Southwest Airlines grapples with financial fallout from Boeing 737 Max grounding
Airlines are struggling to deal with the financial fallout from the extended grounding of the Boeing 737 Max commercial jetliner, now in its seventh week. Southwest and American Airlines, the two U.S. airlines that owned 737 Max 8 aircraft when they were grounded on March 13, both report earnings this week.
In a quarterly earnings report released Wednesday, Southwest reported revenue of $5.1 billion for the first three months of 2019, reflecting a 4.1% increase compared with the same period a year ago.
The company has canceled all flights involving 737 Max 8 aircraft through Aug. 5. The airline is waiting for Boeing and the Federal Aviation Administration to approve a software fix and new pilot training course designed to fix the plane’s flight control systems, which were implicated in two deadly plane crashes that killed 346 people in Indonesia and Ethiopia.
“Following a rescission of the Federal Aviation Administration (FAA) order to ground the MAX, we will return the aircraft to service once we are confident that we are in compliance with all necessary FAA directives and all necessary Pilot training has been completed,” Southwest Airlines CEO Gary Kelly said in a news release. “Safety is our top priority, and that commitment will never be compromised.”
The company is struggling to deal with the business disruption caused by more than 10,000 flight cancellations arising from the 737 Max grounding. The company disclosed in a news release Wednesday that the grounding ― together with some unrelated maintenance disruptions, the U.S. government shutdown, some severe weather and softer demand for leisure travel ― collectively cost the airline more than $200 million in revenue.
American Airlines, which has canceled about 1,200 flights as a result of the grounding, declined in its most recent financial filing to provide estimates of the precise financial impact the grounding would have. The company is likely to face questions from investment analysts in an earnings call Friday morning.
Cowen Airline Analyst Helane Becker lowered her forecast for American Airlines’ 2019 earnings by 9%, owing to reduced capacity that was caused by the grounding and higher fuel costs.
In a call with investors Wednesday, Boeing CEO Dennis Muilenburg expressed “deep regret for the impact that this has had on our airline customers and their operations, and the impact it’s had on the flying public,” saying the company has been working closely with airlines to minimize the impact on flyers.
Airlines “have been working with us through this period,” Muilenburg told investors. “It’s been difficult. It’s been challenging for all of us, but we have a mutual respect based on the health of this industry and the important work that we do around the world.”