Gary Kelly, CEO of Southwest Airlines states "The worst is over"

Pleasing customers by not tacking on extra fees for baggage and other services has helped Dallas-based Southwest Airlines weather the recession and avoid what could have been its first money-losing year since 1972, Chairman and Chief Executive Gary Kelly said during a visit to Nashville.

Despite what he called a "terrible" 2009, with revenues off nearly 20 percent, Southwest managed a small profit for the full year, and has been profitable this year, with projections for an even better second half, he said in a luncheon speech to members of the Nashville Area Chamber of Commerce on Wednesday.

"It's easy for me to tell you that that the domestic airline industry is in much better shape now than it was a year ago," he said.

But challenges remain, Kelly added, even though Southwest now carries more domestic passengers daily than any other airline. "Business travel takes a huge hit in a recession and can take several years to recover," he said.

Even with the downturn, Nashville continues to be an important market for Southwest, Kelly said. The airline operates more than half of the daily flights at Nashville International Airport. The airline has almost 300 employees in Nashville, as well as several flight crews living in the area.

Southwest began service to Nashville with just eight daily flights in 1986, the same year Kelly joined the airline. Today, it has about 80 daily departures, airport spokeswoman Emily Richard said.

Even without the spreading BP oil spill in the Gulf of Mexico that could curtail this summer's tourism business on many Florida beaches, Southwest took a gamble when it began daily flights from Nashville and three other cities to Panama City Beach, Fla., last month, Kelly said.

"That's a brand-spanking-new airport," he said. "To us, this is a huge risk."

But the flights have been nearly full, he said. "We rarely see that with a brand-new market."

Whether that will continue as the oil comes ashore remains to be seen, he said. "We're not predicting any effect (on Southwest's passenger loads), but we just don't know."

Fuel costs have more than tripled since 2005, which has forced Southwest and other airlines to raise fares.

He elicited a round of applause from the chamber crowd when he pledged that bags will continue to "fly free on Southwest," while competitors such as Dallas-area rival American Airlines charge up to $120 for two checked bags per round trip. "We chose not to pursue hidden fees … which we know that customers hate," Kelly said.

New planes will wait
The worst of the recession is over, at least for the airline industry, he said, and Southwest is thinking again about expanding, though it's not ready to add aircraft.

For now, Southwest will continue with its fleet of all 137-passenger Boeing 737 aircraft, although those planes are "a little long in the tooth now," Kelly said,

"We long for the next aircraft," he said, adding that it might be a new line of Boeing jets, but that no proposals for a new model have come yet from the Chicago-based manufacturer.

Whichever company makes the next generation of Southwest jets, the planes need to be more fuel-efficient, Kelly said. The airline also is looking at expanding its flights beyond the U.S. mainland, perhaps first into Canada and Mexico, and maybe to Hawaii, he said.

Southwest has never flown internationally but will begin an alliance with Mexico's Volaris Airlines later this year to offer Mexico flights on Volaris planes booked through the Southwest.com website, Kelly said.

(G. Chambers Williams III - The Tennessean