Southwest chief sees no cuts over higher fuel prices

By Dow Jones Newswires
Posted Feb. 25 at 12:37 p.m.

The head of Southwest Airlines Co.  said Friday that successive fare increases brought on as the industry battles with soaring jet-fuel costs isn’t cutting into demand.

Gary Kelly, chairman and chief executive of Dallas-based Southwest, said he didn’t see signs of “demand destruction” and has no plans to cut capacity at this point.

Kelly said the airline can deal with jet fuel at its existing level of $3 a gallon.

“If it gets up to the $3.30 range, that’s more of a concern,” he told Dow Jones Newswires after appearing before a Senate antitrust subcommittee hearing to discuss the planned acquisition of AirTran Holdings Inc. “There’s no thought of any schedule changes at this point.”

Southwest is relying on fare increases, cost cuts and efficiency measures to offset an annual fuel bill running some $1 billion over budget.

He still expects Southwest to produce positive cash flow this year, and the airline plans to use free cash and profits for 2011 funding needs, including aircraft.

Kelly expressed his displeasure with plans by Boeing Co., which supplies Southwest’s planes, to replace its best-selling 737 with a new model offering better fuel and emissions efficiency and targeted for entry into service at the end of the decade.

“That’s not helpful,” said Kelly, adding that Boeing had yet to make a firm commitment to deliver a 737 replacement in the 2020 time frame.

“That’s a long, long way away.” He said last month that Southwest can manage “multiple fleet types,” fueling speculation that Airbus and Bombardier Inc. may have an opportunity to pitch for its business.

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