Southwest Hopes to Grow Profits by 15%

Southwest Airlines will focus more on growing revenues than on cutting costs as it looks to boost profits by 15 percent next year, the company's chief executive officer said Wednesday.

"Our costs are under control," Southwest CEO Gary Kelly told several dozen reporters and analysts at the carrier's headquarters. "We know our focus now will be to drive revenue growth."

Kelly shied away from offering specifics, saying that there's a "long list of things we've looked at."

He did, however, emphasize that revenue growth won't necessarily come from fare increases. Southwest will find ways to capitalize on its strengths, which include low fares and a solid balance sheet.

"Those competitive advantages were never as strong as they are today," Kelly said. "We know we need revenue improvements. The competitive advantages are there to be leveraged. It's up to us to figure out which ones" are most beneficial to the company.

Kelly spoke as part of a media and investor conference at the company's headquarters.

He said Southwest, which started service earlier this year at Denver International Airport and has expanded rapidly, will pay particular attention to two areas: customer service and execution.

"We have a number of weapons to choose from," Kelly said. "I am confident that, assuming we don't have any crazy event, we'll be able to drive our revenue."

That's not to say the carrier won't continue to look for cost savings.

Southwest will review its airport operations - including baggage handling - in all of its markets as it looks to increase efficiency and lower expenses.

The airline has recorded positive income for 33 consecutive years, yet it faces rising fuel costs and other expenses. In the third quarter, Southwest's earnings fell 77 percent compared with the same period a year ago, while costs jumped 20 percent.

Still, Kelly said Southwest is much better positioned than any other U.S. carrier, citing its strong balance sheet.

Next year, Southwest plans to bring on 37 new planes and increase its capacity by about 8 percent.

Kelly expects that most of the growth during the first half of 2007 will come from current markets, including Denver, rather than the addition of new ones.

"We have a nice mix of markets under development vs. much more mature markets that are growing," Kelly said, later adding that Denver "is very high on our list."



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