Southwest Airlines said on Wednesday that it was examining potential acquisitions and alliances with multiple carriers, a signal that industry consolidation could emerge among the fast-growing low-cost segment.
Gary Kelly, chief executive, said the largest US domestic airline had the funding to support acquisitions, despite a slowdown in revenue growth across the industry which is challenging its expansion plans and profit forecasts.
His comments followed a recent signal by Delta Air Lines, which emerged from bankruptcy protection in April, of interest in a future combination with JetBlue, the second-largest low-cost carrier. Analysts at Goldman Sachs reported the interest after a management meeting, though Delta declined to comment on any speculation.
The US low-cost segment is seen as ripe for consolidation after Delta’s successful rebuff of a hostile bid from US Airways this year raised concerns that any deals among the large network carriers could be blocked on antitrust grounds.
While low-cost carriers such as Southwest and JetBlue continue to expand faster than network rivals, the overlap in their route systems is less likely to attract opposition from regulators.
Mr Kelly declined to be drawn on any potential targets, though analysts have in the past linked the company with Denver-based Frontier and Spirit, a Florida-based carrier which focuses on routes to the Caribbean. He noted Southwest had made acquisitions in the 1980s and 1990s – Texas-based Muse Air and Morris Air, a Utah-based airline run by JetBlue founder Dave Neeleman. “Who knows, maybe we’ll do one this decade,” he said.
Southwest’s business model formed the template for the rapid emergence of low-cost carriers around the world such as Ryanair, Easyjet and AirAsia. However, the airline is evolving its strategy to provide the flexibility for code shares and other alliances, as well as international flights. Southwest had previously eschewed such moves to protect its cost structure.
The airline is upgrading its computer systems to handle the added complexity of alliance partners and international flights. Southwest’s only code-share is with ATA, a domestic carrier which it helped rescue from bankruptcy to secure its slots and gates at Chicago’s Midway airport.
Analysts believe it is likely to seek partnership s with overseas carriers operating to the US. JetBlue has held talks with Aer Lingus about a pact which could offer the Irish carrier’s passengers onward travel within the US, and is examining similar partnerships.
Mr Kelly also said domestic margins remained under pressure at the start of the key summer travel season. “If trends don’t change, it would be appropriate to change the growth rate,” he said, noting Southwest had the flexibility to defer some of the 32 Boeing 737s scheduled for delivery next year.