Airline's billion-dollar maybe

Southwest Airlines Co., the U.S. carrier that is slowing its growth rate for just the second time in its 35-year history, must generate $1 billion in annual revenue from new sources before it adds flights at a quicker pace, chief executive officer Gary Kelly said yesterday.

Once the biggest low-cost airline hits that target, "I'm hopeful we'll be able to grow at levels that we're all used to," Kelly said in an interview. "Until we do, there's no reason to continue to grow" as rapidly.

Southwest entered the Philadelphia market in May 2004 as a major competitor to US Airways Group Inc., the dominant carrier at Philadelphia International Airport. Southwest now is the airport's second-largest carrier.

The carrier is trimming its planned 2008 growth in seat capacity to a maximum of 5 percent. That is down from 7.5 percent growth last year, as rising fuel costs squeeze profit.

Kelly is betting he can add revenue with steps such as selling seats on ATA Airlines Inc. flights to Mexico under a marketing accord and marketing vacations on Southwest's Web site.

"There is a $1-billion-plus potential there," Kelly said of the possible revenue gains identified by the Dallas airline. "We can't cut $1 billion out of our cost structure unless we cut our pay, and that's the last thing I want to do."

Kelly's aim is to locate revenue beyond what Southwest gets from flying passengers and cargo under its current flight schedule. Sales last year probably rose 8.5 percent to $9.86 billion, the average of 11 analysts surveyed by Bloomberg.

"They'll get a big chunk of the $1 billion," said James Higgins, a Soleil Securities Corp. analyst in Solebury, Pa. "Whether or not they get all of it is still very much up in the air."

Kelly would not comment on specific changes, saying they would not be in place until later this year and in 2009. The steps follow efforts begun in 2007 to court business fliers with preferential boarding, extra mileage credits, and a free drink for passengers who pay $10 to $20 more for a one-way flight.

With lower costs than most large U.S. airlines, Southwest was able to keep growing when travel demand waned after Sept. 11, 2001, and four carriers declared bankruptcy from 2002 through 2005. Now, lower expenses at reorganized rivals and last year's 53 percent rise in jet fuel are eroding that advantage. Southwest last added a new market to its 64 cities in January 2006.