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Airline Shake-up Shouldn't Hurt LV Operations

16 July 2004

Las Vegas Sun

LAS VEGAS -- Operations for Southwest Airlines at McCarran International Airport shouldn't be affected by the sudden departure of the airline's chief executive.

Southwest Airlines Co. Chief Executive James Parker retired Thursday after three years and Chief Financial Officer Gary Kelly was named to succeed him.

Parker, 57, said Thursday he left the "very exhilarating but draining job" for personal reasons. He became chief executive in June 2001, following Herb Kelleher, who built Southwest into the world's largest low-fare airline and the No. 1 carrier of gamblers and tourists to Las Vegas. Kelly, 49, is credited with running the hedging program that largely has protected the Dallas-based carrier from a jump in jet-fuel prices this year.

"Southwest's operations at McCarran are driven by philosophy and I don't expect that philosophy to change, regardless of who the top executive is," said Las Vegas airport boss Randy Walker, director of the Clark County Department of Aviation.

Walker said most of his dealings are with middle managers who work exclusively to develop traffic at airports in the Southwest system, so he hasn't had much contact with Parker or Kelly.

"I anticipate there will be more growth for Southwest in Las Vegas, based on some discussions we have had with the company in the past," Walker said.

Among the company's capital improvements in the years ahead are the development of a pedestrian bridge that would link the B and C gates at the airport, which would enable Southwest to use more gates during the daytime hours and America West Airlines to use more at night.

Southwest, which has about 950 employees in Las Vegas, has 187 daily flights to and from McCarran, up 11.7 percent over the same time a year ago, according to airport statistics. The airline serves 47 nonstop markets from Las Vegas and has a 35.9 percent share of the number of seats coming into the market.

Bill Mahaffey, manager of transportation and marketing for the Las Vegas Convention and Visitors Authority, said he doesn't expect any changes in Southwest's Las Vegas operation, since Kelly has proven himself in handling financial matters.

"And (Chairman Herb) Kelleher and (President) Colleen (Barrett) are still very much involved in the operation, so I don't see any diminishment," Mahaffey said. "I see blue skies ahead for Southwest."

The departure "is shocking," Alan Sbarra, vice president of Unisys R2A Transportation Management Consultants, said. "When Parker got the job, there was a lot of worry about what would happen with Kelleher leaving, but Parker, Kelly and Barrett have all proven they are very capable."

Under Parker, Southwest was the only major U.S. carrier to remain profitable after the September 2001 terrorist attacks. Southwest said Thursday that second-quarter net income fell 54 percent to $113 million, after U.S. aid for security costs boosted earnings a year earlier.

The Fort Worth, Texas, native joined Southwest as general counsel in 1986, a post he held until becoming chief executive, and oversaw labor negotiations. In April, he stepped away from contract talks with the flight attendants after saying they had become personal. Kelleher, Southwest's chairman, took over the negotiating and the two sides reached an agreement last month.

Parker, who also was vice chairman, told analysts on a conference call that his decision to retire resulted from "a combination of things over a period of time." The decision wasn't related to health issues, he said.

Kelleher called the departure a "bittersweet moment." And said the company's succession planning "paid off handsomely."

Kelly joined Southwest in 1986 and was named chief financial officer in 1989. He becomes vice chairman as well as chief executive. Laura Wright, who was vice president of finance, succeeds him as finance chief.

"The airline industry is a financial disaster, so it will be helpful in a leadership role to have financial skills and a very clear understanding of what drives costs and what risks are not matched by potential rewards," Kelly said in an interview.

Southwest shares fell 31 cents to $14.75 in New York Stock Exchange composite trading Thursday. They declined 12 percent during Parker's tenure, while the Bloomberg U.S. Airlines Index fell by half.

Southwest depends on low costs and worker productivity to make money on fares that it said averaged $87.67 in the quarter, up 2.1 percent. The airline expects third-quarter costs to drop to below 8 cents per seat for each mile flown, Kelly said.

Based on booking trends and revenue and cost outlooks, third-quarter profit is expected to exceed the $106 million, or 13 cents a share, of a year earlier, Parker said. The average estimate in a Thomson Financial poll of 12 analysts was 16 cents.

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