Southwest Still Thinks It Can Be the Low-Fare Carrier

Southwest Airlines, which debuted international service a year ago, thinks it has ample room to grow domestically and can be “the low-fare carrier” by being “the low-cost producer.”

Those are the thoughts of CEO Gary Kelly, who said average fares are down year over year in a very competitive industry. He didn’t mention the U.S. Department of Justice probe of airline collusion over fares and capacity constraints but the reference to a very competitive industry might have been a message to regulators.

Speaking during the airline’s second quarter earnings call, Kelly said there are tactical opportunities for Southwest to grow domestically, “to add frequencies, to connect the dots.”

He cited Memphis as an example, noting that AirTran, which Southwest acquired in 2011, had an operation in the city and Southwest re-opened it, although not as a carbon copy of Airtran’s flight schedules.

“And we are going gangbusters out of Memphis,” Kelly said.

Kelly said one reason fares are down year over year is that Southwest is adding capacity in markets that are under development — meaning the airline offers promotional fares in new markets to drive demand.

A random check of several upcoming dates in Southwest markets, including Memphis to Orlando ($217), Dallas Love Field to LAX ($368) and La Guardia to LAX ($408), found Southwest to have the lowest fares.

That isn’t always the case. Looking at a July 27 flight from La Guardia to Fort Lauderdale, Spirit’s $263.09 fare beats Southwest’s $320 although with Southwest travelers get two free checked bags.

Kelly said Southwest’s expansion options are sometimes constrained by a lack of new gates such as in Dallas Love Field and Washington Reagan Airport, although there are still “exciting opportunities.”

There is less opportunity domestically for Southwest than there was 20 years ago, Kelly said, but there is room to grow.

On the international front, Southwest plans to open its new 5-gate terminal at Houston Hobby on October 15. It will debut with service to Belize, pending government approval, and would add Costa Rica in November.

Kelly says the terminal can host about 25 daily departures, and Southwest will be starting there with considerably fewer flights than that. He invited other airlines to lease some of those extra slots at the airport.