Southwest May Rein In Capacity

Second-quarter revenue per available seat mile has advanced slower than the 5% rate expected.
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With demand for air travel slowing,

Southwest

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may back off its targeted 8% capacity expansion rate.

"We are a growth company, and we will continue to grow,

but 8% is not a magic number," CEO Gary Kelly said Wednesday at an industry conference. "If trends don't change, I think it would be appropriate to change the growth rate."

Kelly said the carrier is probably committed to an 8% increase this year due to its planning and aircraft delivery schedules from

Boeing

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. But "we have a lot of flexibility when you get into 2008, so if we don't want all those deliveries, there's a market for them," he said.

For next year, Southwest has 32 firm aircraft deliveries and two options.

Currently, Southwest is assessing how long the slow revenue environment will continue. "At this point, we are experiencing the effects of a softer economy and slower demand for air travel" than last year, Kelly said.

As a result, second-quarter revenue per available seat mile has advanced slower than the 5% rate Southwest anticipated in order to meet its 15% earnings growth target. Load factors declined in April and May, while June and July yields are under pressure.

Southwest is taking various steps to enhance unit revenue. Among them, it will expand its code-share capabilities in order to offer international connections on other carriers, but not at the expense of impeding the efficiency of its point-to-point scheduling.

Additionally, Southwest wants to improve its frequent-flier program, better its revenue management system and tap more ancillary revenue sources, including an in-flight wireless system that is currently being developed.