Southwest Airlines chairman disagrees with belief that business travel will recover in 2010

Dec. 10, 2009


Dec. 10--Southwest Airlines chairman Gary Kelly went slightly rogue Wednesday as the lone airline executive to throw cold water on widespread beliefs that business travel will recover in 2010.

"I'm not comfortable enough to report any improvement in that market," he said, adding that it's probably not weakening, either. Business travel won't improve significantly, and his airline won't expand, he told the Next Generation Equity Research conference in New York.

Indeed, Kelly is focused on raising fares to return his Dallas-based airline to historic levels of profitability.

Other airline executives shared rosier tidings in their presentations in New York Wednesday. Fort Worth's American Airlines Inc., Delta Air Lines Inc., United Airlines Inc. and US Airways Inc. all said that the worst appears to be behind the industry in terms of revenue and that premium traffic is percolating.

"I think we are seeing improvement in leisure and premium traffic at this point," said American treasurer and vice president Beverly Goulet. "While the domestic markets appear to have recovered at a faster pace than international routes, we're starting to see some improvement in those as well, which has been driven by capacity reduction."

Goulet said American's fourth-quarter revenue is likely to be down 4.5 percent to 5.5 percent from last year, but that's less than in previous quarters and investors are heartened by the narrowing gaps. American is focused on strengthening its hubs in Dallas-Fort Worth, Chicago and Miami and investing in better service for its best customers in order to get back to profitability. Bookings are positive in the short term, though a bit weaker in some domestic markets than last year, she said.

Delta chief financial officer Hank Halter said he expects unit revenue -- a measure of how much money airlines get for each seat they fly -- to flip to positive in the first part of 2010, and he reported encouraging booking signs for the world's largest carrier. United thinks that while it has underperformed its peers in the recession, it will outperform them in the coming economic recovery, said CFO Kathy Mikells.

All is not woe at Southwest, Kelly said. His carrier's on-time percentage is high, and he's excited about changes to Southwest's revenue management technology and approach. Along with raising fares, he said, Southwest will find a way to price connecting itineraries more smartly, as more than 20 percent of its passengers fly some sort of connection on its network.

Southwest will relaunch its Rapid Rewards frequent flier program in the later part of 2010; the changes aim to make loyal fliers even more loyal and to win new customers to the program so Southwest has more chances to sell nonairline products to them such as credit cards.

The conference helped airline stocks move modestly Wednesday. American's shares rose 7 cents to $7.05, while Southwest's shares gained 13 cents to close at $10.23.