Southwest Airlines Boeing 737-7
Southwest Airlines has placed an order for 108 Boeing 737-7s, raising its orderbook for the MAX variant to over 300.
The increase comes as the variant nears long-awaited certification, and Southwest works through a fleet modernization. Under currently anticipated timelines for certification approval, Southwest could see -7 deliveries begin in early 2024.
“We’ve got a new fleet plan that takes us through 2031 at very attractive pricing, and there is a lot of flexibility in the new orderbook,” President and CEO Bob Jordan said during a third quarter (Q3) earnings call on Oct. 26. “We can flex up and we can flex down as you see demand trends changing both ways.”
Overall Southwest now has 573 firm orders for MAX jets, a combination of -7s (302) and -8s (271), plus options for 207 of either variant. Through Sept. 30, it has taken delivery of 69 -8s and expects to receive a total of 85 in 2023, simultaneously accelerating retirements of 737-700s from 26 to 41 by the end of the year. Its updated orderbook projects 27 -7 deliveries in 2024, while noting the dependence on FAA approvals.
“Goal number one was to just get to orderly, steady growth in the fleet plan,” Jordan told investors. “We were stacking a lot of aircraft up that were delayed. I think it pushed beyond even what you saw in the plan, a delivery expectation of 143, I think, in 2024—which of course we’re not doing ... The new order is all about reflowing this so that the growth is orderly and steady, and we have access to a lot of aircraft at attractive pricing, and we have a lot of flexibility.”
In addition to reflowing its orderbook, the carrier said recent completion of its network restoration plan positions the business well for optimization. In 2024 it aims to slow its ASM growth rate to absorb current capacity, mature development markets and design schedules for current travel patterns. “We are carefully evaluating the current macro environment and post-pandemic travel behaviors to create the best possible plan for the company,” Jordan said. “We will be relentless in our focus to wring out inefficiencies, drive productivity, increase reliability and ... return margins to historic levels.”
In the fourth quarter (Q4) it expects ASMs to be up 21% year-over-year, planning for “sequentially lower capacity growth, year-over-year,” in each quarter of 2024, with a target of mid-single-digit year-over-year ASM growth in the second half of next year.
Revenues in Q3 were driven by solid leisure demand, and Southwest reports booking strength for the December holiday period ahead. The airline has confidence in its preparedness for the winter travel season, in the wake of last year’s operational meltdown with investments in resources, technology, and training to bolster operational resilience. “We are now so much better prepared for these extreme weather events,” said COO Andrew Watterson. Southwest described “stable business travel” that is improving but still below historical levels. Jordan noted, “that last 10 to 15 points of business recovery is a little bit stubborn.”
In Q3, Southwest recorded operating revenues of $6.5 billion up 4.9% year-over-year, on a 10% increase in operating expenses to $6.4 billion. Profits were bolstered by “multiple records” set from its ancillary products and loyalty program, executives noted, including an all-time-best quarterly ancillary revenue with 24% year-over-year growth. Q3 net income fell 30.3% year-over-year to $193 million.
The carrier on Oct. 25 announced a tentative agreement (TA) with its flight attendants, represented by the Transport Workers Union Local 556. Q3 results included an approximate $96 million expense driven by an increase in the contract ratification bonus offered to Flight Attendants as part of the TA. Its pilots remain in contract negotiations, and Watterson described, “a small but difficult list of things remaining to close out.”
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