Southwest Hits Brakes on Max Deliveries, Settles Boeing Dispute

(Bloomberg) -- Southwest Airlines Co. cut the number of 737 Max jets it will take through next year to 35, as it joined other carriers in reducing revenue forecasts amid a nationwide surge in coronavirus cases.

Southwest, the largest operator of the Boeing Co. aircraft, also settled with the manufacturer over deliveries scuttled this year, after the plane was grounded following two crashes that killed 346 people. While the terms of the agreements are confidential, delivery credits and other factors mean Southwest will have “an immaterial amount” of capital spending for aircraft this quarter and for all of 2021, the airline said in a regulatory filing.

The announcements Wednesday reflect adjustments that airlines are making worldwide: first to the Max’s extended flight ban, and then to a coronavirus pandemic that has gutted demand for travel and shows no sign of letting up in the near term.

The 35 Max planes that Southwest will receive include seven expected this month and just 28 next year. The carrier in April cut delivery plans to as many as 48 through 2021. At one point, Southwest was on tap to get 123 of the workhorse narrow-body jet over the period.

While Southwest has signaled an interest in taking Max planes in the future that have lost their original buyers, the airline said it would hold its fleet unchanged next year from the 747 jets it had at the end of 2019. Deliveries through the end of 2021 will include 16 leased aircraft.

U.S. regulators last month approved the Max’s return to flight, following a global grounding that began in March 2019. Dallas-based Southwest expects to make its first commercial Max flight in March, after training all its pilots on changes made to the plane. Southwest had 34 Max aircraft in its fleet that it couldn’t operate during the 20-month grounding, the longest in U.S. history.

Southwest on Wednesday also reduced its forecast for December operating revenue to be as much as 75% below a year earlier. The airline previously expected no more than a 65% drop. Southwest projected a decline of 65% to 75% for January. Capacity for that month will be down as much as 45%, rather than the 40% decline previously anticipated.

Remaining Cautious

“Leisure bookings for holiday travel in late December 2020 and early January 2021 are outpacing leisure passenger demand and bookings in nonholiday time periods for both months,” the airline said. “The company remains cautious, given the uncertainty of near-term revenue trends.”

Sagging revenue from cancellations and reduced demand mean Southwest will burn about $12 million a day this quarter, the airline said, a bit worse than the $10 million-$11 million previously expected. United Airlines Holdings Inc. and Delta Air Lines Inc. also have increased their forecasts of daily losses, while American Airlines Group Inc. said cash consumption would be at the maximum end of its forecast.

Despite the reduced demand, Southwest continues to expand into new cities, trying to take advantage of modest domestic leisure bookings and to put idled aircraft and employees to work. On Wednesday, the airline said it would begin service to the California cities of Santa Barbara and Fresno in the second quarter of 2021. That brings to 12 the number of destinations the carrier has added during the pandemic,

Southwest fell 1.4% to $45.78 at 9:50 a.m. in New York, while Boeing was little changed at $230.50. The carrier’s stock had dropped 14% this year through Tuesday, the smallest decline on the S&P 500 airlines index.

©2020 Bloomberg L.P.