Rising Fuel Costs, AirTran Integration Blamed

Most commentary linking rising oil prices with suppression of an economic recovery relies on vague generalizations. But Southwest Airlines is blaming the upward march of fuel costs for a change in expansion plans which could delay the deployment of hundreds of additional planes, citing the need to reach a target of a 15 percent return on investment.

The Wall Street journal reports Southwest CEO Gary Kelly (pictured), speaking in Chicago at an employee event, said of jet fuel prices, "We prepared for $3.30, and now we're going to have to be prepared for $3.50." He adds that fuel costs, with additional uncertainty surrounding costs to merge recently-acquired AirTran, may require "schedule adjustments."

Kelly adds plans remain on track to replace some older Boeing 737 variants with the 737-800 to increase capacity, and the first of the more-efficient new 737 MAX aircraft will begin arriving in 2017, part of a recent $19 billion contract with the manufacturer.

There were bright spots in Kelly's outlook. He says the AirTran acquisition will bring Southwest customers access to the world's busiest airport, Hartsfield-Jackson International in Atlanta, and add 22 cities to the list of those served, and an improvement in annual revenue of $400-500 million.

FMI: www.southwest.com