AB’s chat with Gary Kelly

kellyairtran.jpgHere’s a plug for the June cover story of Airline Business — I had the chance to sit down with Gary Kelly as Southwest was on the verge of closing its high profile acquisition of AirTran.

Kelly is not blind to the formidable tasks that lie ahead during the next couple of years as AirTran is carefully folded into the Southwest brand. Based on his comments, Southwest is taking a measured approach to the integration, and with the exception of eliminating two-class service and assigned seating at AirTran, Southwest management seems to be keeping an open mind about other aspects of AirTran’s operations.

Here’s Kelly’s current thinking on AirTran’s mega hub in Atlanta —

All eyes are watching how point-to-point stalwart Southwest plans to execute an operation at the world’s busiest airport. “It will be interesting to see how dependent some of these small cities are on the hub and spoke system,” says Kelly. “So they’re tied to Atlanta today. We could leave those cities tied to Atlanta if they’re performing well, or perhaps we could have additional frequencies going west, and we have a number of cities in the west and Midwest that are candidates for supporting small city service like that”.

Given the choice, “there’s no question you’d rather have nonstop than connecting traffic”, Kelly says, and he believes Southwest might have an ability to generate more local demand in Atlanta than that currently produced by AirTran.

However, Kelly is quick to pronounce that there is no reason to pre-judge a strategy for Atlanta. “If nothing else we’ll learn a lot more about a hub operation than what we currently have or know.”

As debate continues over the level of concern Delta should have over Southwest entering into its fortress hub, some observers believe Delta could gain some AirTran business customers opting to shun Southwest’s open boarding policy and single-class aircraft. Southwest has emphatically said that it has no plans to adopt AirTran’s assigned seating or two-class aircraft configuration.

There appears to a bit of general acceptance by Southwest that some of AirTran’s corporate share could be lost once the business amenities are eliminated. “I’m prepared for some turnover here,” says Kelly. “Very strong brands never get everybody. Coca Cola doesn’t get 100% of the soft drink market.”

Kelly also believes operating AirTran’s smaller Boeing 717s is key to opening up small city opportunities that are intended to partly fuel Southwest’s growth in the future.  Here’s a bit of insight into his strategy for the aircraft, and for their eventual replacement.

Kelly admits Southwest needs an aircraft the size of the 717 to grow into markets that cannot support the current mainstay of the Southwest fleet, the 137-seat Boeing 737-700. “As we stand today, it’s difficult to muster up the effort to make one small city work, because it is so small and it just requires a lot of attention,” he explains. “In this particular case AirTran will bring us several dozen cities that are up and running, generating revenue and profits. So it is now worth the management effort to make that fit into the Southwest brand and Southwest culture.”

Kelly believes there are several dozen additional small cities a combined Southwest-AirTran could grow into, and while the company now has the equipment to penetrate those cities, he admits Southwest will need to focus its attention at some point on a 717 replacement.

Citing the size of the 717 fleet Southwest gains from acquiring AirTran, Kelly says clearly that is too large a number “for that not to be a question. So we’re going to have to figure out what the successor aircraft will be”. Ideally, it is a conversation Southwest would like to have with its lone aircraft supplier Boeing, but Kelly says the airframer has not expressed any real interest in pursing the market for that sized aircraft.

Admitting during his 25-year tenure at Southwest the carrier has spent very little time with any other airframer besides Boeing, Kelly believes “that’s got to be different in the future. Bombardier is clearly bringing something new to the market and the fact that we are inheriting these 717s just demands that we take a good hard look at all the options we have”.

Look for some schedule tweaks after November. AirTran’s schedule is published to that time, so until then things at AirTran should largely remain status quo.  



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