Southwest Airlines reports second quarter income despite 737 Max groundings

posted on 26th July 2019 by Justin Burns
Southwest Airlines reports second quarter income despite 737 Max groundings

Southwest Airlines has reported a record second quarter net income of $741 million – which came despite the negative impact on business due to the grounding of its Boeing 737 Max fleet.

The airline also said it achieved record operating revenues of $5.9 billion, a 2.9 per cent rise on the same quarter in 2018.

Southwest said the grounding of 737 Max aircraft reduced operating income by around $175 million in the second quarter. It will extend the Max-related flight schedule adjustments through to 5 January, 2020.

The airline’s chairman of the board and chief executive officer, Gary C. Kelly said: “Our financial and operational performance was remarkably strong considering the impact of the grounding of the Boeing 737 Max 8 aircraft.

“We generated record revenues, strong margins and cash flows, a healthy profitsharing accrual for our Employees, and significant returns for our Shareholders – all notable achievements.

“Our employees did a heroic job managing approximately 20,000 flight cancellations under operationally difficult circumstances, while delivering excellent customer service.

“Boeing reported last week a $4.9 billion after-tax charge for ‘potential concessions and other considerations to customers for disruptions related to the 737 Max grounding. We have had preliminary discussions with Boeing regarding compensation for damages due to the Max groundings. We have not reached any conclusions regarding these matters, and no amounts from Boeing have been included in our second quarter results.”

He said the Max groundings, and the resulting available seat mile (ASM, or capacity) decline, put significant pressure on second quarter 2019 unit costs.

Southwest explained it is assuming regulatory approval of Max return to service during fourth quarter 2019 and is extending the Max-related flight schedule adjustments through to 5 January, 2020.

Kelly said: “Following a rescission of the Federal Aviation Administration (FAA) order to ground the Max, we estimate it will take us one to two months to comply with prospective FAA directives, including all necessary Pilot training.

“The FAA will determine the timing of Max return to service, and we offer no assurances that our current assumptions and timelines are correct. The vast majority of our customers’ itineraries have been unaffected by the Max groundings, and I commend our People for their extraordinary efforts to minimize disruption to our operations.”

He also said that Southwest will cease operations at Newark Liberty International Airport and consolidate its New York City presence at New York LaGuardia Airport, effective 3 November, 2019 as the financial results at Newark have been “below expectations”

As for route development, Kelly said it will start offering service to Hawaii from both Sacramento and San Diego, as well as bring Southwest service to both Lihue, on Kauai, and Hilo, on the Island of Hawaii.

The airline will also provide more service to Mexico, via Cozumel International Airport, in first quarter 2020, subject to requisite governmental approvals. With Cozumel, it will serve four destinations in Mexico, with year-round service from Houston Hobby.

The company ended second quarter 2019 with 753 aircraft in its fleet. All 34 of the carrier’s Max aircraft were grounded as of 13 March, 2019. As a result of the Max groundings, the airline deferred the retirement of seven of its owned 737-700 aircraft, and now plans to retire 11 of its 737-700 aircraft in 2019.