Southwest Airlines is expecting to take delivery of just about half of the number of Boeing MAX it had planned for. The US carrier thinks that Boeing will deliver 66 MAX 8s compared to the 114 that are in the fleet plan, it said on July 28 in the second quarter earnings release. Boeing MAX delays hurt Southwest Airlines.
The difference comes as no surprise as Boeing has reported supply chain issues that are affecting the assembly of newly built MAX aircraft. Especially CFM is behind on LEAP-1B engines and its major shareholder Safran Group said today that supply chain issues may last until the end of 2023.
Southwest, already affected by the delayed certification of the eagerly awaited MAX 7, had hoped to solve that problem by swapping -7s for -8s and taking delivery of them this year instead. But of the 28 that were scheduled between January and the end of June, Boeing delivered only twelve.
“While Southwest is contractually scheduled to receive 114 MAX deliveries, including options, this year, a portion of its deliveries are expected to shift into 2023 due to Boeing’s supply chain challenges and the current status of the -7 certification. Based on recent discussions with Boeing regarding the pace of expected deliveries for the remainder of this year, the Company is currently estimating it will receive a total of 66 -8 aircraft deliveries and no -7 deliveries in 2022”, says Southwest.
Exercising options and swappings -7s for -8s
The carrier ordered even more MAX 8s as it exercised options for seven aircraft since April when it presented its Q1 results. The -8s are scheduled for delivery this year while accelerating deliveries and exercising options for seven more also to be delivered in 2022. Southwest also exercised options on two MAX 7s for delivery in 2023 and shifted seven -7s on firm order to next year. And in its never-ending swapping and exercising, the airline converted 48 MAX 7s into -8s for delivery in 2023.
“Based on these modifications and recent discussions with Boeing, the Company is currently assuming 23 and 31 -8 aircraft deliveries in third quarter and fourth quarter 2022, respectively. The Company plans to retire 12 and 7 -700 aircraft in the third quarter and fourth quarter of 2022, respectively. As a result, the Company expects to end the third quarter with 741 aircraft and end 2022 with 765 aircraft, compared with its previous guidance of 814 aircraft.”
Southwest’s latest MAX delivery schedule after including delays and additional orders. (Southwest Airlines)
Net income Q2 at all-time record
So far for the fleet plans. Southwest reported an all-time Q2 record net income of $760 million compared to $348 million in the same quarter of 2021. The operating profit was $1.158 billion compared to $594 million. Revenues improved to $6.728 billion, up from $4.008 billion, of which $6.119 billion was from passenger tickets and $47 million from freight. Total expenses were up 63.2 percent to $5.6 billion, of which $1.636 billion for fuel (+103.7 percent). Its HY1 results show a $482 million profit (2021: $463 million), an operating profit of $1.007 billion ($793 million), and revenues of $11.4 billion ($6.1 billion).
Inflation and “headwinds from operating at suboptimal productivity levels” had an effect on Southwest operations in Q2 and are expected to continue during the rest of the year, CEO Bob Jordan said. Yet, cancelations in May and June were limited to less than one percent. The carrier has started hiring new pilots as part of its strategy to add over 10.000 employees this year, net of attrition.
Demand for Q3 also is solid, giving him every reason to be pleased. Even the high fuel costs will hurt Southwest only in a limited way as it had hedged 63 percent of the fuel costs at different price levels. In Q2, the airline paid $3.36 per gallon, which was in line with its previous guidance. Despite adding some flights in the half year, capacity as available seat miles (ASM) is expected to be flat in Q3. Operating revenues should be up eight to twelve percent.
Active as a journalist since 1987, with a background in newspapers, magazines, and a regional news station, Richard has been covering commercial aviation on a freelance basis since late 2016.
In 2022, he has gone full-time freelance. Richard has been contributing to AirInsight since December 2018. He is also writing for Airliner World and Aviation News. From January 2023, he will add a part-time role with Dutch website and magazine Luchtvaartnieuws. Twitter: @rschuur_aero.