Southwest Airlines international service continues to struggle along

Southwest Airlines chairman and CEO Gary Kelly told analysts and media Thursday that its new international service has been “in line with our expectations,” but not great.

 “I will admit to you all they are a drag on our results. Right now, we’ve got some work to do,” Kelly said.

Southwest has already announced Baltimore-Costa Rica service to launch in March 2015, and the carrier will add a “handful of other destinations next year, all with low frequency.”

Southwest began taking over the AirTran Airways international system on July 1 and will finish that takeover before AirTran flies its last flight, Atlanta-Tampa, on Dec. 28. Southwest acquired AirTran in May 2011.

He said international growth in 2015 will be “very modest, particularly considering that Houston doesn’t open until late next year.”

He was referring to a five-gate international terminal under construction at Houston Hobby Airport. It is scheduled to open around the end of third quarter 2015.

UPDATE, 12:55 P.M.: Late on the earnings call, Kelly took up the question of the international routes again. He said one should view it as a question of transitioning the routes from the AirTran network to the Southwest network and setting up the schedule to take full advantage of the international routes.

“We are phasing in our international operations gradually, and right now, the financial performance isn’t what one would expect once those markets are mature. There is nothing unusual about this.
 
There is nothing unexpected. It’s a brand new venture for us. It really has nothing in other words to do with macro issues or whether there is too much supply or too little supply,” he said.

“Those routes were performing very well on AirTran, and I expect by this time next year, they will be performing very well on Southwest Airlines,” he said.

BACK TO ORIGINAL ITEM: The comments on international service were the only ones that were less than buoyant by Kelly and CFO Tammy Romo.

On a happier note, Kelly reported strong results from the Oct. 13 launch of long-distance service from Dallas Love Field. The 22 added flights to seven cities have had load factors in excess of 90 percent, meaning that less than 10 percent of the seats remained empty.

Oct. 13 was the date that the 1980 Wright amendment expired, allowing Southwest and other carriers to fly nonstop beyond Texas and eight other states to which they had been limited prior to Oct. 13.

On Nov. 2, Southwest will grow the non-stops beyond the Wright amendment area by 27 flights and eight destinations. At that time, it will cut 118 flights inside the Wright amendment area to 100, and have 49 flights beyond the Wright amendment area.

On another matter, Kelly thanked the leadership of the International Association of Machinists and Aerospace Workers for agreeing to a tentative agreement covering airport and reservation agents. The IAM was one of seven open contracts among Southwest’s labor groups.

“I hope there will be more tentative agreements that will follow quickly,” Kelly said.

(Terry Maxon - The Dallas Morning News)