Rajesh Kumar Singh and Allison Lampert
CHICAGO/MONTREAL (Reuters) – Southwest Airlines (NYSE:) expects Boeing (NYSE:) aircraft deliveries this year to be only half of the airline’s March 46 estimate, putting further pressure on the U.S. budget airline’s growth plans. This was reported by three people familiar with the situation.
Boeing’s overall deliveries fell by half in March as 737 MAX production fell sharply due to heightened quality checks and regulatory audits as the company grapples with a safety crisis caused by a mid-air cockpit panel explosion on a Boeing jet in January. Alaska Air (NYSE:) flight.
The jet maker’s woes have spread throughout the industry, but Southwest, which operates an all-Boeing fleet, is among the hardest hit. The Dallas-based airline has already warned of cuts to annual capacity due to a shortage of planes. The company has stopped hiring pilots and is spending more money on repairing older planes, even as it seeks to cut costs.
Southwest originally planned to take delivery of 85 Boeing MAX aircraft this year. This estimate has already been lowered twice.
The company now expects only about 20 deliveries this year, down from 46 forecast last month, the people said, asking to remain anonymous, adding that number could change.
The airline took delivery of just five planes from Boeing in the first quarter, down from 29 a year ago, according to the planemaker.
In a statement to Reuters, Southwest said it remains in close contact with Boeing as the manufacturer continues to refine its delivery schedule. Boeing was not available for comment.
PRODUCTION OF CURBS
The US Federal Aviation Administration (FAA) limited production of the 737 MAX to 38 aircraft per month following the January 5 incident with Alaska Air. However, Boeing’s monthly output is well below that level and fell to single digits at the end of March, Reuters reported last week.
Southwest had planned to begin operating the 150-seat MAX 7 jets, the smallest version of the MAX jets, this year. But the FAA’s certification of the plane is now mired in uncertainty after Boeing withdrew its request for a safety waiver.
The airline does not expect to receive MAX 7 aircraft this year. Certification delays have forced the company to convert some of those orders into the larger 175-seat MAX 8 variant, which some analysts say is too big for some markets.
In January, Southwest planned to add 6% annualized capacity in 2024 to benefit from the travel boom, but it warned last month that Boeing’s delays could cut the estimate by 1 to 1.5 percentage points. Southwest will report quarterly earnings on April 25.
The latest supply estimates could mean further cuts to its capacity plans, one of the people said, adding that the airline was exploring options to compensate for delays.
The company planned to retire 49 aircraft this year. But the company is considering keeping more than a dozen of the machines in service, two of the sources said, adding that the plan would require extensive maintenance and cost the company millions of dollars.
This will likely exacerbate Southwest’s cost problem. The company reported adjusted earnings of $1.56 per share in 2023 but forecast a net loss for the first quarter of 2024.
In January, the company estimated that annual non-fuel costs in 2024 would be 6% to 7% higher than the previous year.
Last month, CEO Bob Jordan said Southwest wanted to avoid additional maintenance costs, saying the airline was “urgently focused on further cost reduction.”
Southwest is not the only airline that has had to rethink its operating plans. United Airlines has suspended pilot hiring for May and June and offered voluntary unpaid leave to its pilots. The company’s pilot union told members that additional cost-saving measures were expected in the summer and possibly fall.
Southwest has stopped hiring pilots and flight attendants. While the company has not announced any layoffs, one of the sources said it may consider taking steps similar to United’s.