December 15, 2011 / 6:58 PM / 7 years ago

Southwest out to re-widen its cost advantage

NEW YORK (Reuters) - Southwest Airlines Co (LUV.N) is focused on eliminating waste and inefficiencies in its operation to bring down costs and re-widen the cost advantage it has against larger rivals, Chief Executive Gary Kelly said on Thursday.

Southwest Airlines CEO Gary Kelly gestures as he briefs reporters on his low cost airline's plans for the future, including dealing with higher fuel costs, destination expansions and customer service, at the Reuters Aerospace and Defense Summit, in Washington, December 5, 2007. REUTERS/Mike Theiler

Upgrading the company’s airplane fleet is a key part of the strategy to lower costs, he added in an interview with Reuters in New York.

“We’re still the low-cost producer, we’re still the low-fare leader and that leadership position certainly hasn’t been lost. It’s just the gap has been narrowed,” Kelly said. “We’ll want to widen it again and that will be our focus.”

Southwest this week handed Boeing Co (BA.N) its first firm order for the upcoming 737 MAX, ordering 150 of the new planes that will be equipped with fuel-efficient engines supplied by CFM International, a joint venture of General Electric (GE.N) and France’s Safran (SAF.PA).

Southwest also ordered 58 of the 737 Next Generation models, bringing the number of planes it has on order with Boeing to 350.

Kelly, who told staff in a memo earlier this month that bankruptcies have helped larger U.S. rivals cut costs, said reducing costs on a unit basis would be a focus over the next five years. Lower fuel burn and maintenance costs from new airplanes as well as just running the operation better on a daily basis will help Southwest get there, he added.


“The easiest thing we can do right now is to eliminate waste, eliminate inefficiencies,” Kelly said. “The good news is we don’t have to have remarkable transformation here to address” those.

Kelly said air travel demand was “very good” and that Southwest was competing well, despite economic concerns. “Things are not getting worse from my perspective,” he said when asked about the state of the U.S. economy.

Dallas-based Southwest acquired AirTran this year, a deal that gave it access to big East Coast markets such as Atlanta, a city it didn’t previously serve. The carrier expects to receive a single operating certificate from U.S. regulators early next year, but until then must operate as separate entities.

Southwest-branded flights will start in Atlanta in February, and Kelly said he’s determined to win customers in the southern U.S. city, which is the headquarters and biggest hub for Delta Air Lines (DAL.N).

“It is a competition, I don’t think (Delta) will shy away from that and neither will we because we’re famous for that,” Kelly said. We’re very pro-consumer, we’re very pro-competition ... We bring a lot to the table.”

Reporting by Karen Jacobs in New York; editing by Gunna Dickson

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