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Southwest about to alter its course

The low-cost carrier may grow by forming alliances with airlines flying overseas routes.

September 19, 2007|Peter Pae | Times Staff Writer

Since it took off more than three decades ago, Southwest Airlines Inc. has grown rapidly by bucking the industry, resisting assigned seating, in-flight meals and the temptation to expand overseas.

Now, facing rising costs, more competition from copycats and the prospect of slower domestic growth, the nation's largest low-cost carrier is planning to make its boldest move ever: Next year, Southwest will begin providing connecting domestic flights to passengers arriving in the U.S. on international airlines.

"We have to find a way to get our revenues up, and there are two basic ways to do it," Chief Executive Gary Kelly said in a recent interview, "higher fares or get more passengers per flight."

Barring higher fares, Southwest will aim for the latter. Eventually, the airline might even fly its own international routes, perhaps first to Mexico and Canada before taking on Asia and Europe.

The initial plan would be for a passenger to be able to book an international flight with Southwest, starting in Corpus Christi, Texas, for instance, and connecting to another carrier at Los Angeles International Airport to reach a foreign city.

International code sharing, as it is called, "is the foundation for us to move to the next step to fly it ourselves if we chose to do that," Kelly said. For now, he said, partnerships with international carriers would help Southwest put more people on its planes.

Later this fall, Kelly said, Southwest may announce several other new initiatives, possibly including seating assignments and meals as well as onboard Internet connections -- services it rejected in the past because of their cost.

"They're talking about transforming themselves into a more business-friendly airline," said Susan Donofrio, an analyst with Cathay Financial Inc. "They're more of a mature airline, and certainly to continue their strong revenue growth they have to appeal to new constituents."

Kelly said LAX could play a key role in its international expansion plans. But the airline right now can't claim any more LAX gates -- other carriers already have dibs on them -- and that could force it to look elsewhere, such as San Francisco International Airport.

Southwest currently operates 120 flights a day out of 11 gates at LAX, making it the third-largest carrier at LAX, behind AMR Corp.'s American Airlines and UAL Corp.'s United Airlines.

"We've been trying to get more gates for years," Kelly said of LAX. "We're woefully behind growing our capacity at LAX."

Airport officials agree and would like to make deals with other carriers to accommodate Southwest. "If they are considering expanding their flight schedules, we will work with them to find gate capacity upon request," said Paul Haney, deputy executive director of airports and security for Los Angeles World Airports, which oversees LAX.

In the meantime, Southwest last month returned to San Francisco, with 18 daily flights, after a six-year absence from that airport. Before resuming service out of that facility, Southwest's only Bay Area airports were Oakland and San Jose.

The move may have been defensive -- Virgin America, the upstart airline started by British billionaire Richard Branson, started flying out of San Francisco in August -- though Kelly said it was prompted by demand.

In November, Southwest will launch eight daily flights each way between LAX and San Francisco, with promotional fares starting at $39. That is $5 cheaper than the Virgin America fare offered during its launch out of SFO, and Virgin America fired back last week by lowering its promotional fare to match Southwest's. It also added two daily flights to the five it had already.

The Southwest volley has ignited a fare war not seen since Pacific Southwest Airlines and AirCal competed for the LAX-to-SFO fliers in the 1980s, LAX officials said.

"The more competition, the better for consumer," said Abby Lunardini, a spokeswoman for Virgin America.


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