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Southwest CEO on earnings, rising ticket prices

Adriene Hill Jan 19, 2012

Adriene Hill: Southwest Airlines carries more passengers in the U.S. than any other airline. And it’s figured out how to make big money doing it. Today it announced it earned $150 million last quarter — thanks in part to full planes and rising ticket prices. We’ve got Southwest CEO Gary Kelly with us now. Good morning, Gary.

Gary Kelly: Good morning, Adriene. Pleasure to be with you.

Hill: So the economy seems to be stabilizing, are you feeling that?

Kelly: We are feeling that. In 2011 we had a little bit of inconsistent demand, but the third quarter was very solid, the fourth quarter was very solid. And our trends right now look strong, so all the broader economic news is pretty supportive of that view as well.

Hill: So in addition to your earnings report, Southwest has also made news this week by plans to add an extra row of seats on your 737s. Can you tell me a little about that?

Kelly: Absolutely, and really the story is we are improving our seats. We are improving the on-board customer experience. They’ll be much more comfortable. We’ll have the same personal space and room that our seats have today, if not more.

Hill: Now help me out here: How do you add seats, but keep people’s personal space the same?

Kelly: Because the seats are different. Because you sit differently in the seat and it allows us to harvest that additional space that’s created.

Hill: Now, for years Southwest was known as a low-cost carrier, but your prices have gone up. We know that from the earnings report. Has your business model changed?

Kelly: Well the world has changed. We’re still the low-fare leader and of course now we’ve grown to serve more customers in the United States than any other airline by far. The main change that we’ve seen in the over the past decade is jet fuel. And our jet fuel has are up five-fold from where they were 10 years ago. So absolutely that has an enormous impact on our overall cost structure and obviously we’ve had to pass those cost increases along to our customers. But you can still to Southwest to be the low-fare leader.

Hill: Southwest CEO Gary Kelly, thanks so much.

Kelly: Thank you, Adriene. Pleasure to be with you.

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