Southwest Airlines CEO sees modest growth in 2009

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Gary Kelly also said high fuel costs will force Southwest to continue raising fares and have wiped out thoughts of acquisitions that looked attractive just six months ago.

Southwest, the only major U.S. carrier to earn a profit in the first quarter, expects to increase capacity about 4 percent this year while other airlines are cutting flights and laying off thousands of workers.

But Kelly told investors at a conference in New York that plans for 2009 are not set. The Dallas-based airline still expects to add 14 new jets in 2009 but hasn't decided how many older planes to retire.

"If we have to slow our growth to zero next year, we're obviously prepared to do that," he said.

Southwest has lower costs than other carriers, largely because it hedged against rising fuel prices several years ago. Still, it increased fares three times in April and May, and additional hikes are coming.

"We know like everyone knows that we're going to have to move fares along gradually and continuously to be able to overcome these dramatically higher fuel costs," Kelly said.

Southwest has veered from its old path of simply expanding to growing more selectively it is adding flights in Denver, where other carriers are retreating, while culling less profitable routes. Kelly said the company has room to grow, but probably not through acquisitions.

"I thought we had a very solid business plan to overcome $90 crude oil, where you would be open to taking that kind of risk," he said. "At $135, I think we had better be right for us to seriously consider an acquisition or any large expansion."

Southwest's problems, however, appear far less dire than those of other carriers.

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