Southwest sees modest fare increases in 2007

WASHINGTON (Reuters) - U.S. airlines likely will impose only modest fare increases in 2007, but carriers should not rely solely on higher ticket prices to boost revenue, the chief financial officer of low-cost carrier Southwest Airlines Co. (LUV.N: Quote, Profile, Research, Stock Buzz) said on Wednesday.

"Our goal is to try to grow our revenue without increasing fares," Laura Wright told the Reuters Aerospace and Defense Summit in Washington, D.C.

A series of industrywide fare increases in recent months has helped boost airline revenue and offset soaring fuel costs. But it is almost impossible to predict how high fares can rise before they begin to dampen demand, Wright said.

"The industry needs to raise fares because they are not covering costs," she said. Southwest has been able to undercut its competitors and still post profits because of long-term fuel hedges set up when oil prices were much lower.

Airlines' ability to lift fares hinges chiefly on reduction in carrier capacity -- the number of seats for sale -- and the health of the economy.

Consequently, Southwest and other carriers need to look at other things they can do to boost revenue without relying on fare hikes, Wright said. Aside from fare raises, Southwest intends to lift revenue by carrying more passengers and freight, she said.

Southwest has raised fares five times in 2006, but its frequent refusal to match some competitors' fare increases has blunted the ability of rivals to bolster their fares.

Wright said it is reasonable to expect only modest fare increases going forward.