OAG Travel News

Southwest Airlines for the first time in its history plans to reduce annual capacity this year, targeting a full-year decline in available seat miles of 4 percent, company executives said last month.

"The economic environment has never been more uncertain, certainly in Southwest Airlines' history, and accordingly we have to adjust," said CEO Gary Kelly during Southwest's fourth-quarter earnings call last month.

While legacy carriers marked 2008 with aggressive capacity cuts, with traffic "basically at 1998 levels domestically," as Kelly said in December, low-cost carriers up until now have lagged in contributing to capacity pullbacks. JetBlue Airways also marked a first in its history in suspending growth plans and cutting available seat miles.

Southwest said it plans to reduce available seat miles this quarter compared with the same period last year by 4.4 percent. A spokesperson said, "It's fair to say 2009 is essentially the first year in our history that we do not plan to grow capacity."

Kelly said the carrier's "fleet growth plans are suspended indefinitely," adding, "I definitely want Southwest Airlines to grow and I believe we will be able to grow, but that is a secondary objective in this kind of economic environment."

Southwest's immediate goal is to "protect our financial health, and we want to protect profitability," Kelly said. "Our adjustments will be guided by those two overarching goals."

As its legacy competitors last year began planning for double-digit domestic capacity reductions in the summer, Southwest maintained growth, though it slowed its rate of capacity additions while working to optimize flight schedules and "pruning unproductive flights," Kelly said. Southwest last summer scaled back from 8 percent to 6 percent growth in 2008, and according to its annual report filed last month, the carrier grew available seat miles by only 3.6 percent for the full year.

JetBlue CEO Dave Barger said the carrier in the third and fourth quarters last year cut capacity for the first time. "We've slowed our growth considerably over the last few years," Barger said, noting that for the first quarter of 2009, capacity will be down by as much as 7 percent. The cuts enabled the carrier to charge higher fares last year, he said, noting that the average JetBlue fare grew 13 percent in 2008 over 2007 and that the company posted its highest average monthly fare in its history in December at $151 one-way.

Though both JetBlue and Southwest have halted growth plans, both are expanding coverage to some markets as they pare elsewhere.

JetBlue last month said it plans to launch service at Los Angeles International Airport with two daily nonstops to New York's John F. Kennedy International Airport and two daily nonstops to Boston in mid-June.

Kelly said Southwest would continue to "expand our route map" as it reallocates flights to take advantage of "new opportunities that we think are quite exciting," including its planned launch this year at Minneapolis-St. Paul International Airport and its entrée to New York's LaGuardia Airport, pending an approved purchase of bankrupt ATA Airlines' assets.

Meanwhile, AirTran Airways, another carrier that grew capacity in 2008, also plans to reduce it this year by 4 percent. CFO Arne Haak said, "To accomplish this, we plan to reduce our fleet size from 136 aircraft at the end of 2008 to 134 by the end of 2009 through additional aircraft sales."

The industry is operating with 10 percent fewer seats this quarter, compared with the same period last year, according to an OAG examination of airline schedules.

Several legacy carrier executives during fourth-quarter earnings calls last month praised the industry's capacity restraint in helping them meet plummeting demand, and said they are prepared to take further capacity out of the system this year.

Source: BTN Online by Jay Boehmer