Southwest plans its international assault A year after its $1.4bn purchase of AirTran, a low cost rival, Southwest Airlines is carefully assembling the pieces for a concerted push beyond the US and into the international markets that have long been dominated by its larger rivals. Over the past six months or so the carrier taken a series of preparatory steps, including announcing upgrades to its fleet and IT systems that will allow it fly overseas and is proposing to build a new international terminal in Houston. The company's plans are ambitious. Senior executives hope to double the amount of international flying it does within about five years, albeit from a small base. Taken together the moves represent a significant change of tack for Southwest, best known as a highly profitable low cost domestic carrier, and a new threat to carriers such as United Airlines that have traditionally controlled longer-haul flying. In some respects international expansion is a necessity for Southwest. "If you look at the domestic market, over the past 10 years domestic traffic in the US has been pretty stagnant," says Bob Jordan, Southwest's chief commercial officer and president of AirTran. International traffic though is continuing to grow in both leisure and business destinations... So we are interested in all of that as an avenue to continue to grow Southwest Airlines. Growth has never been more important for Southwest. While justly famous for its productivity, the low cost carrier has seen its cost base edge up as it has matured, gained in scale and expanded more slowly. In response Southwest has adapted its business model. It has started to fly from crowded markets, such as New York's LaGuardia, it previously eschewed, and it has traded a go-it-alone strategy for tie-ups with airlines such as Mexico's Volaris. The 2011 AirTran acquisition, the biggest in Southwest's history, accelerated the process, bringing the company a large position in the Atlanta domestic market and also short-haul international destinations generating about $75m of revenues a year. From that base, Southwest is targeting expansion. It is already developing a series of new routes for its AirTran unit, focused mainly on business and leisure destinations in Mexico, and is also eyeing opportunities in the northern parts of South America. In some respects Southwest is playing catch-up. Spirit Airlines has been flying abroad since 2003. Last year about 16 per cent of the ultra-low cost carrier's flying was to places such as the Bahamas and Costa Rica, mainly from its Miami hub. And observers note that flying abroad will introduce both complexity and risk into Southwest's traditionally streamlined strategy. To make it work, the company will have to learn how to handle connecting traffic, foreign currencies and international lobbying. "There is a lot of complexity in international flying ...There are approvals required, you have to deal with the local authorities in a different way," says Mr Jordan. I am not worried about all of that. It is just something we have to go and do. In April Southwest hired Amadeus, a European technology company, to upgrade its systems, but they won't be ready before 2014 and until then Southwest itself can't handle international bookings or reap the full benefit of the AirTran merger. More obstacles are to be expected. Southwest's plans to build a new international terminal at Hobby Airport in Houston, which could facilitate about 25 flights a day by 2015, have already generated an aggressive response from United Airlines. The carrier, which maintains a powerful position serving Latin American from its George Bush Intercontinental Airport hub, has said it will cut flights from the city and trim back investments there should the plan move ahead as now seems likely. United, has good reason to be nervous. Adam Pilarski, with Avitas, the aviation consultancy, notes that in other hubs, Southwest has started off as an irritant, only to emerge as the dominant player. After an unsuccessful attempt in the 1980s, in 2006 Southwest re-entered the Denver market. At the end of the year it had a 5 per cent share of the domestic market but six years later it had become the number two airline in the city. Indeed, while Southwest's foreign ventures remain in their early stages, Mr Pilarski thinks that the company likely harbours bigger ambitions. Eventually he predicts, Southwest will fly long haul international routes to London and beyond.