Southwest won't increase fleet next year

The chief executive of Southwest Airlines Co. said Tuesday that travel demand slumped sharply in November and the growth-happy carrier won't expand its fleet next year.

Chairman and CEO Gary Kelly also said Southwest plans to cut capacity early next year, although not quite as sharply as the airline had previously said.

"October was a bang-up month, almost unexplainably strong," Kelly said. "The trends changed in November" after the stock market meltdown.

"Obviously we're concerned about the economy," Kelly said, but he added he doesn't expect another sharp decline in U.S. travel this month.

Kelly said Southwest's new schedule out in January will include a capacity cut of 4 to 5 percent in the first quarter, slightly less than the airline's previous goal of a 5 to 6 percent reduction.

In recent months, other U.S. carriers have cut capacity sharply, which Southwest viewed as an opening for its own expansion. But traffic hasn't kept up with Southwest's ambitious plans.

Earlier Tuesday, Dallas-based Southwest reported that the number of paying passengers in November fell 10.7 percent from a year ago while its supply of seats stayed about the same.

The airline carried about 6.5 million passengers last month, down from 7.3 million a year ago. The average plane was 63.2 percent full, down 6.1 percentage points from November 2007. Miles flown by paying passengers dropped 8.3 percent, to 5.26 billion.

Southwest's capacity measured in miles flown times available seats rose 0.4 percent over November 2007.

Kelly, speaking to a Credit Suisse investor conference in New York, said Southwest plans to take delivery of 13 new Boeing 737 jets next year.

Southwest already planned to retire three and now must "manage" 10 others — he didn't specify what it would do with the planes — to keep the fleet at its current size.

The company is also wiggling out of some of its famous fuel-hedging positions, agreements that allowed it to buy fuel at below-market prices the last several years. Southwest said the strategy has saved it $4.2 billion, but the value of those hedges has fallen because of the steep drop in oil prices since the summer.

Southwest has hedged 63 percent of its 2009 fuel supply, down from 75 percent, and is looking to reduce that further, Kelly said.

Southwest shares rose 25 cents, or 3.2 percent, to $8.18 in afternoon trading.