Southwest Airlines (LUV) cut its forecast for the first quarter, citing in part the grounding of its 737 MAX jet fleet. Southwest is the first carrier to formally report on the impact on its earnings from the removal of the Boeing (BA) aircraft from service.
UPDATED GUIDANCE: Southwest Airlines was the first major airline to formally cut its financial outlook in the wake of the recent Boeing 737 MAX groundings. The Boeing jets were grounded after scrutiny of the model associated with two fatal plane crashes in less than five months.
For the first quarter, Southwest cut its capacity outlook to 1% growth from a previous range of 3.5%-4%. Southwest also anticipates revenue per available seat mile, or RASM, to grow by 2%-3%, lower than its previous guidance of 3%-4%. The reduction to the company's previous year-over-year RASM guidance is largely due to lost passenger revenue as a result of flight cancellations from the unscheduled maintenance disruptions, as well as further softness in leisure-oriented passenger demand and yields, Southwest said in a regulatory filing. Aside from this impact, the company said it has been "encouraged" by the continued strength in year-over-year close-in yields in Q1.
In the period from mid-February to March 31, Southwest said it expects flight cancellations of about 9,400 flights due to inclement weather and other unanticipated events, such as the grounding of the Boeing 737 MAX and unscheduled maintenance disruptions. Southwest said it expects sales to pick up in the second quarter based on current revenue trends and bookings.
Unit costs, excluding fuel and oil expenses, are expected to grow 10% year over year, up from Southwest’s previous forecast of a 6% rise.
Southwest said in the regulatory filing that, as previously disclosed in February, the company experienced softness in passenger demand and bookings related to the government shutdown, resulting in an estimated $60M negative revenue impact Q1. Since then, Southwest said Q1 revenue trends have also been negatively impacted by more winter weather disruptions than expected, unscheduled maintenance disruptions, further softness in leisure-oriented passenger demand and yields, and the MAX groundings. In total, it said the additional impacts are estimated to result in approximately $150M in additional lost revenues in Q1.
WHAT'S NOTABLE: The updated guidance comes a day after Southwest made an emergency landing of the Boeing 737 MAX at Florida's Orlando International Airport following an engine problem that forced pilots to abort the flight, CNBC reported. The FAA said the grounding of the jet in Orlando is a result of an engine issue unrelated to recent crashes, CNBC said, adding that the jet was not carrying passengers at the time of the emergency landing.
Nearly two weeks ago, Air Canada and United Airlines (UAL) were the first major North American carriers to warn of negative impacts on business due to the grounding of Boeing 737 MAX jets, Reuters reported. Air Canada suspended its 2019 financial forecasts, saying it will adapt a contingency plan to address the current uncertainty, while United said it expects an adverse effect on its operations if the planes remained grounded heading into the peak summer travel season, the report noted.
American Airlines (AAL), meanwhile, said earlier this week it was cancelling about 90 flights per day.
PRICE ACTION: Shares of Southwest have reversed course and are now up 2.7% to $50.07 in morning trading.
OTHERS TO WATCH: Publicly traded companies in the space include Alaska Air (ALK), American Airlines, Delta Air Lines (DAL), JetBlue (JBLU), Spirit Airlines (SAVE) and United Continental.
Southwest
+1.33 (+2.73%)
Boeing
+0.16 (+0.04%)
JetBlue
+0.24 (+1.52%)
Delta Air Lines
+1.31 (+2.67%)
United Airlines
+1.58 (+2.04%)
American Airlines
+0.8 (+2.65%)
Spirit Airlines
+1.065 (+2.03%)
Alaska Air
+0.73 (+1.35%)