SOUTHWEST AIRLINES TAKES MAJOR STEP TO EXPAND INTERNATIONALLY
Southwest Airlines Co. announced a major step Thursday in the Texas carrier's efforts to expand internationally.
Southwest which has been struggling to integrate AirTran Airways and has been locked in a fight with United Continental Holdings Inc. UAL +2.82% over plans to add international service to Houston's smaller airport said Thursday it will add a global reservations system by Amadeus IT Group SA. The deal will let Southwest offer international flights by 2014. AirTran already flies to Mexico and the Caribbean.
Meanwhile, the company announced a first-quarter profit of $98 million, buoyed by $116 million in fuel-hedging gains. Southwest earned $5 million in the first quarter of 2011, before it acquired AirTran in May 2011.
The company declined to disclose its pro forma combined net income for a year ago—what Southwest and AirTran would have earned together, a truer year-over-year comparison.
Southwest, which began as a small Dallas-based budget airline three decades ago, has been eyeing a spot among the giants of the global airline industry.
But in its merger with AirTran, the company has hit some snags in rebranding airplanes and connecting Southwest and AirTran flights in its reservations system. It encountered problems earlier this year when converting several AirTran flights in Atlanta to Southwest. Eventually the airline reversed course, keeping the flights on the AirTran network.
The airline plans to convert 11 AirTran planes to Southwest this year, and about another 60 next year. It also plans to eliminate some of AirTran's bag fees and assigned seating.
"There will be radical changes on an on-going basis," Southwest Chief Executive Gary Kelly said Thursday. "Ultimately it will look like Southwest Airlines, but it'll take us 24 months to get through this transition process."
Southwest has progressed in other areas of the integration, reaching agreements on seniority lists with flight attendants, instructors and pilots, and receiving approval from the Federal Aviation Administration on its plans to align the rules and procedures of the two airlines.
Southwest has also consolidated AirTran into its Dallas headquarters and converted more than 400 AirTran employees to Southwest. Customers will also "soon" be able to use their frequent-flier miles for both airlines, Mr. Kelly said.
However, the company had expected to be able to sell tickets that connect Southwest and AirTran flights by the first half of 2012, but Mr. Kelly said Thursday they won't have that capability until next year.
"It's complicated," Mr. Kelly said. "There are a number of things that have to line up: physically on the airline side, and next, all the technology that connects our two networks."
As Southwest expands into an international carrier, it must find airports for its new routes abroad. Its first target is Houston's William P. Hobby Airport, where Southwest wants to add about 25 international flights a day.
Southwest is seeking approval for a new $100 million international concourse at the airport—funded by user fees—despite fierce objections from United, the world's largest airline by traffic.
United is lobbying city officials against the plan, saying it will hurt business at Houston's George Bush Intercontinental Airport, where it operates about 100 international flights a day.
United, which includes the former Houston-based Continental Airlines, says that if Southwest's plan is approved, it would likely have to cut flying by 6% from Houston and relocate 1,300 employees from there. A United spokeswoman said in a statement, "We embrace international competition and welcome all new competitors" at Bush Intercontinental.
Mario Diaz, director of Houston's airport system, has endorsed Southwest's expansion plan, saying in a letter to Houston's mayor that it would create 10,000 jobs and generate $1.6 billion annually for the city. In the letter, he said, "United has presented no persuasive data to support its claims," calling them "at odds with its actions at every other airport where it has faced low-cost competition."
In a letter to the mayor, United Chief Executive Jeff Smisek called a city-ordered study on the plan "rushed and flawed," and on Monday, Houston's city council was similarly critical of the plan.
On May 8, both airlines will present their cases to the city council, which is scheduled to vote on the plan a week later.
SOUTHWEST AIRLINES EXPAND
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