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Market News

UPDATE 1-Southwest CEO sees summer pricing under pressure

NEW YORK, June 13 (Reuters) - Southwest Airlines Co. LUV.N expects fare prices to be under pressure in the traditionally strong travel months of June and July, the low-cost carrier's chief executive said on Wednesday.

“At this point, we’re experiencing the effects of the slowing economy and the softening demand for air travel,” Gary Kelly said, speaking at a Merrill Lynch investor conference.

He said traffic and booking trends in June and July appeared strong, but average ticket prices were under pressure.

“It’s more of a low-fare environment this year than it is an environment that allows for fare increases,” said Kelly.

Because of tepid demand and rising fuel prices, he said, Southwest will probably not be able to increase unit revenues by 5 percent this year as it had hoped.

The sluggish per-seat revenue growth puts Southwest’s earnings growth target in jeopardy. The carrier aims to increase earnings before special items by 15 percent a year, but that growth goal is based on a 5 percent rise in unit revenues.

Southwest’s jet fuel hedging program will help the leading U.S. low-cost carrier partially offset the softer demand. Kelly said he expected that program to account for about $500 million in savings this year.

Southwest has been working on ways other than ticket sales to generate revenue, such as putting televisions and wireless entertainment systems on board its planes.

The Dallas-based airline also intends to increase the number of passengers on board and is looking into more code share partnerships with other carriers.

Code sharing agreements allow airlines to sell tickets on one another’s planes, tapping into each other’s customer bases.

Kelly said that Southwest, which has one code share partnership with ATA Airlines, expects to be in position to serve European and Asian destinations through a similar arrangement by 2009.

((Reporting by Chris Reiter, editing by Lisa Von Ahn; chris.reiter@reuters.com; Reuters Messaging: chris.reiter.reuters.com@reuters.net; +1 646 223 6116)) Keywords: SOUTHWEST CEO/

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