Southwest Airlines to cut capacity as Boeing delivery crisis ripples through aviation industry

US carrier Southwest Airlines plans to cut capacity this year, halt most hiring and review its spending plans in response to reduced aircraft deliveries from Boeing, the aircraft manufacturer facing regulatory and criminal investigations in the wake of a near-catastrophic incident in January.

The carrier expects a net loss this quarter, and said in a regulatory filing on Tuesday that it is re-evaluating prior guidance for the full year because of the slowing growth.

Hiring has already stopped for “multiple” work groups, including pilots and flight attendants, and Southwest expects to end the year with lower headcount than in 2023.

Southwest shares tumbled 8.3 per cent at the start of trading in New York.

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The carrier’s downcast outlook highlights how the crisis at Boeing is rippling through the broader aviation industry.

The manufacturer has been mandated by regulators to cap output of its best-selling 737 Max model, leaving many customers short of much-needed aircraft at a time when demand for fuel-efficient jets remains high.

Alaska Airlines, which grounded its 737 Max 9 fleet after a section of fuselage blew off a jet during a flight on January 5th, also said on Tuesday its capacity outlook remains “in flux” because of uncertainty around deliveries.

Southwest said it doesn’t expect to receive any of its long-awaited 737 Max 7 aircraft this year, and that deliveries of other Boeing models will come in at just 46 units, down from the 79 previously anticipated.

Boeing has vowed to double down on its safety procedures as regulators put its manufacturing processes under the microscope, faulting the plane maker for sloppy standards at its factories.

[ How the crisis at Boeing is threatening a historic Belfast factory ]

Southwest already reworked its fleet plan last year based on earlier delivery delays. The company said in January that it plans to end 2024 with an employee headcount flat to below 2023 levels as part of cost-control efforts.

The US Justice Department has opened a criminal investigation into the January 5th incident, in which a fuselage panel flew off of an almost-new 737 Max operated by Alaska Air.

A temporary grounding of all Max 9s after the incident reduced profits at Alaska Air by $150 million, the carrier said on Tuesday. The carrier has returned its full fleet to service and restored its schedule, Alaska Airlines said in a separate regulatory filing.

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Alaska said it has received partial compensation from Boeing and its adjusted loss per share expectation reflects the outlay from the plane maker.

At Southwest, schedule changes planned in the second half of the year will reduce capacity by at least one percentage point in 2024 compared to 2023 as the aircraft delivery schedule continues “to be fluid”.

Southwest’s unit revenue this quarter will be flat to up 2 per cent, compared with an earlier forecast for an increase of up to 4.5 per cent on lower-than expected leisure passenger volumes. Capacity will increase 11 per cent, up from an earlier plan for 10 per cent, and unit costs will increase 6 per cent instead of as much as 7 per cent earlier. Second-quarter bookings are higher than normal, Southwest said.

The updates came in advance of an industry conference on Tuesday in New York featuring many of the largest US airlines.

[ Ryanair demands compensation from Boeing as aircraft delivery delays drag on ]

American Airlines expects a first-quarter loss at the low end of prior guidance for a deficit of 15 cents to 35 cents a share, according to a regulatory filing on Tuesday. Delta said it expects total revenue growth in the first quarter in the top half of its guidance range.

JetBlue Airways said first-quarter revenue will decline as much as 7.5 per cent from a year ago, compared with a prior outlook for a drop of as much as 9 per cent.

Non-fuel unit costs will climb as much as 9.5 per cent, versus earlier guidance for an increase of up to 11 per cent, and capacity will decline between 3 per cent and 4 per cent, less than the previously expected decrease of as much as 6 per cent.

– Bloomberg