Southwest Pulls Boeing 737 Max for Rest of Year, Exits Newark

(Bloomberg) -- Southwest Airlines Co., the biggest operator of the Boeing Co. 737 Max, removed the plane from its schedule through Jan. 5, becoming the first carrier to drop the grounded aircraft for the rest of this year.

• Southwest expects the U.S. to approve a Max return to service in the fourth quarter, echoing Boeing’s best estimate. But Southwest will probably need one to two months to train pilots and make the aircraft ready to resume flights, according to a company statement Thursday.
• The Max grounding means Southwest’s flight and seat capacity will shrink this year by 1% to 2%, compared with original plans to expand 5%. As a result, the airline will end flights at Newark’s Liberty International Airport and concentrate New York-area service at LaGuardia Airport.

Key Insights

• Chief Executive Officer Gary Kelly has been expressing rising frustration because of the beleaguered Max, telling employees this week that the longer the grounding goes on, the harder it becomes to manage. The flying ban reduced Southwest’s operating income by about $175 million in the second quarter.
• With fewer seats for sale during a period of high travel demand, airlines have been able to raise fares and still fill planes. That’s a modest silver lining for Southwest. Revenue for each seat flown a mile, an industry gauge of pricing power, will rise as much as 5% in the current quarter from a year earlier.
• But parking 34 Max jets also means spreading expenses across fewer seats. Southwest’s cost to fly each seat a mile, an efficiency measure, will rise 9% to 11% in the current quarter, excluding fuel and profit sharing. Before the Max grounding, Southwest expected the measure to rise 2%.

Market Reaction

• Southwest was unchanged at $54.72 in thin volume before the start of trading in New York. The shares gained 18% this year through Wednesday, in line with a Standard & Poor’s index of the five biggest U.S. carriers.

Get More

• Second-quarter earnings rose to $1.37 a share, Southwest said, compared with the $1.34 average of analyst estimates compiled by Bloomberg.
• Additional details
• Company statement

To contact the reporter on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net

To contact the editors responsible for this story: Brendan Case at bcase4@bloomberg.net, Susan Warren

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