Southwest cuts back capacity but boosts Boeing MAX order |

Southwest Airlines has lowered capacity plans for the first quarter of 2024 and also for the rest of the coming year. The airline is guiding a capacity increase for Q1 of 10-12 percent compared to the previous 14-16 percent. Southwest lowers its guidance despite expecting fifteen more Boeing MAX 8s this year than it planned for earlier. But Southwest has added 216 MAX 7s and -8s to the unfilled orders and options and has swapped models. Southwest has published its flight schedule until August 4, 2024, which includes 30 new routes from amongst others Orlando and new non-stop services from Burbank, Colorado Springs, Dallas, and Nashville. But after a review of its fleet plans and its Boeing order, Q1 capacity has been revised and lowered to 10-12 percent. “As we move into 2024, we are slowing our ASM growth rate to absorb current capacity, mature development markets, and optimize schedules to current travel patterns,” CEO Robert Jordan says in the earnings release. For the full year, capacity growth is guided at six to eight percent year on year. “The Company continues to plan for sequentially lower capacity growth, year-over-year, in each quarter of 2024, and anticipates achieving its target of mid-single-digit year-over-year ASM (available seat miles) growth in the second half of 2024.” Near-term, Southwest doesn’t seem short of new aircraft. The airline is expecting to take delivery of 85 MAX 8s this year, up from 70 that it guided in July. Yet, deliveries are still below the 105 contractual deliveries that have been agreed earlier with Boeing. Year-to-date, MAX deliveries stand at 69, of which 18 in Q3. Thanks to higher new deliveries, the airline plans to retire 15 extra 737-700s this year, or 41 in total. More MAX 7 orders Uncertainty over the MAX 7 deliveries continues to cast a shadow over Southwest’s fleet plans. Boeing said on Wednesday that it still expects certification this year and first deliveries in 2024, but this entirely depends on the FAA. This means that 31 contractual deliveries scheduled for 2023 are no longer valid. Another 24 MAX 7s deliveries have been deleted from the 2024 schedule and moved out. Deliveries for 2025 now stand at 54 (+24 over the July schedule), 59 for 2026 (+29), 19 in 2027 (+4), 15 in 2028 (no change), and 38 in 2029 (+18). New in the schedule are 45 deliveries for 2030 and 2031 each, or 90 in total. They partly come from swapping MAX 8s for -7s. This brings the total MAX 7s backlog to 302, up from 192 in July. The MAX 8 delivery schedule now includes 85 aircraft in 2023 (-20), 53 in 2024 (+18), three in 2025 (+3), 0 in 2026 (-15), 46 in 2027 (+31), 50 in 2028 (+35), 34 in 2029 (+4), 0 in 2030 (-55), and 0 in 2031 (no change). This makes 271, one more than in July. MAX 7 and -8 options have been stocked up from 102 to 207. This brings the total order backlog plus options for both types to 780, up from 564 in July. Boeing confirmed later on the day that Southwest has ordered 108 more MAX 7s. Lower net profit in Q3 Southwest ended Q3 with a $193 million net profit, down from $277 million in the strong quarter of 2022. Total revenues were up 4.9 percent year on year to $6.525 billion from $6.220 billion. Revenues from 35.3 million passengers grew by 5.3 percent to $5.912 billion from $5.613 billion, thanks to strong leisure demand in July and around the Labor Day Holidays. Bookings were close-in in August and September but remained stable. Ancillary revenues and those from the loyalty program were up 1.1 percent to $569 million but reached a quarterly high. Expenses were up ten percent to $6.408 billion, with salary costs up by 17.5 percent to $2.728 billion. This excludes, of course, the effects of the new labor agreement with union TWU for 19.000 flight attendants that was announced on Wednesday. Fuel costs in Q3 were down by 10.6 percent to $1.564 billion. Overall, higher expenses pushed the operating profit down to $117 million from $395 million last year. For January-September, Southwest reports a net profit of $717 million versus $759 million last year. Total revenues grew by 9.2 percent to $19.268 billion from $17.642 billion. Passenger revenues were $17.426 billion, up from $15.867 billion. The airline carried 101.3 million passengers during the 9M period, up from 93.7 million in 2022. Total expenses were up by 14.8 percent to $18.640 billion, resulting in an operating profit of $628 million versus $1.402 billion. Liquidity stood at $12.7 billion by the end of September and net debt at $8.0 billion. Demand returns to seasonal norms Southwest projects stable demand for Q4 and is seeing strong bookings for the holiday season in December, but adds: “While leisure demand remains healthy, leisure trends appear to be returning to historically seasonal norms, and business trends continue to be stable. Based on current trends, the Company anticipates record fourth quarter operating revenue driven by record fourth quarter passengers.” The airline guides revenues per available seat mile (RASM) to be down by nine to eleven percent year-over-year, but this includes a 1 to 1.5 percentage point offset from the December 2022 operational disruptions. “The expected RASM decline is driven by higher-than-seasonally-normal ASM growth in fourth quarter 2023 as the Company closes out the restoration of the network and normalizes the utilization of the fleet. Further, unit revenue pressure is also driven by higher-than-normal investment in development markets and schedules that are not ideally matched to current business travel trends. The Company is addressing these challenges in its 2024 network plan by adjusting capacity and further optimizing the network.” Full-year capacity is expected to grow by 14 to 15 percent, in line with the July guidance. Fuel is guided at $2.85 to $2.95 per gallon, which is up by some $0.15 cents.

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