Southwest Airlines Takes Off Toward Global Expansion
The top domestic U.S. carrier by passenger volume, Southwest Airlines (NYSE:LUV), last year launched its first international flights, offering service to Caribbean vacation spots Aruba, Jamaica and the Bahamas.
Southwest is now poised for a global takeoff with several growth drivers that could take sales and profits aloft too.
“This year is a confluence of events, some planned and some not, but the result is spectacular,” Southwest CEO Gary Kelly said in an Oct. 22 earnings call. “We have significant opportunities to expand at Dallas Love Field, Washington Reagan, LaGuardia International, Houston International, all converging here in 2015.”
Southwest Airlines’ Boeing 737 jets are positioned at Los Angeles International Airport. Overseas flights may become 20% of Southwest sales. View Enlarged Image
In May 2014, Southwest partnered with Spain-based Amadeus, an airlines-reservations company. Southwest is moving toward using Amadeus’ Altea reservation system domestically and overseas.
Southwest’s prior system could only book domestic flights. That prevented partnerships like code sharing, where two or more airlines take reservations on a flight hosted by one of those carriers, including on international flights, offering convenience for travelers while cutting airlines’ costs.
As it began building a world-class reservation system, Southwest also waited for certain federal legislation to expire. The Wright Amendment to the Federal Aviation Act limited Southwest’s Love Field flights only to states near Texas.
Southwest’s Big Growth Begins
Market analyst Robert Mann, an airlines productivity expert and founder of R.W. Mann, says the amendment’s expiration in October 2014 flung open the doors for Southwest’s growth.
“That’s when the Big Bang started” toward growth, Mann told IBD.
“Southwest could fly to all of those desirable business destinations. Instead of flying to Wichita, Kan., for example, they could now fly to Chicago, Los Angeles and New York. The growth rates for Southwest at Love Field were astronomical,” Mann said.
But Southwest still couldn’t fly international routes from Love Field in Dallas. So it went south to William P. Hobby Airport in Houston for its international launch to the three Caribbean destinations in July 2014.
Last December, it announced applications to serve six more international destinations from Houston, and four in Mexico, plus Belize and Costa Rica.
On Oct. 15, Southwest opened a five-gate international terminal at Hobby Airport. “For the company, this marks the dawn of a new era,” CEO Kelly said.
Developing Overseas Routes
Cowen analyst Helane Becker notes that other, smaller domestic airlines such as Spirit Airlines (NASDAQ:SAVE) and JetBlue (NASDAQ:JBLU) already have flights to nearby locales, such as the Caribbean.
“The big story on Southwest is its ability to grow internationally, where other airlines don’t have that,” Becker said.