Southwest Looks for More Gates As It Moves Into Dominant Role

Staff Reporter

Southwest Airlines Co., which has overtaken United Airlines to become the largest carrier serving L.A. County, is in negotiations with Los Angeles World Airports to acquire more gate space at Los Angeles International Airport's Terminal 1 facility.

Discussions are ongoing between the Dallas-based carrier and LAWA, which operates LAX, but the plans are contingent on US Airways, now also flying out of Terminal 1, moving to Terminal 6.

LAX spokesman Tom Winfrey said USAir was likely to finalize the move "sometime later this year or early next year," though he would not provide specifics.

US Airways spokeswoman Amy Cudwa said the preference would be for the carrier to move to Terminal 6, but she also said no timetable has been set.

Cudwa said being near United would be preferable because both carriers are part of the Star Alliance, a partnership of airlines that allows for a broader connection of flights. Moving to Terminal 6, however, would likely involve a reduction in flights by other carriers using the facility. Those carriers are United, Delta and Continental.

"We have an understanding (US Airways) will move but we're not sure when," said Southwest spokeswoman Whitney Eichinger.

Currently, Southwest has exclusive use of eight gates at Terminal 1 and shares six other gates with other carriers, including USAir and America West. Opening up more space at LAX would provide a boost for Southwest, which has been constrained in adding flights out of local airports because of gate capacity. Southwest also is increasingly being challenged by other discount carriers.

Last year, Southwest carried 10.2 million passengers in and out of the county, compared with 10 million the year before (see The List, page 23). That tops the 9.5 million passengers carried by UAL Corp. unit United in 2003, down from 10.4 million the year before. USAir is ranked 14th, with 1 million passengers in 2003.

Pickup in passengers

United's numbers are likely to increase, the result of heavy discounting and a sharp resumption in business after 9/11-related fallout. The carrier has registered a 3 percent increase in traffic so far this year and added a half-dozen flights on its main line at LAX since last year, said spokeswoman Jenna Obluck.

The pickup in traffic was reflected in United's load factor, the percentage of available seats that are occupied, which systemwide hit an all-time high of 86 percent in June. Although United doesn't release airport-specific numbers, Obluck said the Los Angeles market is trending with North America, giving it some of the highest numbers in the industry.

"They are restructuring the way they fly and how they fly, not losing it to Southwest per se," said Michael Boyd, president of aviation consulting firm Boyd Group. "Southwest is different transportation; it focuses on big markets. United is hub-based, taking people from Lansing, Mich., to Beijing; it focuses on a wider range of markets."

Direct comparison of the passenger numbers has become more difficult in recent years because of various relationships the major carriers have with smaller airlines.

United, for example, has shifted some of its service to regionals such as SkyWest Airlines, operating under the United Express brand. Contracting on a fee-for-departure basis, independently owned SkyWest receives a set amount per flight from United through the marketing agreement. It has similar arrangements with Continental and Delta. All of SkyWest's flights are booked through the three airlines, with SkyWest serving United flights out of LAX and Burbank.

"With United Express we serve smaller and mid-size cities," Obluck said. "If we had a mainline flight (on the route), it would be over-served, but with Express we match capacity with demand."

The airline continues to seek efforts to get out of bankruptcy protection most recently it raised flak by disclosing it has amended agreements with private lenders that essentially require a halt in contributions to the company's pension plans. The federal government's Pension Benefit Guaranty Corp. has determined that it could be liable for $5 billion in lost pension contributions should the airline default on its four largest pension funds. The move came after United's $1.1 billion federal loan guarantee application was denied last month.

Southwest turbulence

United is hardly alone in its financial woes. US Airways Group Inc., which emerged from bankruptcy protection last year, is again seeking cuts from its employees the third time in the past three years. The airline says it needs to cut $1.5 billion in expenses to avoid a second bankruptcy filing.

Even Southwest is hitting some earnings turbulence, reporting a 54 percent decline in second-quarter net income, which the carrier blamed on rising costs of fuel and labor. The airline, however, issued a bullish forecast for the third quarter, citing strong bookings for the rest of the summer.

Southwest has been growing steadily in the Los Angeles market since it began offering service at LAX in 1982 and then eight years later in Burbank. The airline moved into second place in 1993.

"Where Southwest is, particularly with current financials, they are always going to do better," said Jack Driscoll, former LAWA director who now works as an aviation consultant. "The pricing is better and operating costs are substantially lower than large carriers. If not for Sept. 11 and the economy, we might still see United and American and Delta in the market, but it's pretty clear these guys are trying to reinvent themselves to Southwest's model."

Among Southwest's advantages, Driscoll cited an efficient method of handling maintenance, fewer costs associated with leasing instead of owning airport real estate, and not inheriting cumbersome contracts and agreements from before deregulation, which have burned the larger airlines.

But Southwest faces some of its stiffest competition from newer, low-cost start-ups, such as JetBlue Airways, which has seen its passenger volume explode in the past two years out of Long Beach Airport. Even United is trying to capture a piece of the market, with discount offshoot Ted launched earlier this year.

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