Southwest Airlines Chairman, President and CEO Gary Kelly says it would be “fantastic” if the airline could find a way to retire the Boeing 717s that were part of its AirTran Airways acquisition before their leases expire, but adds that there is no deal in the offing.

Southwest earlier made clear it does not plan to keep the 88 aircraft when their leases expire, between 2018 and 2024, but seemed to be sending conflicting signals in early September, when it alluded to a possible deal with Boeing to get rid of them earlier (Aviation Daily, Sept. 8).

In a conference call on Oct. 20 to discuss the carrier's third-quarter earnings, Kelly reiterated the desire to drop the aircraft type and said, “If we had an opportunity that was affordable for us to accelerate the retirement of the 717s and replace them with 737s, that would be fantastic.”

But Kelly also added that Southwest does not have that alternative right now. “We’re talking to Boeing about a whole variety of things, and that would be one,” Kelly said. But he also said, “The odds are you are going to see those aircraft operated for Southwest for quite some time.”

Studies 737MAX

Kelly did not have any significant update regarding Southwest's discussions with Boeing about the 737MAX, revealing only that “we are just now being briefed on what it does or doesn’t do.”

He added that he is not concerned that Southwest, a big and long-time Boeing customer, will be bumped down the list for 737MAX deliveries if it takes too long to decide. “I am sure they will meet our needs with respect to delivery positions,” he said.

Regarding another fleet-related decision—the installation of Boeing’s Sky Interior—Kelly described Southwest as “very enthused” about the new interior, which will be installed on its 737-800s, and said he has been thinking about elements of Sky that might be considered for 737-700s scheduled for delivery or via retrofits of existing aircraft. Southwest has made some decisions about the interiors but is not ready to reveal them yet, he added.

3Q Loss

Kelly made the comments after an earnings report that showed a third-quarter loss of $140 million, primarily because of $227 million in non-cash markdowns related to a portion of the company’s fuel hedges for 2012 through 2015. Because oil prices have risen since Sept. 30, the future fuel hedge portfolio has gained back more than $300 million in fair value since then, Southwest notes.

Southwest reported $225 million in operating income and net income, excluding special items, of $122 million. That is less than the $194 million net income, minus special items, a year ago, largely because of higher fuel prices. But Southwest says bookings and revenue gains remain strong.

Southwest this week also participated in an industry-wide fare increase of $2-$5 one way, its 10th increase of the year. Quarterly revenue jumped 35% to $4.3 billion, with passenger unit revenue up 6%; total unit revenue gained about 7% and yield 5.7%, while load factor rose slightly to 82%.

Southwest still is planning for essentially flat capacity next year—with aircraft retirements offsetting new deliveries; however, it expects by June 2012 to be able to sell combined Southwest-AirTran itineraries for virtually all flight combinations as a single itinerary with one fare and baggage transfer. That will include connections to AirTran’s international services.