Low-cost carrier is eyeing Logan
Southwest CEO says Boston may fit airline's future
Five years ago, Southwest Airlines Co. wouldn't have toyed with the idea of adding Logan International Airport to its route map. But it's now more alluring to the no-frills carrier, chief executive Gary Kelly said yesterday.
Boston has become more attractive as Southwest tries to cope with skyrocketing fuel prices, court more business travelers, and capture new sources of revenue. However, there are roadblocks to entering the market immediately, Kelly said in a speech to the Greater Boston Chamber of Commerce.
"One of these days we might be here in Beantown," he said. But "one of these days" won't be in 2008 or 2009, Kelly told the Globe yesterday after the speech.
"In today's environment, our profits aren't where we want them to be," he said. So Southwest is closely evaluating "our growth right now, whether it's Boston Logan or anywhere else, because fuel prices are so high."
Delta, Northwest report first-quarter losses, E4.
Southwest has other plans for the immediate future. Next year, the carrier plans to have code-sharing partnerships with airlines that fly internationally. The agreements, in which airlines sell seats on each others' flights, would enable Southwest customers to connect to flights bound for Canada, Mexico, or the Caribbean on a single itinerary. Logan, the country's 12th largest gateway for nonstop international flights, could fit well with that plan.
To appeal to business travelers, Southwest in November changed its boarding process so passengers can pay extra to get on the plane first rather than get in line early to get a good seat. It is also upgrading waiting areas with more comfortable seats and electrical outlets and updating its 20-year-old frequent flier program - perks that road warriors pay attention to.
"We're in a transformation stage," Kelly said in his speech. "For 36 years, we've been able to compete more on low fares and less on amenities. But the financial imperatives are such that in the future, all airlines are going to have to be low-cost. So in the future, we're going to want to compete less on low fares and more on service."
The evolution is essential, rather than opportunistic, because the price of fuel has quintupled in the past five years and is now the airlines' highest cost. That coupled with the economy being on the cusp of a recession "is a very threatening combination," Kelly said. He predicted every airline lost money during the first quarter except Southwest, which last week reported a $34 million net profit, or 5 cents a share. Yesterday, both Delta Air Lines Inc. and Northwest Airlines Corp. reported sizable quarterly losses.
"Fares either have to go up, or costs have to come down," Kelly said. But, he pointed out, "the industry has already gone through bankruptcy. It has already reduced its costs, seemingly."
Those financial constraints coupled with Southwest's maturation are making Boston - and its strong base of business travelers - a more attractive market for the efficiency-driven carrier that historically has shunned congested and expensive big city airports.
The Dallas-based airline started flying to New England about a decade ago and now offers 19 to 34 daily nonstop flights at Boston Regional Airport in Manchester, N.H.; T.F. Green Airport outside Providence; and Hartford/Springfield's Bradley International Airport. Those airports are capable of handling more flights, Kelly told the Globe, but these "relatively mature markets" are almost tapped out on passenger interest.
"Southwest does have new airplanes coming," said Henry Harteveldt, travel analyst at Forrester Research Inc. "They've got to find a place to fly those profitably."
And for some Bostonians, Southwest's cheap airfare is no longer worth the hour-long drive to those smaller airports now that low-cost carriers serving Logan - like JetBlue Airways Corp., AirTran Airways, and Spirit Airlines Inc. - have brought prices down.
"Logan would benefit from more low-fare service and certainly from plugging into the Southwest Airlines network," Kelly said.
But there are hurdles at Logan. Terminal rents and landing fees make Logan's operating costs higher than Southwest's systemwide average of $5 to $6 per passenger, said Kelly.
But Southwest is nimble. The carrier that mastered the art of unloading passengers, cleaning the aircraft, and loading the next batch of passengers in 25 minutes could leap at entering Logan if the right situation arose.
"If you have a carrier in Boston that for any reason significantly reduced flight activity, that would be a perfect opportunity for us to come in," Kelly said. "And we could probably do that profitably."
It wouldn't be the first time Southwest succeeded at that.
"When TWA went out of business, they jumped into St. Louis with both feet because it wasn't an opportunity likely to come around again," said Jody Hoffer Gittell, an associate professor at the Heller School for Social Policy and Management at Brandeis University, who wrote a book titled "The Southwest Airlines Way." "It would be very consistent with their past history to jump into Logan."
Nicole C. Wong can be reached at nwong@globe.com.
