Southwest CEO sees BWI as international gateway

BWI will be a 'focal point' of Southwest's international expansion, CEO says

BWI Thurgood Marshall Airport will be a "focal point" for Southwest Airline's expansion into dozens of new international markets, the carrier's CEO said Friday.

The Dallas-based airline, already the nation's largest domestic carrier, launched its first international flight last year out of BWI, Southwest's second-busiest hub. In coming years, the Anne Arundel County airport will remain an important launch pad as the airline considers routes to 50 additional international cities, said Gary Kelly, the airline's president and CEO.

"We'll be able to add a lot of dots to the route maps," Kelly told a packed room of local business leaders at the BWI Business Partnership breakfast, held at the Hotel at Arundel Preserve.

Southwest already has so-called near-international routes from BWI to Aruba, the Bahamas, Costa Rica, the Dominican Republic, Jamaica and Mexico, some of which were routes acquired when it bought AirTran.

All 50 cities the airline is considering expanding into are in the Caribbean and Central America — not Europe or Asia — though, Kelly added, the new Boeing 737 MAX airplanes the company hopes to start flying by 2017 are more fuel-efficient and will help expand its range.

The airline also is preparing for its international growth at other airports, including at Houston Hobby Airport, where it is building a new international concourse.

But BWI, where new international gates are also underway, is going to be a "big winner" of the shift abroad, said Tom Parsons, an industry analyst at BestFares.com.

"Baltimore just works out perfect for what they want to do," Parsons said.

For one, fliers can get to Baltimore on early-morning flights from a huge portion of the heavily populated Northeast and be on a nonstop flight to the Caribbean early enough that their plane will be able to make a return flight to Baltimore the same day, Parsons said.

Southwest also enjoys a dominant position in the Baltimore market, Parsons said, which will allow it to offer new international routes without having a "dog fight" with other carriers — as it might in markets like Atlanta.

Parsons said Baltimore likely will be one of Southwest's "strongest markets" for the Caribbean and maybe Mexico, and also would make sense as a hub for any expansion into Canada — which Kelly said is in the "idea stage."

Kelly also said Southwest's recent growth at other regional airports, including Ronald Reagan National Airport in Washington, will not affect the intended growth at BWI.

"We're not cannibalizing our flights at BWI just because we have 40 to 50 flights at Reagan," he said, noting that Southwest already operates 224 daily flights out of BWI during peak periods.

Both Paul Wiedefeld, BWI's CEO, and acting Maryland Transportation Secretary Pete K. Rahn, who is awaiting confirmation, attended the breakfast and said they were encouraged by Kelly's remarks and are eager to facilitate Southwest's local growth.

"The biggest thing I heard is the 50 additional destinations they have that they could serve with their existing fleet," Wiedefeld said. "That's a tremendous amount of growth they could take on with their current business model, which we're such a big part of."

Rahn said the airport will be a major priority as he assesses the needs of the various transportation agencies that fall under his department.

"It's an engine for the region, and clearly we need to invest in it," he said.

Already, BWI is in the midst of a project to expand its capacity for international flights. Fliers will begin seeing more construction on the airport's D and E concourses in coming weeks, Wiedefeld said, as work begins on several new gates that can "swing" between domestic and international service.

Just how quickly Southwest plans to expand is unclear. Kelly said the airline has to "walk before we run" when it comes to the international market.

The huge drop in fuel costs in recent months, for instance, has meant a nearly $2 billion windfall for the airline despite the fact that it had hedged at higher costs, Kelly said. While lower costs are "a good thing" for the airline industry, he said the fluctuations in fuel prices are also "pretty scary."

"It just is alarming to think you could have that much volatility and that much surprise to the world," he said of the plummeting prices since September. "Energy prices are what will drive fares."

As competition in low-fare flying increases, there are also a slew of other considerations, Kelly said. For example, the airline doesn't want to be "undercut" by others that are saving costs elsewhere, including by charging for checked bags, which Southwest doesn't do.

Southwest recently attracted attention for its decision to change its Rapid Rewards program, following other airlines that have tweaked their own benefits accrual models.

Beginning April 17, the number of Rapid Rewards points customers need to redeem for certain flights will be based on a variety of factors, including destination, time, day of travel, demand and other factors, the company said.

"It's simply a matter of managing our seat inventory," Kelly said when asked about the change Friday. "Some flights are just more popular than others, and it's just an evolution of how we want to offer our rewards program."

But according to Brett Snyder, an aviation consultant and founder of CrankyFlier.com, the change means customers will know less about the value of their points, which will vary based on which flight they want to take, how popular it is, and what algorithm Southwest uses to assess its point value.

"Maybe this is only going to apply to some crazy full flights on Christmas Day, and otherwise it will be normal," he said. "But they won't give any details and we don't know what the impact will be."

In terms of managing seat inventory, the airline already does that through fares — which its rewards program is tied to — so tying the rewards themselves to seat availability just makes the program more complicated, Snyder said.

"It's the trend towards, 'You don't need to know. We'll tell you what you need when you're ready,'" he said. "These points are supposed to be aspirational. People want to save up for things. They want to have a goal, and this makes it harder and harder to do that."

Whether the changes will have an impact at BWI, where Southwest corners more than 70 percent of the market, is unclear.

At the breakfast Friday, nearly all of the business professionals in the crowd raised their hands when asked if they had flown on Southwest recently. They all were given $100 Southwest vouchers on their way out.

"Baltimore is a very, very key city for us," Kelly said. "We have a great relationship with the community."

krector@baltsun.com

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