Southwest: Competition from 'ultra low-cost carriers' is soaring

With greater airline profits comes greater competition.

Southwest Airlines executives said Wednesday that so-called "ultra low-cost carriers" -- or ULCCs -- added 20% more seats in markets where they compete with Southwest during the third quarter.

As one of the original "low-cost carriers," Southwest has long battled major rivals like American, Delta and United. But the growth of a new breed of ULCC discounters -- airlines like Spirit and Frontier -- is opening up a second front of competition for Southwest.

Speaking during the company's third-quarter earnings call, CEO Gary Kelly said the added competition shouldn’t surprise because Southwest serves most cities where its fast-expanding ULCC rivals compete.

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“The fare environment is very competitive,” Kelly said. “It is clear that the fare environment will absolutely impact the mix of traffic that we realize on our network.”

Tammy Romo, chief financial officer, said average fares were down $7 during July, August and September. The airline carried 4% more revenue passengers compared to the same period a year earlier, but the fare decline reduced the yield per passenger nearly 5%.

“The fare environment remains challenging,” she said.

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The industry is growing at a 5% pace while the economy, which would provide a natural demand for travel, is growing at less than a 2% rate, Kelly said. The competition shouldn’t come as a surprise while fuel prices remain low for an industry that relies heavily on fuel, he said.

“I don’t think it’s shocking where we are at all,” Kelly said. “We will continue to compete very aggressively in this environment.”

As the leading domestic carrier, Southwest faces competition on nearly all of the routes that it flies, Kelly said. Competition is particularly noticeable in the west, with growth in Seattle and Los Angeles, he said.

“By definition, anybody who grows, they will likely be growing in our market,” Kelly said. “The competition isn’t adding seats to small markets. If anything, they’re taking seats out of small markets. They’re going where the traffic is, and that is our specialty because we’re an airline that serves major markets with lots of traffic.”

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