US regional carrier Southwest Airlines has reported a “disappointing” Q1 loss, which CEO Bob Jordan blamed on Boeing aircraft delivery delays. Jordan said the airline had “already taken swift action” on its sub-par financial performance, including exiting four destinations.
Although Southwest reported increased operating revenues, including a 10% increase in passenger revenue compared to Q1 2023, operating expenses rose by a far greater amount, leading to the eventual net loss of $231m.
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The single largest increase was for maintenance and repairs, which skyrocketed 50% on the year to $361m.
Due to ongoing production safety issues at Boeing, of which Southwest is a customer, the airline has lowered the number of its ageing aircraft it expects to retire this financial year.
“The Company plans to retire approximately 35 aircraft in 2024 (31 -700s and four -800s), a reduction from its previous expectation of 49 (45 -700s and four -800s).”
“There is no assurance that Boeing will meet this most recent delivery schedule,” it warned its investors. As of October 2023, Southwest had registered more than 300 new Boeing orders.
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By GlobalDataThe quarterly statement added that Boeing’s delivery delays would have knock-on impacts throughout 2024, including to its flight schedules, to its destinations, and to its full-year revenues and expectations.
“Significant challenges presented by Boeing aircraft delivery delays, and the related reduction in second half 2024 capacity, negatively impact the Company’s previous expectation for double-digit year-over-year operating revenue growth for full year 2024. As such, the Company now expects full year 2024 year-over-year operating revenue growth approaching high-single digits when adjusted for current trends and planned reductions for post-summer schedules,” it explained.
CEO Jordan added that its flights to Bellingham, WA; Houston, TX; Syracuse, NY; and Cozumel in Mexico would be discontinued.
“To improve our financial performance, we have intensified our network optimization efforts to address underperforming markets. Consequently, we have made the difficult decision to close our operations at Bellingham International Airport, Cozumel International Airport, Houston’s George Bush Intercontinental Airport, and Syracuse Hancock International Airport. I want to sincerely thank our Employees, the airports, and the communities for all their incredible support over the years,” he said.
Alongside the cut to destinations, Southwest is adjusting its schedules for H2 with the expectation that seat availability and trip frequency will decline.
According to the statement, this will slow down the company’s return to growth “beyond 2024”.
“The Company currently plans for capacity growth beyond 2024 to be at or below macroeconomic growth trends until the Company reaches its long-term financial goal to consistently achieve after-tax return on invested capital (“ROIC”)7 well above its weighted average cost of capital (“WACC”).”
