Southwest predicts fleet upgrades to boost pre-tax profits by $870M

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Southwest Airlines forecasts that an interior upgrade for Boeing 737-700s and the introduction of the 737-800 will contribute $870 million in pre-tax earnings over the next three years.

The Dallas-based carrier unveiled the Evolve cabin interior earlier this week, which will add six seats to the 737-700. Southwest also plans to take delivery of at least 73 737-800s on firm order over the next three years.

As a result, Southwest expects both investments to bolster earnings even as the overall fleet is allowed to contract slightly this year with the retirements of older 737 Classics.

Fleet capacity between Southwest and subsidiary AirTran is expected to remain flat this year in terms of available seat miles, the carrier said. The overall fleet will decline to 691 aircraft by the end of the year, or six fewer aircraft than reported last September.

In 2012, Southwest projects the arrival of the first 28 737-800s and the 737-700 retrofit programme will add $70 million to overall pre-tax earnings, off-setting a $40 million maintenance expense to complete the first 13 retrofits, the airline said.

The same programmes are expected to generate $300 million in 2013 as more 737-800s enter the fleet and the upgraded 737-700s with 143 seats enter service, Southwest said.

Finally, in 2014, Southwest has projected a $500 million pre-tax earnings boost as a result of both programmes.

Southwest has revealed that AirTran posted a $31 million operating loss through the first four months of 2011, which came before AirTran's balance sheet was consolidated into the Southwest financial system.

Southwest completed the acquisition of AirTran on 2 May, and plans to receive a single operating certificate later in the first quarter.