NYTimes.com Article: Southwest Airlines Pondering a Bigger Start in Philadelphia

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Southwest Airlines Pondering a Bigger Start in Philadelphia

April 16, 2004
 By MICHELINE MAYNARD





Southwest Airlines said yesterday that it was considering
adding more flights from Philadelphia International
Airport, where it plans to begin service next month, and
said that it believed the city could become one of its
major destinations.

The announcement highlights the continued heated
competition between major airlines and low-fare carriers.

Southwest's chief financial officer, Gary C. Kelly, said
Philadelphia had the potential to rank with
Baltimore-Washington International Airport as one of his
airline's biggest destinations. In the 1990's, Southwest
edged out US Airways to become the biggest carrier serving
Baltimore.

Southwest, the nation's largest low-fare carrier and the
sixth-largest domestic airline, will start Philadelphia
service on May 9, reaching 28 departures a day to 14 cities
by July. Its original plan, announced last October, was to
serve six cities with 14 departures a day.

Its moves have set off a flurry of activity at an airport
long dominated by US Airways, the seventh-largest airline,
which uses Philadelphia as one of its three hubs.

US Airways, which has 375 daily departures from
Philadelphia, has responded by increasing flights to the
destinations served by Southwest, and dropping fares on
those routes. Frontier Airlines, meanwhile, announced that
it would begin service to Philadelphia from Denver and Los
Angeles on May 23.

Also yesterday, Delta Air Lines said it would offer 15
flights a day from Atlanta to Philadelphia beginning June
1, up from 11 now. That effort is aimed more at competing
with AirTran, which serves the same route, than Southwest,
which does not fly to Atlanta.

But Delta's action illustrates the newfound seriousness
with which the industry is viewing Philadelphia. US Airways
chief executive, David N. Siegel, has used Southwest's
imminent arrival as a rallying cry in his bid to wrest a
third round of contract concessions from his airline's
unions. Last month, Mr. Siegel declared on an employee
telecast that Southwest was "coming to kill us."

In a conference call yesterday, Mr. Kelly said the
expansion in Philadelphia was the first time in Southwest's
history that it had added flights from a new market before
it had begun service there. He said advance reservations
were the strongest ever for the airline at a new city.

"Are we thinking about more flights? Well, yeah, based on
the way things seem to be," Mr. Kelly said.

The increase could be sharp. Mr. Kelly noted that Southwest
began service in Baltimore in 1993 with eight departing
flights a day. It now offers 162, making Baltimore the
airline's third-biggest destination, behind Las Vegas and
Phoenix.

"Can we do that with Philadelphia in theory? We don't have
a plan that says 162, but it is that kind of potential, and
we'll see where things play out," Mr. Kelly said.

Mr. Kelly's comments came as Southwest said it earned $26
million during the first quarter, slightly better than the
$24 million it earned a year ago. It was the airline's 52nd
consecutive quarterly profit.

But while Southwest was more than 80 percent hedged against
jet fuel prices, which have climbed more than 41 percent in
the last year, Mr. Kelly said the issue was still affecting
the airline's results. "Our costs are up; we're not happy
about that," Mr. Kelly said.

He acknowledged that the airline would spend more on
advertising in the second quarter, as it begins service
from Philadelphia. But he said he hoped stronger business
during the summer would offset the expense.

Continental Airlines, meanwhile, said higher jet fuel costs
were the major factor in its $124 million loss. That was
about half the airline's $221 million loss in the first
quarter last year. Continental had hoped to break even for
2004, a prospect executives say is vanishing as fuel prices
rise.

In addition, United Airlines, which is under bankruptcy
protection, forecast yesterday that its jet fuel costs in
2004 would be $450 million more than expected when it
drafted a business plan in mid-December. The plan formed
the basis of United's application for $1.6 billion in
federally backed loans. United made the disclosure in
documents filed with the United States Bankruptcy Court in
Chicago.

http://www.nytimes.com/2004/04/16/business/16air.html?ex=1083122460&ei=1&en=7fd57b4c6da10802


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