Southwest extends freeze on fleet to 2015 to reach capital goal
DALLAS — Southwest Airlines will freeze the size of its jet fleet through 2015, a one-year extension, as the largest discount carrier focuses on boosting its return on invested capital.
The cap goes beyond Chief Executive Officer Gary Kelly's stated goal of holding the number of planes — now about 680 — steady through 2014. He said in January he wants to "match and exceed" a 15 percent return that Southwest projects reaching this year after ending 2013 at 13.1 percent.
"In 2014 and 2015, the plans are for the fleet to be flat," Chief Operating Officer Mike Van de Ven said in an interview at Southwest's Dallas headquarters. "We should be in a position after 2015 to grow the fleet if the economics and the business are right."
Showing a higher return on invested capital is part of Southwest's push to broaden its appeal to investors, along with stock buybacks and the longest-running dividend among major airlines. Delta Air Lines, the only other carrier in the Standard & Poor's 500 Index, also has a 15 percent goal and matched that figure last year.
Keeping the fleet unchanged also raises the prospect of cutbacks among Southwest's less-profitable flights as the airline expands its network. By the end of 2015, Southwest has said it would more than double service at Washington's Reagan airport, add New York and Dallas flights and start international routes from Houston.
"If you're going to expand in certain locations, you're going to have to adjust your network in other locations," said Kevin Crissey, an analyst at Skyline Research in Mahwah, N.J. "Some other airlines are eagerly and anxiously waiting to know where those openings will be to decide if they want to backfill those locations with their own capacity."
While Southwest's 84 percent stock-price gain in 2013 marked the best annual performance since 2000, that advance was good enough for only fourth place on the Bloomberg U.S. Airlines Index. Delta, the third-biggest U.S. carrier, more than doubled.
Southwest rose 22 percent this year through Tuesday, again fourth among 11 carriers in the gauge. In May, the airline quadrupled its dividend, paid for 147 straight quarters, to 4 cents a share and boosted a stock-repurchase program by $500 million to $1.5 billion.
While Southwest describes the 15 percent return goal as a longstanding target, it hasn't achieved that mark since 2000. Kelly mentioned the figure in 2008 at a transportation conference, and the airline cited it in a 2009 report to employees and investors.
"We've been working to get back on track since 9/11," said Brandy King, a spokeswoman.