Southwest Airlines has managed to earn better than expected profits in the quarterly earnings announcement but that comes primarily from fuel hedging contracts.  Profits from actual airline revenues are a bit down from last year and this is largely due to rising fuel costs from increased oil prices.

That said, last year was Southwest’s 39th consecutive profitable year and that, my friends, is really unheard of in the airline industry.

Southwest is going to push hard to manage their capacity and remain rational players in the marketplace with respect to their competitors.  By manage capacity, I mean that they’ll hold it steady for this year and probably next year with some growth, perhaps, in 2014.  Obviously that plan will change if demand significantly changes. 

There are a few things that Southwest will be doing to remain competitive against other major US airlines.  First, they’ll work hard to remain the most productive work force in the business.  Given that their workforce takes pride in this, that really shouldn’t be tough for them to maintain.  Second, they’ll work on taking advantage of fuel economy both in their flight planning as well as by buying more new aircraft.  I suspect that Southwest will not hold on to aircraft quite so long as they have in the past but, rather, cycle newer aircraft with upgrade engines and performance packages into their fleet. 

Finally, I look for SWA to start looking for some low hanging fruit on revenues out there.  I believe that they will be looking at opportunities in smaller communities and I believe they’ll take a long, hard look at operating a single fleet type aircraft to service what I like to call 3rd tier cities and towns.  These are the Wichitas, Lubbocks and Knoxville’s of the country.  Whether its done with smaller jets a la Embraers or Bombardiers or with turboprops such as the Q400 or ATR, I do believe they’ll do a trade study to determine if they can be players on that level with the same great Southwest service and reliability.

Filed under: Airline News by ajax
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