Southwest Airlines has announced it will defer delivery of 15 Boeing 737-700s beyond 2008 in an effort to “restore profit growth.”
The low-cost carrier also disclosed that available seat miles will grow slower than expected by two percentage points in the fourth quarter and next year, rising by 6% rather than 8%.
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Southwest Airlines Boeing 737-700 |
At the same time, Southwest is also shaking up its flight schedule, eliminating 36 roundtrips from its current network. Many of the services slated to be axed are operated on transcontinental routes, which have been among the softest domestic markets for Southwest.
The savings will be used to start 46 new roundtrip flights in “growth-market” cities, it says.
“Given the slowing US economy and fuel cost pressures, we are taking these steps to adjust our capacity growth rate, which will help to restore profit growth,” Southwest CEO Gary Kelly said in a statement.
“If we find that conditions change, we will reevaluate our growth plans for future periods. In this economic environment, we simply need to take less risk and grow more slowly.”
The carrier is slowing growth by accepting only 19 new aircraft in 2008, rather than 34, which included options on two aircraft. Speaking at an investor conference on June 13, Kelly said that deferring aircraft deliveries would be possible next year due to strong demand for 737s elsewhere.
Southwest is also continuing to explore options for reducing its fleet growth. The airline now plans to have 539 aircraft in inventory by the end of next year.
It plans to emphasize steps to improve revenue growth in the fourth quarter by launching a new advertising campaign and unveiling a new boarding and seating method.
“In all, we are targeting more than $1 billion in incremental revenue over the next few years to overcome higher fuel costs and reach our financial targets,” says Kelly.
Cost pressures and a cooling in unit revenue growth comprised to reduce Southwest’s operating profit by 14.3% year-over-year to $84 million in the first quarter. The operator nonetheless posted a net profit of $93 million, up from a profit of $61 million in the three months ending March 31 2005.
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Source: FlightGlobal.com
