Southwest to Write Its Own Philadelphia Story

Even without adding new cities such as Philadelphia, Lehman Brothers estimates that Southwest has about $3 billion in revenue opportunities out there just by "connecting the dots" in its existing network. In 2003, analysts expect Southwest to book $5.9 billion in revenue, up 7.5% from 2002, but in the years to come, growth is expected to accelerate as Southwest adds cities and continues to connect the dots.

Indeed, when Southwest announced third-quarter earnings, the carrier said it had exercised options to take even more planes than originally planned, accelerating a growth plan that had been stifled during the industry's three-year slide. After growing capacity 6% in 2002 and just 4% in 2003, the carrier will grow by 7% in 2004 and 10% in 2005, matching growth levels last seen during 1999's boom year for travel.

"Southwest will start service to Philadelphia, its 59th city, in May 2004. Southwest will start with four gates, but could grow to eight," said William Greene, airline analyst at Morgan Stanley, in a research note. "Initially, Southwest will have up to 14 daily flights. Typically, Southwest operates nine to 10 flights per gate, suggesting it could grow to as many as 80 daily flights in Philadelphia."

In reaction to the news, on Tuesday, shares of US Airways took a bit hit, dropping 3%, while Southwest gained 2%. On Wednesday, as investors digested analyst comments, shares of US Air continued to slide, falling 68 cents, or 5.5%, to $11.80. Southwest gave back some of Tuesday's gain, dipping 10 cents, or 0.5%, to $19.11, which values the company at about 31 times estimated 2004 earnings.