By Keith L. Alexander
Washington Post Staff Writer
Wednesday, April 5, 2006

Southwest Airlines Co., the nation's biggest low-cost carrier, plans to begin service at Washington Dulles International Airport in the fall, the airline announced yesterday.

The move, which follows the demise of Independence Air in January, will give Washington area travelers a broader choice of low-cost fares at Dulles. Southwest will compete against budget carriers JetBlue Airways and AirTran Airways. United Airlines also operates a hub at Dulles.

Southwest hopes to tap into the growing number of Northern Virginia business and leisure travelers seeking an alternative to driving an hour or so to Baltimore Washington International Thurgood Marshall Airport, where Southwest has had a presence since 1993.

"The sheer size and scope of the Washington, D.C., metro area makes Washington Dulles International Airport an exceptional market opportunity," said Gary Kelly, Southwest's chief executive. "The population and business growth in Northern Virginia means a great opportunity is rapidly getting even better."

Southwest said it will continue to expand its service at BWI, its fourth-largest airport, where it operates 165 daily flights. The airline, which offers fares as much as 60 percent lower than traditional carriers, opened a 26-gate, $264 million terminal at BWI in May and has the most flights of any carrier there.

Southwest said it doesn't plan to announce its destinations, schedule or fares at Dulles until this summer. It has requested two gates and expects to offer as many as 10 flights a day out of the airport's B concourse. Kelly said the airline plans to hire about 40 pilots, flight attendants and airport employees to handle the new service.

Dulles officials have held talks with Southwest for years in a bid to lure the discount carrier to the airport. But it wasn't until earlier this year that Southwest showed an interest, after Dulles officials stressed that that the region was experiencing rapid growth and that gates were available after the departure of Independence Air.

"Southwest saw the market opportunities that were demonstrated by Independence Air," said James E. Bennett, president and chief executive of the Metropolitan Washington Airports Authority, which manages Dulles. "Southwest will bring its extensive route network and reputation for customer service and low fares to Dulles. We are very excited about that."

Dulles has seen a decline in passengers in the months since Independence's demise -- as much as 20 percent in February compared with a year ago. Other airlines have sought to fill the void. JetBlue, AirTran and United have all recently announced plans for additional flights. And Dulles-based MaxJet Airways, a discount, all-business-class airline flying to London, began service Monday.

Southwest executives have long played down the idea of service at Dulles because BWI is so close. But the airline changed its mind in part after it began losing passengers and revenue to Independence Air in late 2004 and 2005.

Dulles is the second United hub, after Denver, where Southwest has initiated service this year. For decades, the carrier had avoided larger, more congested hub airports dominated by legacy carriers. Instead, it flew into alternate airports, such as BWI and Chicago's Midway International Airport. But in recent years, the carrier has become more aggressive in challenging larger airlines. Last year, Southwest started service at Pittsburgh, and in 2004 it began service at Philadelphia, both of which serve as hub for US Airways.

Travelers will likely see airlines roll out a host of competitive offers as Southwest's Dulles launch approaches. "We have competed with Southwest in other cities and we know how to compete with them, and we will continue to be very competitive," said United spokeswoman Robin Urbanski.

Many industry observers see Southwest's move into Dulles as a defensive one to head off the expansion or start-up of other low-cost carriers at the airport.

"There is competition," Kelly said. "There are carriers out there that are growing rapidly. We can't be complacent."

Dulles will present Southwest with some challenges. The airport has higher fees after a multibillion-dollar expansion. It will cost Southwest about $8 to $9 per passenger to operate at Dulles, compared with an average cost systemwide of about $5 per passenger.

The expansion comes as Southwest faces other financial challenges. Its hedges against rising fuel costs have long been among the industry's best, but as oil prices continue to rise, the airline is facing greater pressure.

Last year, Southwest was able to hedge about 85 percent of its fuel at $26 a barrel, a move that helped the airline save about $900 million and enabled it to remain the nation's most consistently profitable major carrier. But this year, Southwest has hedged only about 70 percent of its fuel at $36 a barrel.

To offset the rise in fuel prices, Southwest has raised its fares twice this year, with one increase as much as $10 each way.

Southwest faces other challenges, including the rapid growth of rival low-fare carriers such as JetBlue and AirTran. And this summer, Southwest will begin contract talks with its pilots union, the first labor group to begin negotiations that are expected over the next year or two.

Industry consultant Darryl Jenkins said Southwest would eventually be able to charge higher fares out of Dulles because of demand. "But even their highest fares are still half of what other airlines' highest fares are," he said.