Skip to main content

Southwest Is Getting Clipped by MAX Grounding

Publish date:
Video Duration:

Investors aren't quite feeling the "Luv" when it comes to Southwest Airlines  (LUV) - Get Southwest Airlines Company Report.

Despite another solid quarter of earnings and revenue, the Dallas-based carrier said on Thursday that the ongoing grounding of its fleet of Boeing-made 737 MAX aircraft is going to mean higher future costs that will likely eat into profits.

For the fourth quarter, Southwest posted adjusted per-share earnings that flew past analysts' forecasts and revenue that matched expectations - even as it took a charge for ongoing costs related to the grounded MAX jets that make up a big chunk of its fleet.

Of more concern to investors, however, was the carrier's warning that it expects a closely watched gauge of costs to climb in the current quarter as the cost to fly each seat a mile rises by between 6% and 8% because of the MAX's absence ongoing absence.

Indeed, based on its MAX-related flight schedule adjustments through June 6, the carrier currently expects first-quarter year-over-year capacity to drop in the range of 1.5% to 2.5% - a hit that will likely negatively impact both revenue and earnings. 

The estimated operating income reductions from the MAX groundings for fourth quarter and for 2019 were $313 million and $828 million, respectively, Southwest said.

Southwest has the most Boeing 737 MAX planes in its fleet and on order than any other U.S. airline. The planes have been grounded since March 2019 after two fatal crashes - one in Indonesia in October 2018 and another in Ethiopia less than five months later - killed 346 people.

Catch up on the Latest News, Features & Webinars on TheStreet!

Related Videos