Southwest to grow in Las Vegas

David Strow

Thursday, June 29, 2000 | 11:22 a.m.

Southwest Airlines, Las Vegas' largest airline, today announced it will purchase 94 Boeing 737s worth $4.5 billion -- the largest single order in the Dallas-based airline's history.

It's unclear how the purchase will affect the Las Vegas market. Generally, the low-cost carrier's expansion is good news for the city's hotel-casinos, since it results in lower fares to Las Vegas either through direct or connecting flights and encourages travel to the city.

"Certainly Las Vegas has been very good to Southwest Airlines," said Ginger Hardage, spokeswoman for Southwest. "It's been a great mutual relationship, and we're proud to hold the No. 1 spot in bringing more people to Las Vegas. So obviously this is good news about what the future would hold for our continued growth (at McCarran International Airport)."

Hardage said she was unable to discuss specific growth plans, citing competitive reasons.

"Oh, definitely (it means more Las Vegas growth)," said Susan Davis, marketing representative in Southwest's Las Vegas office. "It's no secret we're growing all the time."

Southwest currently employs more than 600 people in Las Vegas, and Davis said the airline is actively hiring in the city. It offers more than 150 non-stop flights per day from McCarran to 38 cities.

"I'd be very surprised if they had that many (new) planes, and they didn't do any (new flights) to Las Vegas," said Dave Ehlers, chairman of Las Vegas Investment Advisors.

Under terms of the deal, announced this morning by Boeing, Southwest has placed firm orders for 94 Boeing 737-700s. Southwest also has options to acquire an additional 25 aircraft, and purchase rights for up to 196 planes over the next 12 years. Deliveries of the aircraft will begin in 2002.

Southwest will have 342 aircraft in operation by year's end.

Southwest provided few clues this morning on specific uses for the aircraft.

"Because of their exceptional reliability, low operating cost and comfortable interiors, we'll be able to expand into new markets and add more frequent service on existing routes with minimal business risk," said Southwest Chief Executive Herb Kelleher in a statement.

Ehlers said he's encouraged by the type of aircraft Southwest is ordering -- the long-haul 737-700, with a range exceeding 2,500 nautical miles.

"Those are capable of flying to Las Vegas (non-stop) from the distant eastern markets," Ehlers said. "That's a segment of our market where we have gone underserved. Those are the (flights) that are growing the fastest ... the non-stops to Las Vegas from those markets."

Ehlers added that Southwest may be compelled to add more eastern flights at McCarran International Airport to compete with growing National Airlines, which offers direct flights between Las Vegas and major East Coast markets.

But an airline industry analyst said the Southwest order really isn't a new strategy for the airline at all -- and that he isn't convinced substantially more Las Vegas flights will result.

"Southwest has always talked about its long-term growth rate being 10 percent," said Glenn Engel, airline analyst with Goldman Sachs. "It doesn't change anyone's view of what Southwest was going to do. Southwest will decide which markets can support the most aircraft.

"Southwest is targeting more of this growth east rather than west. If Las Vegas is delivering for them, they'd push growth toward Las Vegas as well."

Still, many of the new markets added by Southwest in the east have included a Las Vegas element. That was the case earlier this month, when Southwest announced it would begin service to Buffalo, N.Y., in October -- and said that service would include a daily non-stop flight to Las Vegas. The flight will be McCarran's first direct connection to Niagara International Airport. In May, Southwest expanded to Albany, N.Y., and added a non-stop flight from Las Vegas to that city as well.

Las Vegas benefits far more from these direct flights than connections -- Engel estimates just 20 percent of Southwest passengers take connecting flights, as opposed to more than half of the passengers flying on other major carriers.

"They don't tend to do as much feeder business," Engel said. "But when they do that, connections do happen. When they introduce new cities, they like to connect the dots, and Las Vegas is one of the dots they connect to the east."