Boeing’s recent spate of highly publicized mechanical problems on its 737 Max jets has been rippling through the airline industry, and Southwest Airlines appears to be its latest point of impact.
Southwest announced that it would pull out of four airports in the coming months to cut costs after a first-quarter loss of $231 million, or 39 cents per share. Its adjusted loss of 36 cents per share was higher than the forecasted 34 cents per share.
The loss was worse than expected, and some newer Southwest markets underperformed due to slower-than-expected last-minute leisure bookings.
Southwest had a record first-quarter operating revenue of $6.33 billion because of strong travel demand, so the picture isn’t all negative. But analysts had forecast revenues of $6.42 billion, so even that number isn’t a win for the airline.
Because it only flies Boeing planes, Southwest has been more strongly impacted by Boeing’s slow in manufacturing and slower delivery since January when a door plug failed, and the door panel blew off a Boeing Alaska Air plane mid-flight.
Due to its reliance on Boeing, Southwest had bigger losses than other airlines like United and American, the latter lost $312 million but had a more profitable outlook in the second quarter than was first estimated.
Delta Air Lines posted a profit in the first quarter, relatively unscathed by the Boeing problems.
Southwest said it will probably only get 20 new Boeing planes this year—just over a quarter of the 79 total expected before the problems began.
The airline has also been kept waiting on the fate of a smaller version of the Max, with regulatory approval for that model still up in the air.
“We are focused on controlling what we can control and have already taken swift action to address our financial underperformance and adjust for revised aircraft-delivery expectations,” Chief Executive Bob Jordan said in a statement.
Southwest thinks it will hit a quarterly record again for the next three months, but after the peak travel season, it plans to scale back its planned expansion and will see lower capacity in some areas.
In addition, Southwest will limit hiring and offer voluntary time off to employees, cutting about 2,000 workers by the end of 2024.
“Given the news on Boeing aircraft delivery delays, managing our plan just is not enough,” Mr. Jordan said at the JPMorgan Industrials Conference in March. “Going forward, we are actively and urgently focused on further cost reductions.”
Complicating matters are record deals Southwest made recently with its pilots’ and flight attendants’ unions, which are expected to drive up costs going forward.
Even before Boeing’s problems, Southwest was still shaking off a meltdown in the 2022 holiday season, when so many flights were canceled that a congressional hearing was held and the airline was fined $140 million.
Southwest entered 18 new markets during the COVID-19 era in 2020 and 2021, but it is now pulling back again.
The airports Southwest is poised to exit are Cozumel International Airport in Mexico; Bellingham, Wash.; Syracuse, N.Y.; and Houston’s George Bush Intercontinental Airport. It will still service Hobby Airport in Houston, where it has more of an operation.
It also has plans to “significantly restructure” other markets, specifically reducing flights at Chicago O’Hare International Airport and Atlanta.
It is the first time the airline has exited a market since 2019, when it pulled out of Newark, New Jersey’s airport.