By Marie Schlangenstein | Bloomberg
Southwest Airlines Co. slows growth, ends service at four airports and offers voluntary furloughs to address “significant challenges” stemming from reduced deliveries of Boeing Co planes.
Southwest is now expected to receive 20 Boeing 737 Max 8s in 2024, up from 46, the airline said Thursday in a statement that also included worse-than-expected quarterly results. This is the third reduction of this type made by the aircraft manufacturer since January.
Shares fell 11% shortly after the start of regular trading in New York, the biggest intraday decline in six weeks.
“We are responding and planning quickly to mitigate operational and financial impacts while maintaining reliable and reliable flight schedules for our customers,” CEO Bob Jordan said in the release.
Also see: Boeing says there is no safety risk to 787 after whistleblower raises troubling allegations
These measures illustrate the harmful consequences of the Boeing crisis on one of its main customers, known for operating a fleet entirely composed of 737s.
Southwest previously stopped hiring for several job groups, including pilots and flight attendants, and said it would finish the year with 2,000 fewer employees than in 2023. As Boeing slows production in Due to manufacturing quality issues, Southwest has focused “urgently” on finding new ways to reduce costs and improve efficiency, executives said.
Southwest will end operations at George Bush International Airport in Houston, Bellingham International Airport in Washington, Syracuse Hancock International Airport in New York and Cozumel International Airport in Mexico on August 4 . The carrier will also “significantly restructure” other markets, including reducing capacity at O’Hare International Airport in Chicago and Hartsfield-Jackson International in Atlanta.
“Below the trends”
Flight capacity growth in 2024 will decline to 4% from 2023, compared to a previously forecast 6% increase, and expansion beyond this year will be “at or below macroeconomic growth trends”, a Southwest said. Revenue for the year will see high-single-digit growth, compared to an earlier forecast of double-digit year-over-year growth.
The costs of traveling each seat per mile in 2024 will increase 8% this year compared to previous estimates of 5.5% to 7%. The carrier will end the year with 802 planes, down from 814 as originally planned, and capital spending will drop to about $2.5 billion, down from $4 billion. Current plans call for a decrease in the number of airline seats and travel frequency in the third and fourth quarters compared to 2023.
“The 2024 cost outlook is largely in line with expectations despite the Max delivery shortfall,” Savanthi Syth, an analyst at Raymond James, said in a note. “However, revenue performance was somewhat disappointing.”
The actions taken and planned by Southwest are expected to contribute between $1 billion and $1.5 billion to 2024 pre-tax profits, the airline said.
There is no guarantee that Boeing will meet the reduced plane delivery schedule, Southwest said. The airline will continue to fly more of its older planes this year to help fill the gap from Boeing’s declining deliveries, retiring just 35 planes, down from 49 previously planned.
Boeing has been forced by regulators to cap production of its best-selling Max model, leaving many customers short of much-needed planes at a time when carriers expect another year of record travel and demand for Fuel-efficient jet aircraft remains high.
The planemaker’s year was dominated by the aftermath of a near-catastrophic accident on Jan. 5, when a fuselage panel of an Alaska Airlines 737 shattered during flight. Boeing remains under scrutiny from federal safety regulators and the U.S. Department of Justice.
Southwest reported an adjusted loss of 36 cents per share in the first quarter, more than the 31-cent deficit expected by analysts. Revenue was $6.33 billion, also missing estimates of $6.42 billion.
Capacity will increase 8-9% year-over-year this quarter as the peak summer travel season approaches. Unit costs excluding fuel will increase by up to 7.5%, compared to a 3.9% increase expected by analysts. Revenue per seat mile traveled will decline by 1.5% to 3.5%, compared to analysts’ expectations for growth of 0.16%.
Southwest said last month that it had given up on getting one of its long-awaited 737 Max 7s this year after delays in receiving federal certification for the model. Around the same time, United Airlines Holdings Inc. asked Boeing to stop making Max 10 planes for the carrier due to uncertainty in its delivery schedule, and later agreed to take some Airbus-made planes SE.
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