Southwest to stop service to 4 airports in wake of rising losses and more Boeing delivery problems

Apr 26, 2024, 6:18 AM

A Southwest Airlines plane at LaGuardia Airport in New York. Southwest announced Thursday it is dro...

A Southwest Airlines plane at LaGuardia Airport in New York. Southwest announced Thursday it is dropping services at four airports due to delays in deliveries of new jets by Boeing. (Photo by Bruce Bennett/Getty Images)

(Photo by Bruce Bennett/Getty Images)

NEW YORK — Southwest Airlines announced Thursday it will stop serving four airports after reporting increased losses in the first quarter and more delays in the delivery of promised jets from Boeing.

The four airports are Bellingham International Airport in Washington state, Cozumel International Airport in Mexico, Syracuse Hancock International Airport in New York and Houston’s George Bush Intercontinental Airport. Southwest will continue to serve Houston’s other airport.

“The recent news from Boeing regarding further aircraft delivery delays presents significant challenges for both 2024 and 2025,” said Southwest CEO Bob Jordan in the company’s first-quarter financial results statement. “We are reacting and replanning quickly to mitigate the operational and financial impacts. Consequently, we have made the difficult decision to close our operations [at the four airports].”

However, in an interview later Thursday on CNBC, Jordan said that the decision to cut service to those four airports would have been made in attempt to improve financial results and would been done with or without the delivery issues with Boeing.

“The network actions have really nothing to do with the Boeing delays. We’re taking network actions regardless,” he said, although he added, “Now the Boeing delays are very painful. …They hurt us on the revenue front. They cause us to be inefficient.”

In its quarterly financial report on Thursday, Southwest (LUV) announced it lost $218 million excluding special items, or 36 cents a share, in the first quarter. That was up from the $163 million it lost on that basis a year ago. The loss came despite record first-quarter revenue of $6.3 billion, up 11% from a year earlier. The jump in revenue came from an increase in passenger traffic, as fare data showed passengers paying about the same amount to fly every mile.

It also disclosed it now only expects 20 planes to be delivered by Boeing this year. It started the year expecting to have 79 planes delivered. Then last month it announced it was expecting 46 planes to be delivered during the year. It had already put in place a hiring freeze for pilots and flight attendants due to the reduced deliveries.

The delays in deliveries are being caused by the Alaska Airlines incident on January 5 when a door plug blew off of a 737 Max 9 jet. That prompted a three-week grounding of the Max 9, and will delay the certification of two new models of the plane, the 737 Max 7 and 737 Max 10, until at least next year. Boeing had promised to start deliveries of both those models later this year.

The financial problems at Southwest are the latest sign of the widening impact of the ongoing problems at Boeing throughout the air travel system. In its first-quarter financial report Wednesday, Boeing said it will have to keep production at a lower level likely into next year as it works to improve the quality and safety of its jets.

United has also stopped hiring additional pilots due to Boeing delivery issues, and it has requested that some pilots take a voluntary leaves without pay.

Southwest doesn’t have any Max 9 jets in its fleet, but the airline that flies only current and earlier versions of the 737 had orders for 307 of the 737 Max 7 as of January of this year. It announced Thursday that it has trimmed its order book by 19 of those jets, shifting to 737 Max 8 jets instead.

The airline expects its capacity to grow by 4% this year, down from its earlier estimate of 6% growth. That will raise its costs when adjusted for capacity by about 2 percentage points, according to its new guidance.

American also reports a loss

American Airlines also reported a first quarter loss, losing $226 million, or 34 cents a share, excluding special items. The company posted a narrow $33 million profit on that basis in the year ago quarter.

American revenue was up 3% to $12.6 billion, despite a nearly 7% drop in the amount that passengers paid to fly every mile they traveled on the airline. But that was balanced out by an 11% rise in the number of miles they flew.

“While we aren’t satisfied with our first-quarter financial results, we have a strong foundation in place, and we remain on track to deliver on our full-year financial targets,” said American CEO Robert Isom. He said unlike many competitors American already has the aircraft in house to meet its schedule for the rest of this year.

Unlike all-Boeing Southwest, American’s fleet of mainline aircraft is split fairly evenly between those from Boeing and those from its rival Airbus.

Asked if Boeing had a comment on Southwest’s announcement about cancelling service to the four airports, Boeing pointed to comments from its CFO Brian West at a recent investors’ conference.

“We put the customers in tight spot, the most important thing we do is communicate with them. And they have been supportive of everything we’re trying to do to enhance safety and quality for the industry,” West said in March. “In the near term, the slowdown has impacted us, and it’s impacted them and we’re communicating it to them so that we can work our way through it, and we will stand behind our customer.”

In response to a question on American’s conference call Thursday Isom said that he has been talking to a number of Boeing executives about the problems the aircraft maker has been having.

“My message has always been the same. ‘Get your act together,’” said Isom. He said the airline supports Boeing’s efforts to fix its production issues.

In March American placed a large order for 85 of the 737 Max 10, which, like the Max 7, has had its certification to carry passengers pushed back to next year by the incident at Alaska Air. Those planes are not due to be delivered until 2028.

“I can’t tell you if they’re making progress or not,” said Isom. “Hopefully Boeing has its act together [by 2028].”

The losses at Southwest and American capped a difficult quarter for the US airline industry, with most carriers reporting losses whether or not they fly all Boeing, all Airbus or some mixture of planes from the two manufacturers. Rising fuel and labor costs plus fares that were little changed from a year earlier resulted in only Delta Air Lines reporting a profit among the major US carriers.

The rising losses at Southwest are a stark contrast to what had traditionally been the most profitable US airline and one of the few not to file for bankruptcy at some point in its history. It went 11 years, from the Great Recession in 2009 to the plunge in air travel that accompanied the start of the pandemic in 2020, without reporting losses in any quarter.

Shares of Southwest (LUV) lost 8% on the report in midday trading Thursday, while shares of American (AAL) were little changed.

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Southwest to stop service to 4 airports in wake of rising losses and more Boeing delivery problems