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Southwest Airlines says bookings strong even as 737 MAX grounded

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Via Reuters Finance

(Reuters) – Southwest Airlines Co forecast better-than-expected second-quarter revenue growth on Thursday, citing demand from leisure and business customers, even though it is uncertain when its grounded Boeing 737 MAX jets will return to service.

FILE PHOTO: A number of grounded Southwest Airlines Boeing 737 MAX 8 aircraft are shown parked at Victorville Airport in Victorville, California, U.S., March 26, 2019. REUTERS/Mike Blake/File Photo

The No. 4 U.S. carrier is the biggest user of the Boeing Co aircraft that were grounded worldwide in March following two fatal crashes on other airlines.

Southwest’s 34 737 MAX aircraft represent less than 5 percent of daily flights on its fleet of 753 aircraft, but the grounding has forced the cancellation of thousands of flights and weighed on costs.

The Dallas-based carrier said it lost more than $200 million in revenue during the first quarter after canceling more than 10,000 flights because of the worldwide MAX grounding, partial U.S. government shutdown, winter storms and maintenance disruptions.

Southwest has taken the MAX out of its flying schedule through Aug. 5 as it waits for Boeing to submit a software fix and new training guidelines to global regulators for review.

The timeline and eventual cost of getting the MAX back into service is a “prominent wild card” for Southwest, JPMorgan analyst Jamie Baker said, given the possibility of international regulators disagreeing about new training requirements, which could be expensive.

Southwest said it was talking to customers to understand how they feel about the MAX following the crashes. While some passengers may be intimidated to fly for a short period of time, executives said the airline’s brand and operations remained intact.

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The low-cost carrier, which launched service to Hawaii in March, expects closely watched unit revenue to grow by 5.5 percent to 5.7 percent year-on-year in the second quarter. It reported only 2.7 percent growth in the first-quarter.

Its shares were up 0.3 percent at $53.14.

Southwest reported first-quarter net profit of $387 million, or 70 cents per share, compared with $463 million, or 79 cents per share, in the year-ago quarter.

That beat Wall Street’s average estimate of 61 cents per share, according to IBES data from Refinitiv. Analysts cut their estimates sharply in late March after the MAX grounding.

Total operating revenue rose 4 percent to $5.15 billion.

FLEET CHANGES

Southwest, which currently uses only Boeing narrowbody aircraft, suggested on Thursday that it may consider mixing up its fleet in the future, but for now plans to continue growing with the 737 MAX.

“We have no plan to do anything other than grow our fleet with the MAX. Will that be the case in the perpetuity? I’m not prepared to say that,” Southwest Chief Executive Gary Kelly said on a conference call.

Southwest has 249 firm orders for the 737 MAX and an option for 115 more through 2026, in addition to lease agreements for another 19. Kelly said he would like to eventually use the longer-range, fuel-efficient jets for Hawaii routes.

It is not the first time Southwest has hinted about future fleet changes, which could benefit Boeing’s European rival Airbus. Such a decision would mean abandoning Southwest’s long-held practice of flying only one type of jet, which reduces maintenance and pilot training costs.

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The company’s costs are already under scrutiny by analysts. Unit costs, or total operating expenses per available seat mile, rose 6.5 percent on an adjusted basis in the first quarter and are expected to increase by 10.5 percent to 12.5 percent year-on-year in the second quarter, it said.

Reporting by Tracy Rucinski in Chicago and Rachit Vats in Bangalore; Editing by Bill Rigby and Shounak Dasgupta


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