Southwest Airlines counts the costs from 737 MAX
Southwest Airlines has reported its 47th consecutive year of profitability amidst financial and operational challenges posed by the Boeing 737 MAX grounding.
Annual 2019 unit revenues grew 3.7% year-over-year, which the airline says was driven by a stable domestic economy and revenue environment. Annual net income was $2.3 billion, compared with 2018 net income of $2.5 billion. The estimated operating income reductions from the MAX groundings for the fourth quarter and annual 2019 were $313 million and $828 million respectively.
“Our operational and financial performances in 2019 were truly remarkable considering an estimated $828 million reduction in operating income and the significant reduction in planned flights due to the MAX groundings,” commented Gary C. Kelly, Chairman of the Board and CEO.
The airline has 34 MAX aircraft in its fleet and, before the groundings, it expected to have 75 at the end of 2019 and another 38 deliveries in 2020.
During the fourth quarter, the airline reached a confidential agreement with Boeing on compensation related to estimated 2019 financial damages due to the grounding of the 737 MAX. While Southwest’s CEO said he was pleased with the 2019 agreement, “We continue to incur financial damages in 2020 and we will continue discussions with Boeing regarding further compensation.”
The airline has extended its MAX-related flight schedule adjustments through June 6 2020 and based on guidance from Boeing that estimates an ungrounding in mid-2020, the airline anticipates extending the adjustments further to provide a reliable schedule for summer travel.
“Our network expansion plans were interrupted in 2019 due to the MAX groundings, and this continues in 2020,” Kelly continued. “In particular, we made the difficult decision to close our operation at Newark Liberty International Airport and consolidate our New York City presence at New York LaGuardia Airport.”
“Still, we were able to launch Hawaii service in March 2019 and continued expanding throughout 2019 by trimming capacity in other parts of our network,” the CEO added that the airline is also focused on adding flights to further strengthen presence in Baltimore, Denver and Houston.
The company ended 2019 with 747 aircraft in its fleet, including three leased 737 MAX 8 aircraft delivered in 2019 prior to the MAX groundings. All 34 of its MAX 8 aircraft were grounded as of 13 March 2019.
Seven of its originally planned 18 retirements in 2019 were deferred to future years to cover a portion of the fleet deficit created by the MAX groundings. The company retired six Boeing 737-700 aircraft in 2019, compared with its plan to retire 11 total, with 5 retirements shifting to 2020.
“We managed extraordinarily well in 2019 and ended the year with a strong balance sheet and healthy cash flows,” Kelly said. “While our 2020 financial results and year-over-year trends will continue to be significantly impacted by the MAX groundings, demand for air travel remains healthy, and we are well-hedged against rising fuel prices.”
He concluded: “We remain confident that the MAX will return, and once it is cleared to fly, we will add aircraft and flights back into the schedule at a measured pace that we are comfortable with—operationally, commercially, and financially, and with safety top of mind.”