Southwest in holding pattern for growth in Las Vegas

By Richard N. Velotta

Friday, May 15, 2009 | midnight

Although local resorts are seeing a glimmer of recovery from the foul economy with booking windows expanding, the busiest airline at McCarran International Airport isn’t seeing the same trend.

Despite there being no sign of a rebound for Dallas-based Southwest Airlines, the low-cost carrier is poised to make an additional investment in Las Vegas as soon as things turn around.

A cutback by Southwest’s biggest rival in Las Vegas, US Airways, has opened the door for opportunity.

In addition, Southwest, which averages 230 daily arrivals and departures at McCarran, began flights to Minneapolis-St. Paul International Airport in March and will begin service to New York’s LaGuardia Airport and Boston’s Logan International Airport in the summer. The airline also is on the verge of launching a code-share relationship with Calgary, Alberta-based WestJet.

Both strategies bode well for Las Vegas, although Southwest CEO Gary Kelly, who was in town last week for the airline’s annual “Spirit Day,” isn’t promising that what Southwest is going to do will help everybody turn the corner on the recession.

“We’ve got a good schedule in here and obviously we’re the largest airline and Las Vegas is the largest departure point on our system and a very important part of our system,” Kelly said as more than 6,000 Southwest employees gathered beneath the Fremont Street Experience canopy for a night of celebration.

“We should expect that this too shall pass and we’ll get through this recession and demand will return and we’ll be poised to grow,” Kelly said. “We certainly want to grow in Las Vegas. We’re certainly investing so that we can grow efficiently in the future.”

Business travel is the biggest moneymaker for most airlines because businesspeople tend to make last-minute travel decisions that require the purchase of an airline’s most expensive tickets.

The bulk of Las Vegas’ business travel — for conventions — isn’t like most corporate travel because many conventiongoers book in advance like leisure customers. Still, business travel to Las Vegas is off dramatically because convention attendance is down.

Southwest did what most airlines are doing to survive the recession — cutting capacity. Las Vegas lost 4 percent of its Southwest flights, but the airline didn’t drop any cities or end all flights to any particular destination. Instead, it nibbled away at flights that had marginal business, pushing passengers to other more popular flights.

The airline also began marketing heavily to leisure travelers with fare sales. As a result, the airline had record loads in March and April and for the first quarter of 2009.

“Seasonally, March kicks off a pretty robust travel period that should carry us all the way to September,” Kelly said. “The trends are strong due to the reduced capacity. Our fare sales have filled the airplanes with a higher mix of discount and leisure travelers. That’s better than having soft load factors, but what we really want to see is a rebound in business travel and close-in bookings.”

McCarran got its first indication that Southwest wasn’t going to pull back dramatically when Clark County Aviation Director Randall Walker asked Southwest if it wanted to delay a costly in-line baggage upgrade. It didn’t.

A number of airlines have asked airports nationwide to scale back on capital projects as cost-cutting measures. But Southwest indicated it wanted the upgrade so it could grow quickly.

Growth opportunities await on two fronts.

Southwest’s foray into three big-city destinations caught some observers by surprise. But what surprised local tourism leaders even more was that when it announced the new service it didn’t immediately schedule nonstop flights from Las Vegas, a common Southwest move.

From the day that Southwest announced Minneapolis, New York and Boston flights, Kelly said the airline was going to be conservative in its approach.

It offered Minneapolis flights from Chicago’s Midway Airport only. After the initial rollout, the airline announced it was adding nonstop flights to and from Denver. For New York and Boston, the initial rollouts are from Chicago and Baltimore.

Kelly said the airline is studying bookings carefully and if there is demand to and from Minneapolis and Boston from Las Vegas, the airline will look at adding nonstop flights.

That won’t be the case in New York. Because the New York Port Authority restricts flights to LaGuardia with a 1,500-mile “perimeter rule” to manage the crowded airspace over the city, it’s highly unlikely Southwest would ever have nonstop between Las Vegas and LaGuardia.

Even though Southwest successfully battled a similar restriction at Dallas’ Love Field, Kelly said the airline has no interest in challenging the perimeter rule because the reward isn’t worth the investment in resources. Southwest will have eight daily trips in and out of LaGuardia when service begins June 28, which was all it could get when it purchased slot and gate assets from defunct ATA Airlines.

“We don’t have a clear path to achieving more slots (at LaGuardia),” Kelly said. “We were at the right place at the right time to acquire the ATA slots. Right now, LaGuardia is a very low priority for us. We’re happy with the eight flights. If we could get a few more, we’d be happier. But we’ve resigned ourselves to that level of activity, and we’re comfortable that we can be successful at that level.”

The other growth opportunity for Southwest involves the code-share agreement with WestJet, which has been one of the few air carriers adding flights at McCarran since the economy went south.

The deal was announced last year. Under code shares, both airlines market each other’s flights, coordinate schedules, have simpler, less expensive flight connections available online and bag handling is coordinated. Under a successful code share, a WestJet customer would fly to a Southwest destination and continue the journey on a Southwest flight and vice versa.

McCarran is one of the few airports that serve both carriers so Las Vegas could be a key part of the deal.

Although airport officials aren’t enamored with flights that use Las Vegas as a transfer point — their main focus is bringing passengers in so they can spend money in the community — the strategy could help the city in the long run.

Kelly said that as the code share develops, WestJet and Southwest could bring more flights in to support it. In all likelihood, not every passenger on such flights would change planes to go elsewhere. Southwest hasn’t committed anything yet to the code share, but Kelly indicated it’s a possibility.

“It would be a very easy market for us to contemplate creating code-share itineraries,” he said. “We’re months away from launching a code-share service offering, but Las Vegas will get a very strong look.”

Although Southwest hasn’t solidified any long-range plans that would generate more business for Southern Nevada, it arranged a one-night boost for downtown Las Vegas.

Southwest had its annual Spirit Day celebration May 6 on Fremont Street.

“We’re not here to talk about business plans, and there won’t be any speeches,” Kelly said. “But we have a lot to celebrate. We were No. 1 in customer service, No. 1 in low costs among our peer airlines and No. 1 in employee spirit, all goals of our Operation Kick Tail. So we’re just here to have fun and celebrate each other.”

Kelly said he didn’t expect to get any heat from shareholders about having a celebration in Las Vegas days after the company announced it had suffered a $20 million quarterly loss, primarily because employees from across the country had to take time off and pay for their own lodging and expenses. Most of the party’s costs were donated by vendors, and another Texas company, Landry’s Restaurants, owner of downtown’s Golden Nugget, gave Southwest employees a break on hotel rooms.

“It’s a classic Southwest low-cost event,” Kelly said. “It is in our DNA to be very, very careful with our spending. We’re famous for celebrating and famous for having fun, but that doesn’t translate to spending a lot of money on it.”

Kelly said when the image of celebrating in Las Vegas was discussed, company officers likened it to a Christmas celebration.

“You don’t cancel Christmas just because times are tough. You may spend less for your family celebration,” he said. “And that’s what we are, a family.

“Our employees deserve more than a pat on the back and a memo,” Kelly said. “I would quarrel with any shareholder who challenges that. If you don’t take care of your people who are the true core strength of the company, you don’t have a company.”