Southwest Airlines has indicated that it is planning on around $2.3 billion’s worth of aircraft capital spending throughout 2023.
According to its Q1 2023 financial results announcement on April 27, 2023, the United States (US)-based airline plans on receiving approximately 70 Boeing 737 MAX aircraft in 2023, 20 fewer than initially anticipated. Due to the lower number of deliveries, though, Southwest Airlines “is planning on flight reductions in second half 2023, most notably in fourth quarter, and now expects its 2023 capacity to increase approximately 14 percent to 15 percent, year-over-year, roughly one point lower than the Company’s previous guidance”.
Furthermore, it will push the retirement of one Boeing 737-700 NextGeneration (NG), the previous generation of the 737, into 2024. In total, the airline will retire 26 737-700s in 2023.
Boeing stated that some 737 MAX deliveries would be affected by a recently discovered issue at Spirit AeroSystems, a Tier 1 supplier of the manufacturer. Due to a “non-standard manufacturing process [that] was used on two fittings in the aft section of certain 737-7, 737-8, and 737 military derivative aircraft”, according to Boeing’s financial filings for Q1 2023, the delays will remove approximately 9,000 seats from its customers’ summer schedules, the manufacturer’s previous statement said.
In Q1 2023, its capital expenditures, mainly consisting of aircraft-related spending, plus technology, facilities and operational investments, were $1 billion. The company’s net change in cash and cash equivalents was -$1.1 billion during the quarter, with the airline having $8.3 billion of cash and cash equivalents at the end of the three-month period.
For 2023, Southwest Airlines predicts its capital expenditures to be $3.5 billion, whereas previously it had expected to spend $4 billion.
“This assumes approximately $2.3 billion in aircraft capital spending, compared with its previous guidance of approximately $2.8 billion, and continues to assume approximately $1.2 billion in non-aircraft capital spending, which includes tens of millions in operational disruption-related investments,” the airline stated.
Southwest Airlines quarterly loss
By the end of Q1 2023, Southwest Airlines had carried 30.2 million passengers and operated 793 aircraft. Nevertheless, it ended the quarter with a net loss of $159 million, something that was “expected,” according to Bob Jordan, the President and Chief Executive Officer (CEO) of Southwest Airlines.
“As expected, we incurred a first quarter 2023 net loss that resulted from the negative financial impact of approximately $380 million pre-tax, or $294 million after-tax, related to the December 2022 operational disruption,” said Jordan, adding that the bulk of the impact “was driven by a negative revenue impact of approximately $325 million”. The executive also added that this was the result of “of cancellations of holiday return travel and a deceleration in bookings for January and February 2023 travel”.
However, Jordan stated that “travel demand and revenue trends in March 2023 were strong and resulted in solid profitability for the month and record first quarter revenues”.
During the quarter, Southwest Airlines responded to the operational meltdown it had experienced in December 2022 and reviewed its operations. The carrier issued an action plan outlining ways in which it would improve winter-time operations, accelerate operational investments and enhance cross-team collaboration.
The operational meltdown resulted in more than 16,700 flights being canceled between the December holidays, costing the airline more than $800 million.
“While we are mindful of the uncertain economic environment, demand for domestic air travel remains strong, thus far. Our goal remains to manage inflationary cost increases and maintain our competitive cost advantage,” Jordan concluded.