Southwest Airlines Co. may delay any expansion to as late as2014 as $100-a-barrel oil erodes profit growth at the largestdiscount carrier, Chief Executive Officer Gary Kelly said.

Flights and seating capacity at the biggest discount carrierwill be unchanged this year, and “we haven't made a final decisionabout 2013 yet,” Kelly said today in an interview. “I don't sensewe're going to see a significant increase in capacity in 2013, ifwe have any at all.”

Analysts track capacity because a tighter supply of seatsimproves pricing power. With Southwest paying an average of 35percent more for each gallon of jet fuel in 2011, the Dallas-basedairline is under pressure to curb a history of expanding fasterthan its peers. The shares rose the most in four weeks.

“Southwest has always been the bad boy for the industry,” saidRay Neidl, a Maxim Group LLC analyst in New York who has a “hold”rating on the stock. “Southwest is realizing they have to be alogical player as the other airlines reduce their costs and becomemore competitive.”

Capacity rose 4.9 percent last year, Southwest said today.Higher energy costs are helping drive renewed efforts to cutspending and boost productivity at Southwest, which ordered morefuel-efficient jets and will add six seats to most planes as itrefurbishes interiors.

“There is waste in every company, and there is a never-endingsearch to eliminate waste and increase productivity,” Kelly said.“We'll be ramping up those efforts this year more than ever.”

Kelly said he also wants to assess Southwest's success inintegrating operations with those of AirTran Holdings Inc., whichwas acquired in May, and whether financial results improve beforemaking capacity decisions.

“Our earnings are not where I want them to be in terms ofexpansion,” he said. “We'll wait as long as possible before we makeany commitments to 2013.”

Southwest climbed 3.1 percent to $9.30 at the close in New York,the biggest advance since Dec. 16. The shares have gained 8.6percent this year.

The airline will receive 33 new planes in 2012 and retire 40,Chief Financial Officer Laura Wright said on a conference call. Shesaid capacity this quarter will be up about 1 percent from a yearearlier, and down as much as 2 percent next quarter.

Quarterly Earnings

Fourth-quarter net income rose 16 percent to $152 million, or 20cents a share, Southwest said today. Excluding benefits linked tofuel-purchase contracts, profit fell 43 percent to $66 million, or9 cents, from $115 million, or 15 cents. On that basis, earningsexceeded the 8-cent average of 14 analysts' estimates compiled byBloomberg.

Sales rose 32 percent to a record $4.1 billion. Fuel was thecompany's largest expense at $1.49 billion. Crude oil settledyesterday at $100.59 a barrel in New York, the ninth close at $100or more through the year's first 11 trading days. The 50-day movingaverage before today was $98.90.

Southwest was the first major U.S. airline to report quarterresults. The six biggest are expected to have a combined profit of$106.5 million, excluding one-time items, based on the averageestimates of analysts surveyed by Bloomberg. That's more than 70percent less than a year earlier as fuel and lagging Europeandemand weigh on results.

Travel demand and airlines' revenue outlook remains “strong,”Kelly said. Southwest's revenue from each seat flown a mile rose8.2 percent in the quarter, and its average fare per mile increased4.1 percent. The extra seats on each plane should produce $250million in new annual sales, Southwest has said.

Southwest will add its own flights to Atlanta, AirTran's mainbase of operations, and doesn't plan now to add any other cities in2012, Kelly said.

While AirTran will add some destinations in Mexico this year,capacity gradually will be reduced as flights transfer over toSouthwest, he said. Kelly said the carriers are moving towardreceiving regulatory approval this quarter to combineoperations.

Bloomberg News

Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.