International routes, which launched in the third quarter of this year, now constitute about 1% of the carrier’s capacity. “Our 2015 international growth plans are modest,” CEO Gary Kelly told analysts.
But the new international routes are a “drag on our results right now,” he said. “We have some work to do,” before those routes perform as well as Southwest’s domestic network.
The carrier expects to add “three or four” new international cities next year, although Kelly did not define where those new destinations will be. Southwest is expecting to expand its international route network in the fourth quarter of 2015 when the new terminal at Houston Hobby Airport opens.
But Love Field and DCA represent a significant expansion for the Dallas-based carrier. On Oct. 13, when the Wright Amendment restrictions at the airport expired, Southwest added 22 new daily departures, the largest single-day route launch in its history.
Next month, Southwest will add eight more cities from Love Field. The long-haul flights enabled by the Wright Amendment’s expiration have seen load factors of more than 90%. “I would not be surprised if load factors at Love Field hover around 90%,” Kelly said, because the facility is limited to 20 gates and demand from the area remains high.
Southwest plans to limit connecting flights from Love Field, focusing on the Dallas origin and destination (O&D) market.
At DCA, Southwest next month will have 44 daily departures to 14 cities. This completes the schedule changes begun earlier this year when Southwest bought slots at DCA that American Airlines was ordered to divest as a condition of its merger with US Airways. The new flights will not add capacity at the airport, but will be a significant capacity expansion for Southwest, Kelly said.
Southwest had no presence at the airport in 2010 before it acquired AirTran Airways, but it will by next month be the second-largest airline at the slot-constrained facility.
Southwest took delivery of 11 new Boeing 737-800s and two used Boeing 737-700s in the quarter and retired one Boeing 737-500. The fleet grew by a net of two aircraft in the quarter, taking into account the 737 retirement and the removal of 11 AirTran Boeing 717s from the fleet.
By the end of the year, Southwest will have added 33 new 737-800s to its fleet, which accounts for some of the planned 5% increase in capacity in the first quarter of next year, Kelly said. Southwest expects to hold its fleet steady at 685 aircraft through the end of next year, CFO Tammy Romo said.
Kelly noted the “plunge” in fuel prices in the third quarter, and the carrier said it paid $2.94 per gallon of jet fuel for the period, compared with $3.06 in 2013. The volatility of crude oil prices concerns the Southwest CEO, however. “We can’t count on $80 [per barrel] crude prices going forward.” The price for the benchmark West Texas Intermediate crude oil fell from $106 per barrel on July 1 to $80 on Oct. 22, according to the US Energy Information Agency.
Southwest made significant changes, including increasing turn times on some of its flights, to its schedule in August to address its poor on-time performance. Kelly said it is too early to determine if the measures have reversed the problem fully, but he said he is encouraged by the trends.
Southwest reported third-quarter net income of $382 million, up 62% from the same period in 2013, on revenues of $4.8 billion, or 5.6% more than during the same period a year prior, for an operating margin of 13.5%. Unit revenues rose 4.9%, while unit costs excluding fuel rose 2.5%. Traffic in the quarter rose 5.6% on capacity that was up about 1% from 2013.