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Too many seats hurting the airline industry?

Southwest Airlines chief executive Gary Kelly said  Wednesday the struggling industry’s biggest problem — even above high fuel costs — is too many seats.
/ Source: Reuters

Southwest Airlines chief executive Gary Kelly said Wednesday the struggling industry’s biggest problem — even above high fuel costs — is too many seats.

Yet, the low-cost powerhouse is getting ready to expand to Denver even though the biggest airline there, United Airlines, has cut capacity.

“Fares in the Denver market are a good 40 to 50 percent higher than what we would typically charge on average. That is a classic Southwest opportunity,” Kelly told reporters after he addressed an industry group. “That is adding value. That is not providing excess capacity.”

Southwest said Denver International Airport has lowered its costs enough to support its return after a 20-year absence. Kelly said the no-frills carrier would announce details of its Denver operations on Thursday.

The airline’s growth strategy is partly enabled by its ability to control fuel costs better than other major carriers.

Southwest’s fuel bill could increase by $500 million next year but the carrier has strong hedges in place for buying much of its fuel below market rates, Kelly said.

While he would not discuss routes or flight numbers, Kelly said there should be enough gates and other facilities at Denver to meet Southwest’s immediate goals.

“I don’t think we’ll have any problem starting service and having enough capacity to grow in the near term — say the one-to two-year time period,” Kelly said.

Southwest will take on United, which has reduced flights at its Denver hub during its bankruptcy restructuring, and low-cost rival Frontier Airlines, which is based there.

Southwest’s expansion into Philadelphia and Pittsburgh put enormous financial pressure on US Airways at two of its hubs while it fought for its survival in bankruptcy. The carrier nearly collapsed, before it reached a deal last spring to merge with America West Airlines.

But Kelly said Southwest is not on a predatory streak. ”That’s not our objective to put other people out of business,” Kelly said.

With Southwest in better shape on fuel than most rivals, Kelly is focused on competitors filling up the skies with cheap seats. “The overriding issue for the airline industry is excess capacity.”

His answer is to grow his own business and offer more routes and flights. Kelly said Southwest would grow its business — 11 percent fleet growth this year — and was not planning to play a blockbuster role in any industry consolidation.

“I don’t see that we’ll be acquiring other airlines,” he said.

He also said the company is keeping its options open on reserving seats, but there are no plans in the works to change from its open seating policy.