further headcount.

"We are looking for opportunities to consolidate where we can," Gary Kelly, chief executive, told the FT. "Are we interested in acquiring another airline? No.

"We have done that very infrequently in our 34-year history and I don't see any logical candidates at this point. But clearly some consolidation needs to take place."

Last year Southwest acquired six gates at Chicago's Midway airport from bankrupt ATA. "Like the ATA situation, where there are opportunities, we have to take a hard look at whether we will compete for those assets," Kelly said.

Southwest has the best balance sheet in the sector and is the only airline to report profits for more than 30 years. Its market valuation of $11.4 billion compares with a combined valuation for American, Northwest, Continental and Delta of $3.3 billion.

Its relative position is set to grow even stronger. It has hedges in place for 85 percent of its fuel needs for 2005 at $26 per barrel. Most other airlines have no hedges.

"A friend asked me yesterday, 'Do you like your job and do you worry about $55 crude oil?'," said Kelly. "I just don't think there is anything to be gained by worrying about it. The fact is this is a company that has proven it is a winner. I've got the best job in America."

Kelly said Southwest aimed to grow by its historic 10 percent in 2005 without adding significant headcount to its 32,000 employees. "We will increment our headcount by some, but it will be hundreds not thousands. The theory is real simple: let's keep our family intact but not add to it."

As Southwest continues to add new aircrafts, it could become more efficient without shedding employees. Last year Southwest cut the number of employees per aircraft from 85 to 74, and considers a target of 70 achievable. That figure compares with 128 per aircraft for Delta and 116 for United.

He acknowledged pressures from labor cuts at rivals such as United, whose salary levels will fall below Southwest. "I can't promise you we won't ever have to seek labor concessions . . .

"Do we want labor concessions? Absolutely not. But the way to afford the compensation package is by improving productivity and avoiding future hiring. As long as we can accomplish that, I think we can avoid concessions."

Kelly said there were pressures on growth. "Should there be a concern about the glut of seats and rampant growth in the industry? My answer is yes. You have to be mindful of it, and will cause us to be hopefully very careful about the markets we choose to go into."