Southwest reports profit, despite 737 MAX & $150 M extra-costs

Bill Abbott,CC BY-SA 2.0

The first quarter of 2019 was not easy for Southwest Airlines (LUV) , as it contained the Boeing 737 MAX grounding, severe weather in the U.S. and even more aircraft grounding, this time due to its argument with mechanics union. While these problems, together with the U.S. government shutdown and softness in leisure revenue trends, have cost $150 million, the airline estimates, the period was still profitable. Despite earning less profit than a year ago, the airline calls revenues of Q1 a “record”.

For the first quarter of 2019, Southwest reported net income of $387 million, compared with first quarter 2018 net income of $463 million. However, the airline describes 2.7% unit revenue growth as “our best year-over-year performance in 18 consecutive quarters” and expects stronger year-over-year unit revenue performance in second quarter 2019, according to a statement.

“The flight cancellations in first quarter 2019, and the resulting lower available seat mile (ASM, or capacity) growth, year-over-year, created significant pressure on our first quarter unit costs. Flight cancellations are expected to drive unit cost pressure for the duration of the MAX groundings,” according to Gary C. Kelly, Chairman of the Board and Chief Executive Officer.

Southwest grounded its fleet of 34 737 MAX 8 aircraft on March 13, 2019. Initially, the carrier was supposed to receive 41 more 737 MAX jets. The grounding, together with Southwest’s own “maintenance disruptions” and bad winder weather, have  caused cancellations of over 10,000 flights.

However, while it is still unknown when the Boeing MAX will return to skies, the carrier remains optimistic about its performance. “While we are adjusting our 2019 plans for the MAX groundings, our long-term financial goals remain unchanged: maintain a strong balance sheet, investment-grade credit ratings, and ample liquidity; generate robust operating and free cash flows; grow earnings, margins, and capital returns; and maintain healthy Shareholder returns,” said Kelly.

For more on the tense labour dispute between Southwest and the Aircraft Mechanics Fraternal Association (AMFA) and resulting massive “unscheduled maintenance disruptions”, please see:

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