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Southwest isn’t going to boost its capacity outlook based on the drop in oil prices and CEO Gary Kelly believes the carrier has the flexibility to react if the U.S. economy goes into a swoon.
“It’s almost like we’re living at a different dimension here at Southwest,” said Kelly, speaking during Southwest’s fourth quarter and full-year 2015 earnings call Thursday, “and from what I’ve heard from some of our competitor reports too. So our business continues to be strong, but I will quickly admit that there are concerning headlines around the world. So then you translate this to oil prices and living in Texas my entire life, this is an oil and gas state, and yes, it is concerning, the impact it will have on companies and debt payments and jobs and so on.”
Southwest is prepared, though, if the economic climate worsens, Kelly said.
“I will then follow-on and say that we feel like our plan for 2015 was sound and it turned out to be so. We think that the follow-on plan for 2016 is also sound,” Kelly said. “It is more conservative then what we had committed ourselves for last year. And as Tammy [CFO Romo] and I have both reiterated, we’ve not made any change with our capacity outlook. And especially for 2016, we’re still right in the 5% to 6% range, and I think all of us would be prepared that if for whatever reason travel demand weakens, then we would want to address that, and then at least discuss what kind of options we have to react on the down side.”
Concern For Low-Cost Competition?
One analyst asked Kelly if he’s bothered by growth from Spirit and Frontier Airlines, two other carriers in the U.S. low-cost market. He quipped that when Southwest acquired AirTran in 2010 that carrier’s fares weren’t lower than Southwest’s.
“But clearly there are carriers today whose costs are lower,” Kelly said. “On that point you and I certainly agree. And first of all, I think that is inventible that over time that an industry will get more competitive, especially when there is a disrupter as there has been with Southwest Airlines. So it is not shocking at all that we have more intense competition today than in any time in our history. And it is a challenge for our company and something that I’m very confident that our people will rise up to that challenge. But indeed, it will put an obligation on us to continue to innovate and work very, very hard so that we don’t lose our low fare leadership position in the country.”
Kelly has readily admitted in the past that Southwest doesn’t always have the lowest fares.
“We want to be the best service at the lowest price,” Kelly said. “Period. And describing price, I would agree that we are going to have to do some comparisons between unbundled pricing versus our more bundled approach. All-in, I want Southwest Airlines to be the lowest price. We’ll win if we have the best service at the lowest price. And that’s been our tradition, that’s been our history, that’s what the whole Company is based upon, and that’s what our growth plans are fundamentally based upon.”