Southwest made a remarkable amount of money in the first quarter considering how many airplanes it had out of service.
Southwest Airlines might have had a “blowout” quarter, if not for two major operational disruptions that severely hampered its ability to deliver customers to their destinations, CEO Gary Kelly said Thursday.
For the first quarter, which ended March 31, Southwest canceled more than 10,000 flights, or roughly 4 percent of its published schedule. It was the airline’s highest cancellation rate since the third quarter of 2001, after 9/11.
Flights on the Boeing 737 Max received much of the attention, as Southwest is the biggest U.S. operator of the jet. But the Federal Aviation Administration didn’t ground it until March 13, nearly at the end of the quarter.
Instead, in the first quarter, Southwest’s biggest issue was self-inflicted: It canceled thousands of flights during what it called a labor disruption by its mechanics union.
According to the airline, some mechanics were recommending the airline pull aircraft from service due to minor issues. In a federal lawsuit, the airline alleged mechanics in some focus cities were expressing displeasure with the status of contract negotiations.
The airline and the Aircraft Mechanics Fraternal Association, or AMFA, reached a tentative agreement on a new contract earlier this month, and Southwest is now taking fewer aircraft from service for technical reasons. Mechanics are voting on whether to endorse the deal, and the results will be available next month.
“Our unexpected maintenance events are behind us since we moved to the tentative agreement with AMFA,” Chief Operating Officer Mike Van de Ven said.
737 Max Woes
That leaves the Boeing 737 Max as the carrier’s main challenge. Southwest has 34 Max jets, and while the airline does not know when they will return to service, executives said they are optimistic it will happen this summer.
Southwest already has cleared its schedule of all Max flying through August 5. But executives said Thursday if the planes can fly earlier, the airline will use them as spares until August 6.
Southwest has planned to take 41 more Max aircraft later this year, and chief financial officer Tammy Romo said that remains the target, even though Boeing has paused deliveries. Still, she said the airline is “evaluating” its fleet retirement plan, which calls for it to park as many as 18 airplanes this year. It’s possible some could stay longer than planned, if the Max jets cannot be delivered.
But long term, Kelly said he would prefer the airline stick with its retirement strategy.
“It would be a lot of work for us to go in and unwind our retirement plan,” he said. “And I do not want to do that. That would not be efficient.”
Kelly also told analysts Southwest is not seriously considering adding jets from Airbus, Boeing’s top competitor. The Air Current, a trade publication, reported Tuesday that a Southwest delegation recently visited Airbus to learn about A220, a new narrow-body jet.
Southwest has long had an all-Boeing fleet, but most airlines evaluate jets from several manufacturers even if they don’t plan to add them. Kelly said this was not an unusual visit, nor meant to put pressure on Boeing.
“The timing is a bit unfortunate,” Kelly said. “And I dread speculation that it’s intentional on our part to perhaps consider a change from our current direction with Boeing and the Max, and that is not true.”
Still, Kelly said it’s possible Southwest someday could add a new aircraft type.
“We have no plan to do anything other than grow our fleet with the Max,” he said. “Will that be the case in perpetuity? I’m not prepared to say that.”
Kelly said Southwest will follow whatever steps the FAA requires to return the jet to service. But Kelly said he does not think the pilots should have to train in Boeing 737 Max simulators.
Boeing and many airlines have long argued the Max is so similar to previous generations of 737s that pilots can fly it without training in a special simulator.
Others have countered that the jet has some unique features — like the Maneuvering Characteristics Augmentation System that may have confused pilots in two recent crashes — so pilots should have different training.
“I think that just getting pilots back into the simulator for an event would be a challenge, and that would take time,” Kelly said. “I think it just depends on what training one is talking about, because our pilots are extensively trained. And again, I’m a layperson at this. But my own interpretation is that we already do the kind of training that one would be contemplating to put the Max back into service.”
Many airline insiders, including Southwest’s top executives, say they’re confident in the Max airplane and Boeing’s ability to fix it.
But travelers aren’t as sure. Some analysts wonder whether Southwest customers will avoid booking Max flights once the plane returns. The airline’s executives acknowledge it might happen, but said they have a public relations plan to boost consumer confidence.
“There is just so much media and coverage on the topic that everyone’s got an opinion, and I think that there’s certainly going to be some people that I expect will probably book away for some period of time,” Southwest President Tom Nealon said.
Kelly said he expects the airline will benefit from what he said is a close relationship with customers.
“We have a great brand,” he said. “It’s one that people trust. … Clearly, we’re not going to do anything that we think is unsafe.”
Despite what executives called a “choppy” quarter, Southwest produced impressive earnings.
The airline reported net income of $387 million, down from $463 million in the same period last year. Its operating margin was 9.8 percent.
Southwest estimates the quarter would have been significantly better if not for the unexpected challenges. Without the flight cancellations, the U.S. government shutdown and a “softness in leisure revenue trends” Southwest told analysts it would have recorded $150 million more in net income.
CORRECTION: An earlier version of this story identified the wrong speaker in a quotation about whether customers may remain skittish about the Max when it returns to service.
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Photo Credit: Southwest made a big profit in the first quarter despite several operational challenges. LM Otero / Associated Press
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