Managing the grounding of the 737 Boeing Max is becoming
progressively more difficult for Southwest Airlines.
"As we look at our route performance, it is just market
after market after market where it is obvious that we are spilling capacity,"
said CEO Gary Kelly during Southwest's Q2 earnings call on Thursday. He went on
to say that the result is revenue gets left on the table for competitors.
Southwest was operating 34 Max aircraft at the time of the
grounding in March, the most of any carrier in the world. On Thursday, the
carrier removed the Max from its schedule until Jan. 5, citing the ongoing
grounding and the time it will take the get the aircraft back in the sky once
the grounding is lifted.
The grounding has become more disruptive over time because
Southwest's plan to expand capacity by 5% this year was based upon taking
delivery of 41 more Max aircraft. Therefore, with each passing month the gap grows
between Southwest's actual fleet size and the fleet size it had planned.
During the second quarter, Southwest said its capacity was
7% less than planned. The percentage jumps to 8% this quarter and will rise to
11% during the fourth quarter.
To alleviate the issue, Southwest will retain seven 737-700
aircraft through the year that it had planned to retire. But beyond that, route
network adjustments are the only choice.
Southwest's announcement Thursday that it will pull out of
Newark as of Nov. 3 was driven by the Max grounding. The carrier will instead
use those aircraft to resume its stalled growth plan in Hawaii.
Southwest will also consider increasing the daily
utilization hours of its planes, Kelly said, though he noted that doing so
would result in more flying at marginal hours, when ticket revenue is lower.
The Max grounding is also increasingly driving up Southwest's
costs on a seat-for-seat basis. Due to the lower capacity, the company now
estimates that its cost per available seat mile will be 8% to 10% higher this
year compared with earlier estimates of 5.5% to 6.5% higher.
Despite the difficulties, the carrier still reported a solid
second quarter on Thursday. Net income was $741 million, up 1.1% year over year.
The carrier reported revenue of $4.94 billion, up 3.6% but $30 million below
analyst expectations, according to the website Seeking Alpha.
Southwest's earned $1.37 per share, beating expectations by
2 cents.