Southwest zeros in on 15% return of invested capital

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Southwest Airlines has a four-prong strategy to once again achieve a 15% return on invested capital (ROIC) after averaging a 10% return for most of the last decade.

Key to achieving that target is growth, explains carrier VP planning John Jamotta at the Network USA 2011 conference in Austin, Texas.

The carrier aims to return to the 15% ROIC it achieved in the 1980s and 1990s before seeing it drop in the 2000s to 10%, driven by the September 2001 terrorist attacks, the recession of 2009 and oil price volatility.

Southwest will achieve an almost instantaneous 25% growth of its fleet after it closes its acquisition of AirTran, which Jamotta names as one of the main drivers of hitting its ROIC target. Other elements of Southwest strategy to meet its financial targets include the roll-out of its updated Rapid Rewards frequent flyer programme, introducing the Boeing 737-800 and replacing its reservations system.

Acknowledging completing those tasks is an ambitious slate of work, Jamotta says the plan brings Southwest to its ROIC target, and allows the airline to start growing again. Southwest has not grown its fleet since 2008, Jamotta says, "in order to fill in the profitability gap".

Southwest in 2010 posted net income of $459 million.