Southwest Airlines 'absolutely' harmed by MAX grounding

Jan. 23, 2020

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4 min read

Southwest Airlines 'absolutely' harmed by MAX grounding

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Southwest Airlines has "absolutely" been harmed by the grounding of the Boeing 737 MAX, said CEO Gary Kelly in no uncertain terms Thursday.

The Dallas-based carrier is short 75 MAX jets that it expected by the end of last year, a fact that has forced it to slow growth and cut flights -- even as its competitors continued to grow -- to make up for the lack of new planes, Kelly said during a quarterly earnings call Thursday.

"Sitting here dog-paddling for a year while our competitors grow right past us, is costing us six or seven million customers," he said, adding that there is little Southwest can do about this "until we can get airplanes, until we can grow again."

The airline shrank by 1.6% year-over-year in 2019, something it has seldom had to do in the past. Passenger traffic fell 1.5% during the period.

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Southwest Airlines Boeing 737 MAX aircraft are parked on the tarmac after being grounded, at the Southern California Logistics Airport in Victorville, California, on March 28, 2019. (Photo by Mark Ralston/Getty Images) — Southwest Airlines Boeing 737 MAX aircraft parked in Victorville, California. (Photo by Mark Ralston/Getty Images)

Only Delta Air Lines has acknowledged a benefit from the MAX grounding. Earlier in January, CEO Ed Bastian said without elaborating the Atlanta-based carrier had picked up "some marginal revenue" from competitors due to the MAX in 2019.

Delta's narrow-body orderbook only contains Airbus A220, A321 and A321neo models.

American Airlines and United Airlines, two of Southwest's largest competitors, are also hit by the MAX grounding. They have also been forced to cut capacity growth and selectively trim routes to make up for the shortfall in new deliveries.

Southwest does not expect the MAX to return to service until after the summer schedule, executives said Thursday. Boeing anticipates re-certification of the jet by mid-2020, a guidance update that Kelly told Bloomberg surprised him.

Southwest has trimmed some of its longer-haul routes while boosting short- to medium-haul ones to make up for the lack of MAX aircraft, said president Thomas Nealon on Thursday. These adjustments aim to provide "quality" connections to customers who would otherwise have flown nonstop.

“In no way are we walking away from long-haul flying," said Nealon. "With the MAX out of service, when we have opportunities to replace profitable but below system average RASM [revenue per available seat mile] long-haul nonstop itineraries with high-quality connecting itineraries, we will do that.”

Among the longer routes that Southwest has suspended are flights between Austin (AUS) and San Francisco (SFO), Houston Hobby (HOU) and Orange Country (SNA), and Los Angeles (LAX) and Pittsburgh (PIT), according to Cirium schedule data for the first quarters of both 2019 and 2020. The airline also ended all service to Newark Liberty (EWR) in November.

While executives declined to provide capacity guidance for 2020, Nealon said Southwest will continue to grow at its Baltimore/Washington (BWI), Denver (DEN), and Houston bases, and to Hawaii this year.

Southwest has adjusted its fleet plan where it can to make up for the MAX. The airline extended the lives of seven Boeing 737-700s by two years in 2019, and has cut planned retirements of the -700s by at least half to 11 this year, said Southwest chief financial officer Tammy Romo on Thursday.

The airline continues to work to postpone 737-700 retirements where it can, and to acquire used 737-800s, she added.

Featured image by Marco Garcia