Southwest Airlines says bookings strong, may not always be 737-only carrier

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(Reuters) – Southwest Airlines Co forecast better-than-expected second-quarter revenue growth on Thursday, citing demand from leisure and business customers, even as the low-cost carrier is forced to cancel flights due to the grounding of Boeing’s 737 MAX jets.

FILE PHOTO: A number of grounded Southwest Airlines Boeing 737 MAX 8 aircraft are shown parked at Victorville Airport in Victorville, California, U.S., March 26, 2019. REUTERS/Mike Blake/File Photo

No. 4 U.S. airline Southwest, which currently uses only Boeing Co 737 narrowbody aircraft, suggested on Thursday that it may consider mixing up its fleet in the future.

“We’re an all-Boeing 737 carrier,” Southwest Chief Executive Gary Kelly told CNBC. “That doesn’t mean that we’ll be an all-737 carrier into perpetuity.”

It is not the first time Southwest has hinted about fleet changes, which could benefit Boeing’s European rival Airbus, but such a decision would mean abandoning Southwest’s long-held practice of flying only one type of jet, which reduces maintenance and pilot training costs.

Another option would be to add a different Boeing model. “It makes more sense to ease into any transition with the same manufacturer,” one source familiar with Southwest’s thinking told Reuters.

The company’s costs are already under scrutiny by analysts. Unit costs, or total operating expenses per available seat mile, rose 6.5 percent on an adjusted basis in the first quarter and are expected to increase by 10.5 percent to 12.5 percent year-on-year in the second quarter, it said.

Dallas-based Southwest said it lost more than $200 million in revenue during the first quarter after canceling more than 10,000 flights because of the partial U.S. government shutdown, winter storms, maintenance disruptions and the worldwide MAX grounding.

Still, the company said it expected closely watched unit revenue to grow by 5.5 percent to 5.7 percent year-on-year in the second quarter. It reported only 2.7 percent growth in the first-quarter.

Its shares rose 2.8 percent in early trading.

Southwest reported first-quarter net profit of $387 million, or 70 cents per share, compared with $463 million, or 79 cents per share, in the year-ago quarter.

That beat Wall Street’s average estimate of 61 cents per share, according to IBES data from Refinitiv. Analysts cut their estimates sharply in late March after regulators around the world grounded Boeing’s 737 MAX jets following two fatal crashes.

Southwest has said its 34 737 MAX aircraft represent less than 5 percent of daily flights on its fleet of 753 aircraft.

Total operating revenue at the airline, which launched a service to Hawaii from California last month, rose 4 percent to $5.15 billion.

The low-cost carrier has removed the fuel-efficient, longer-range MAX from its flying schedule through Aug. 5 as it waits for Boeing to submit a software fix and new training guidelines to global regulators for review.

Reporting by Tracy Rucinski in Chicago and Rachit Vats in Bangalore; Editing by Bill Rigby and Shounak Dasgupta



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