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News Article - May 11, 2007

Southwest Airlines wants to add international service  
  In a few years, Southwest Airlines could make Philadelphia International Airport a key connecting point for a type of customer it doesn't have now - travelers headed to Europe, its chief executive officer says. But Gary C. Kelly, in an interview here yesterday, said Southwest had a more immediate need: the four additional gates in the airport's Terminal E that it has been promised, so it can add domestic flights.

   Southwest, the airport's No. 2 carrier in passengers behind US Airways Group Inc., has never flown outside this country, so it is making a careful study of how to offer international service to Canada, Latin America, the Caribbean and Europe, Kelly said. Southwest itself probably would not operate the international flights, instead forming a partnership with another airline with overseas experience, said Kelly, who was in town to give an address Wednesday to a gathering sponsored by Temple University's School of Tourism and Hospitality Management.

   Both Philadelphia and Baltimore-Washington International Airport would be logical places for Southwest to "code-share" with an international carrier, meaning that both airlines could sell single tickets that provide for connections between the two, Kelly said. Southwest now has a code-share agreement with ATA Airlines Inc., linking passengers at Chicago Midway Airport, but ATA is not the only airline with which it could form a partnership for international travel, starting in about two years, he said. US Airways has a similar code-share deal with United Airlines, and other carriers have hundreds of such agreements with one another.

   On the domestic front, Southwest cannot say where or when it may add flights from Philadelphia because it is waiting for Delta Air Lines Inc. to move out of four gates next to those Southwest already has in Terminal E. "The last thing we want to do to our customers is promise flights that we can't deliver," he said.

   Delta is scheduled to vacate its Terminal E space by Oct. 15, said Charles J. Isdell, the city's aviation director. It will move to Terminal A-East. Southwest now has 66 flights a day to 18 cities from Philadelphia, and it has to split its operations between the Terminal E gates and four in Terminal D. The airline, which started flying to Philadelphia three years ago, carries 17 percent of the passengers who start or end a trip at the airport. "We want to be here, and we're trying to make it work," he said.

   Kelly spent most of the hour-long interview talking about a detailed process Southwest has undertaken to find ways to increase revenue while trying to cope with a 25 percent rise in its costs - mostly because of high oil prices - over the last four to five years. While Southwest still is strong financially and has one of the industry's best reputations for customer service, some Wall Street analysts have recently criticized it for lagging other carriers in revenue growth in the first quarter. Jamie Baker of J.P. Morgan Securities Inc. described it in a research note last month as "a growth story comes to a close."

   Kelly said Southwest's study of the best way to offer international service is only one of several efforts to increase revenue, including offering in-flight wireless Internet access for a fee, using its Web site to sell services or products other than its own tickets, and offering assigned seating. Airline analysts "as a group are preoccupied with quarterly earnings," he said. "As a group, they don't seem to know the airline industry's history very well. It's cyclical, and it's a discretionary product, and you run into these inexplicable soft patches."

   Southwest's long-range planning for increasing revenue started long before the last quarter and will take several years to complete, which is in keeping with the history of the Dallas-based company, Kelly said. Southwest has never operated like other airlines, and it has no intention of changing that, he said.

   The airline has no assigned seating and flies its planes for more hours per day than most others. It has taken years to build its fleet, boost the capabilities of its Web site, and expand the number of cities it serves. "There is an impatience on Wall Street for change," Kelly said, "and all of our changes require some construction."

Source - Philadelphia Inquirer



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