Airlines trim growth plans

The Baltimore Sun

Persistently rising fuel prices and fears of an economic slowdown are prompting Southwest Airlines and AirTran Airways, the two dominant airlines at Baltimore-Washington International Thurgood Marshall Airport, to scale back growth in capacity in 2008.

Southwest Airlines, BWI's biggest carrier, said yesterday that it would hold growth to 4 percent to 5 percent next year rather than the 6 percent it previously projected. The reduction is the discount airline's second this year, after a cutback in June when BWI lost more flights than any other airport Southwest serves.

Dallas-based Southwest made the announcement at the same time that it reported that its growth in passenger traffic in November lagged behind capacity growth.

"We do remain cautious about the growing evidence of a slowing domestic economy," Southwest's Chief Financial Officer Laura Wright said yesterday at Calyon Securities' airline conference in New York. "We do not plan to drop any city pairs or markets, but we will make adjustments in our schedule that we believe will lead to a more productive and more profitable airline," Wright said.

AirTran Airways, BWI's second-largest operator, reiterated its commitment to bring the airline's recent 20-plus percent annual growth in capacity down to a more manageable 10 percent growth rate, the company's new chief executive officer, Robert L. Fornaro, said at the Calyon Securities conference.

"We'll build in Florida, build in Baltimore and expand across the Midwest," Fornaro said at the conference, which was Webcast.

"But we're still going to re-evaluate our capacity and make sure we go into this first quarter very disciplined on the cost side."

Neither airline would comment on how the reductions would affect their operations at BWI.

The cutbacks come as soaring oil prices threaten the recovery of major U.S. carriers that became profitable this year after a string of losses and bankruptcies in the wake of the 2001 terrorist attacks.

Airlines, too, are nervous that a weakening economy could cut demand. Delta Air Lines, Continental Airlines and United Airlines have also said that they are trimming capacity.

While forecasts initially called for the total number of available seats to grow by at least 2.5 percent in 2008, capacity is now expected to decline about 1 percent, according to a new report by Jamie Baker, a JP Morgan airline analyst.

"More cuts [are] needed, though the process appears under way," Baker wrote of moves to trim capacity by Southwest and Continental. JP Morgan does business with both companies.

Southwest and AirTran said they plan to bring fewer new planes online. Southwest, which originally planned to add 34 Boeing 737s to its fleet next year, will now add just five to 10 planes in 2008, company officials said. That is a further reduction from the 19 additional planes the airline had already cut back to in June.

"We'll still take all the new deliveries. We'll just be retiring some older planes," Southwest spokeswoman Whitney Eichinger said.

AirTran, which purchased its anticipated 737s when airplane prices were down in 2003, will likely now lease out some of the new planes and older Boeing 717s, Fornaro said. The delivery of new planes could also be rescheduled, he said. The AirTran fleet consists of 50 737s and 87 717s, which have 20 fewer seats.

"Someday we'll operate more than 100 737s," Fornaro said.

AirTran, based in Orlando, Fla., is not shy about the company's opportunistic strategy that looks to enter new markets as financial troubles or mergers force other carriers to pull out.

The carrier first entered the Baltimore market after US Airways, once BWI's biggest carrier, pulled out most of its remaining flights.

Fornaro said an airline merger, particularly between Delta and US Airways, could allow AirTran to enter new "carve out" markets such as Cincinnati, Salt Lake City or Memphis, Tenn.

"Those are the cities they will be most likely to shed," Fornaro said. "That creates opportunities for AirTran to channel its growth."

AirTran shares dipped 29 cents, or 3.5 percent, to close at $8.05 yesterday. Shares of Southwest stock rose 7 cents, or 0.5 percent, to $13.80. Both companies are traded on the New York Stock Exchange.

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