Summary
- Despite a Q1 2024 net loss, Southwest Airlines ended with healthy profits and margins in March.
- Southwest Airlines will potentially have fewer aircraft in 2024 due to delivery delays from Boeing.
- The airline converted 19 Boeing 737 MAX 7 orders to 737 MAX 8 orders in April 2024, with the former still not being certified by the FAA.
Southwest Airlines ended Q1 2024 with a disappointing net loss, according to the airline’s President and chief executive officer (CEO), Bob Jordan. While the carrier was profitable in March, Southwest Airlines will have to adjust to significant aircraft delivery delays, which will see its fleet actually shrink in 2024.
Healthy profits and margins in March
According to Jordan, even if the Q1 2024 net loss of $231 million was disappointing, the airline ended the quarter with healthy profits and margins in March. However, going forward, Southwest Airlines will have to focus on what it can control, with the CEO adding that it has already taken swift action to address financial underperformance.
Photo: Markus Mainka | Shutterstock
In Q1 2024, the airline earned $6.3 billion in revenue, a 10.9% increase Year-on-Year (YoY). However, its cost ballooned by 12.2% YoY to $6.7 billion, meaning that its operating loss worsened, going from $284 million in Q1 2023 to $393 million in Q1 2024. Subsequently, its net loss has also deteriorated, with Southwest Airlines losing $159 million in Q1 2023.
Last year, the airline was still dealing with the fallout of its operational meltdown in December 2022, which had a negative financial impact of $380 million pre-tax or $294 million after tax. The majority of that was driven by a negative revenue impact of around $325 million due to cancelations and a slow down in bookings.
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The carrier also had a record first-quarter revenue.
Shrinking fleet
Southwest Airlines will continue facing headwinds in 2024, especially with Boeing struggling to deliver aircraft on time. According to the airline’s filing, it ended the three-month period with 819 Boeing 737 aircraft, and it plans to finish 2024 with 802 aircraft in its fleet, down from its previous expectation of a year-end fleet of 814 aircraft.
As a result, its available seat miles (ASM) will be up only 4%. Previously, the airline expected its capacity, measured in ASMs, to increase by 6% YoY. In Q1 2024, its capacity measured 42.2 billion, or 11% more YoY, with 40.8 million passengers boarding Southwest Airlines aircraft during the first quarter of the year.
Photo: Orlando International Airport
Nevertheless, Southwest Airlines said it had received five Boeing 737 MAX 8 aircraft while also retiring three 737-700s. Now, the company plans to receive 20 aircraft from Boeing, significantly fewer than its previous expectation of 46 Boeing 737 MAX 8s in 2024. Contractually, the plane maker was obliged to deliver 85 aircraft in 2024, split between 27 737 MAX 7 and 58 737 MAX 8.
“As a result of Boeing’s delivery delays, the Company has conservatively re-planned its capacity and delivery expectations for the remainder of this year and next. However, there is no assurance that Boeing will meet this most recent delivery schedule.”
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Southwest Cuts Boeing 737 MAX Delivery Expectations Again
Southwest Airlines assumes Boeing will not deliver a single 737 MAX 7 this year.
Converting 737 MAX 7 orders
Since Boeing has not certified the Boeing 737 MAX 7, for which Southwest Airlines holds the majority of orders, the airline signed a supplemental agreement with Boeing related to its 737 MAX 7 and 737 MAX 8 contractual order book.
Photo: Boeing
The agreement has resulted in Southwest Airlines converting 19 Boeing 737 MAX 7 orders to 19 737 MAX 8 orders as of March 31, 2024, while also shifting one 737 MAX 8 option from 2025 to 2026. As a result, Boeing is now committed to delivering 73 737 MAX aircraft in 2025 (previously 74) and 86 737 MAXs in 2026 (previously 85). At the same time, Southwest Airlines warned that the updated order book does not account for potential delivery delays, with the airline holding ongoing discussions on the matter with Boeing.
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Southwest Isn’t Planning To Start Boeing 737 MAX 7 Flights This Year
The low-cost carrier also removed six aircraft from its contractural order book.
