UPDATE 1-Southwest says worried about passenger demand

Tue Dec 4, 2007 9:00am EST

(Adds CEO comment, background)

WASHINGTON Dec 4 (Reuters) - Southwest Airlines Co (LUV.N) said on Tuesday it plans to cut its capacity growth in 2008 on concerns that a weakening U.S. economy will stifle travel demand.

The largest U.S. low-cost carrier said in a statement that it plans to increase its fleet by five to 10 aircraft in 2008. The capacity growth will amount to 4 percent to 5 percent year over year, the airline said.

Southwest said it is concerned about the surge in energy prices.

"We are concerned about growing evidence of slowing economic growth that would inevitably affect passenger demand, coupled with a surge in energy prices," Southwest Chief Executive Gary Kelly said.

The airline industry has been battered by overcapacity, which has made it hard for carriers to boost fares enough to cover the soaring cost of jet fuel. Top airlines have been cutting domestic capacity and raising fares this year to boost revenue.

Southwest's fuel costs are among the lowest in the industry due to aggressive hedging strategies. (Reporting by Nick Zieminski and Kyle Peterson, editing by Dave Zimmerman)

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