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Aug. 30--ALBUQUERQUE, N.M. -- Southwest Airlines Co. has concluded that the small Boeing 717s that it picked up in the AirTran Airways Inc. merger don't really fit into its fleet plans, chairman and chief executive Gary Kelly said Monday.
"It's not different enough or unique enough that it really brings any advantage beyond what a 737 would do," Kelly said at the Boyd Group International aviation conference at a resort near Albuquerque.
With leases expiring between 2017 and 2024, the airplanes may stay in the Southwest fleet for quite a while, but Kelly said the future of the 717s, which it leases from Boeing, is among the matters under discussion as Southwest talks to Boeing about future aircraft orders.
"It's a good airplane, but not one that I see we have to maintain for the next 20 years," Kelly said.
Kelly noted that Southwest didn't see a need for anything smaller than its 137-seat Boeing 737-700s before deciding in 2010 to buy AirTran. Southwest operates 25 Boeing 737-500s, which has 122 seats, but hasn't bought any that size in two decades.
At the time of the merger's announcement Sept. 27, AirTran operated 88 of the 117-seat Boeing 717s, and Kelly said Southwest was open to continuing to fly them. The idea was that the smaller airplane would let Southwest serve smaller markets.
However, Kelly said the rise in jet fuel prices over the past year has made the economics of many AirTran routes unprofitable, even though they made money when Southwest announced the acquisition.
"The higher that costs go, especially energy costs, the more it pushes you to a bigger airplane," he said. "On one side, it's a fine airplane. We're happy to fly it. But longer term I don't see that it plays a strategic role in our fleet.
Kelly reiterated previous comments that Southwest intends to keep the size of its fleet roughly unchanged in 2011 and 2012. As new airplanes arrive, it will retire older aircraft.
The executive said demand appears to have remained strong going into the fall. Even with the economic uncertainty facing the airline business, the concern is the much higher fuel prices it faces: up $1.3 billion this year over 2010 for Southwest and AirTran combined.
"In 2011, we're looking at very solid unit revenue growth, just not keeping pace with higher fuel costs," Kelly said.
Speaking of the AirTran merger, Kelly said he was "very disappointed" that pilot union leaders at AirTran decided not to let their members vote on an agreement that spelled out how Southwest and AirTran's seniority lists would be merged.
"On the other hand, it just gives us a chance to rethink the wisdom of increasing our labor costs in this kind of economic environment," Kelly said. Southwest had offered financial inducements to pilots to approve the agreement, which he previously had valued at tens of millions of dollars in 2012.
Responding to a question about plans for Hawaii service, Kelly declined to give a timetable for Southwest's move into markets other than the 48 lower U.S. states. However, he said the carrier is working to develop the capability to fly to Hawaii, Alaska, the Caribbean and other near international markets.
"I think we'll be ready in terms of our preparedness for Hawaii by 2013," Kelly said. "Whether we will fly then or ever is a different decision and a different discussion. Today we really don't have the capabilities to do that. Tomorrow we will."
