* Memphis, Cleveland being considered as 'growth opportunities'
* CEO touts cost advantage to other carriers
(Adds comment, details throughout on growth, costs)
Feb 10 (Reuters) - Southwest Airlines is looking for opportunities to add service in markets where other merged carriers have scaled back, the budget carrier's Chairman and Chief Executive Gary Kelly said on Monday.
The growth opportunities are "very exciting for all of our employees who want to do more," Kelly said in an interview.
Kelly said Southwest was paying "close attention" to cities such as Memphis, Tennessee - a former Northwest Airlines hub and a market where Delta Air Lines reduced flights in last year - as well as Cleveland, a Midwestern city that United Continental Holdings recently said it would drop as a hub.
Kelly, who began his career at Southwest as a controller more than 20 years ago and was named CEO in 2004, noted that when American Airlines reduced operations in Nashville in the 1990s, Southwest raised its daily departures in that market to about 80 from 18.
He also said that Southwest became the largest carrier in St. Louis, Missouri, since American scaled back there following its acquisition of Trans World Airlines.
"Memphis is a smaller community, it probably has smaller potential than the two examples I provided there, but we're going to pay very close attention to it," Kelly said in an interview in Atlanta.
"We're excited about being able to grow there and we'll do as much as we can. Cleveland, I think, is the same way."
Southwest has new opportunities to add flights after recently acquiring takeoff and landing rights at New York's LaGuardia and Reagan National Airport near Washington, D.C., that American Airlines Group agreed to sell to settle a U.S. Justice Department suit challenging its merger with US Airways, which was completed in December.
The budget carrier also plans to start international service under its own brand this year - initially to Aruba, the Bahamas and Jamaica - as it completes the integration of AirTran and retires that brand.
New nonstop flights from Southwest's base at Dallas Love Field are due to start in October when U.S. flight restrictions there expire.
With the new access gained in New York, Southwest has outlined plans to expand service between LaGuardia and Nashville, Houston Hobby, Chicago (Midway), and Akron-Canton, Ohio.
Kelly declined to comment specifically on where Southwest planned to add flights from Reagan National, but said that large- or medium-sized cities the carrier already serves could be targets.
As it faced rising labor costs, the Dallas-based Southwest added seats to planes, raised baggage fees at its AirTran unit and curbed flying to unprofitable markets to improve results. Southwest is also retiring older Boeing 737 jets in its fleet to help reduce maintenance costs.
Southwest is the only major U.S. airline that has not been restructured in bankruptcy. Even so, Kelly said Southwest was still a lower-cost carrier compared with major rivals though he conceded that rising fuel prices have eaten into that cost advantage.
"We've had to raise our fares simply because fuel prices are so much higher today in the billions of dollars a year compared to where they used to be," Kelly said. "But we still have significant cost advantages - even including that - relative to the legacy carriers."
He said the effect of Southwest's presence in a market is often realized in airfare increases that don't materialize.
"The evidence in a market is harder to see at times because our competitors have always matched our fares," Kelly said.
Southwest shares were down 1.35 percent to $21.14 in late afternoon trading on the New York Stock Exchange.
(Reporting by Karen Jacobs, editing by G Crosse)