Southwest to save by delaying delivery of planes

[May 16, 2013]  DALLAS (AP) -- Southwest Airlines Co. is delaying delivery of new airplanes and filling the gap with used planes to reduce spending over the next five years.

It's also raising its dividend and could soon buy back more of its own shares.

Southwest said Wednesday that it will delay 30 firm orders for Boeing 737 jets, which CEO Gary Kelly said would cut capital spending through 2018 by more than $500 million. The airline is also giving up or delaying options for additional planes.

Meanwhile Southwest will buy 10 used 737s from Canada's WestJet over the next two years. They average about 11 or 12 years old and should bide Southwest over until Boeing begins producing a new, more fuel-efficient 737 model called the Max late in this decade, Southwest officials said.

The airline isn't disclosing financial details of the Boeing and WestJet deals, which were announced at the Dallas company's annual meeting.

Kelly offered an upbeat forecast for summer and suggested that April might turn out to be the weakest travel month of 2013.

"We're certainly feeling better about May-June than we were about April," Kelly told reporters after the meeting. "There is a softness in the economy right now, so our folks are working very hard to generate traffic. I think we're going to see very full airplanes."

Kelly said, however, that he was uncertain whether the airline could boost prices. Southwest and other airlines reported a drop in a key per-mile revenue ratio in April.

Southwest is raising the quarterly dividend due on June 26 to 4 cents per share, up from a penny per share. It's also boosting share-buyback authority to $1.5 billion from $1 billion. The company has bought $725 million in its own stock since August 2011, increasing the value of remaining shares.

Southwest is alone among major U.S. carriers in being consistently profitable for many years and having an investment-grade credit rating. It was the only major U.S. airline to offer a dividend until Delta Air Lines Inc. announced last week that it too will begin paying a dividend. Delta also increased its share-buyback program.

Other kinds of companies routinely pay dividends and buy back shares, but the lack of dividends is fitting in the airline industry, where most big operators have lost billions and gone through bankruptcy in the past decade. Delta's dividend and the increase at Southwest are further signs that the airlines believe they've turned a corner.

Mergers have reduced competition among airlines, helping to prop up fares, and the carriers have raised billions from new fees.

Southwest shares rose 36 cents, or 2.6 percent, to close at $14.34. Shares of Delta, United Continental Holdings Inc. and US Airways Group Inc. were each up more than 3 percent in a broad market rally.

[Associated Press; By DAVID KOENIG]

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