Southwest Airlines is looking more likely than not to exercise its options and take delivery of 114 new Boeing 737 MAX aircraft next year. Incoming CEO Bob Jordan is the latest executive at the airline to indicate this is a growing possibility, but the airline has good reason to take all 114 of those planes. Here is why.
Southwest Airlines could take 114 aircraft next year
On Thursday, Southwest’s next CEO, Bob Jordan, spoke at the 14th Annual Cowen Global Transportation & Sustainable Mobility Conference. At the conference, he was asked about the airline’s Boeing 737 MAX order book and the potential to take 114 aircraft next year. He stated the following:
“I think the assumption would be as we sit here today…that we would, in all likelihood, take the 114 aircraft that we would take if we exercise all the options in ’22. So that’s a lot, and I think that would be a record year for us. We can absolutely do it, but it is a lot of work.”
The order book, as it stands, includes 67 firm orders for the smaller Boeing 737 MAX 7. There are also 47 options for Boeing 737 MAX 7s or MAX 8s, which, if all were exercised, would take the carrier to 114 new MAX jets in 2022. Southwest is still determining exactly where it will end up on the MAX split between the MAX 7 and MAX 8, but there are cases for the airline to take on either next year.
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The math surrounding the 114 planes
Mr. Jordan walked through the math surrounding the order. First, Southwest plans to continue replacing its Boeing 737-700s over the next 10 to 15 years. It had over 460 of the type in its fleet as of July. Some of these jets are starting to get old.
Data from ch-aviation.com shows that the airline’s 737-700s are, on average, 17 years old. Given how heavy Southwest uses its aircraft, this puts a lot of cycles on the aircraft and makes them ripe for replacement.
Mr. Jordan assumed roughly 30-35 aircraft being retired in 2022. Obviously, that final number will depend on the overall market. It could end up being higher or lower, especially if some aircraft have more expensive maintenance coming up, and Southwest does not see as strong of a return on those planes to justify paying that maintenance cost.
Assuming only 30 aircraft retirements, out of the 114 aircraft it could take, Southwest would net 84 new MAX jets. This may seem like a lot, but it is not necessarily what it seems.
Restoring the network
While Southwest Airlines is restoring the network in terms of overall capacity, it has not restored the network in terms of frequencies on routes. One of the ways the airline has come back in terms of capacity is with the addition of 18 new cities. While the network has a fair bit of breadth, it lacks depth.
Across the 18 new cities plus the investments in Hawaii, Southwest Airlines has devoted 92 aircraft redeployed during the crisis to serve the new cities and grow Hawaii. These 92 jets are, largely, then unavailable to bring back the network depth that Southwest wants.
With 114 aircraft, assuming only 30 737-700s are retired, Southwest will have 84 of the 92 aircraft it needs to bring back its pre-crisis network depth, which will go a long way to bring the airline’s schedule back to “normal” levels.
Mr. Jordan succinctly stated:
“So that’s why there’s just a tremendous focus on both recovering – or sort of getting the network back to normal – and then second, why we would be considering 114 deliveries next year because it’s going to take that plus more just to restore the network back to where we were in 2019 in terms of depth and recoverability. So we need to do it.
The bar is very low for the airline to exercise its options. Ultimately, it will come down to whether the airline believes it can afford the jets, whether there is a pressing need to add the planes back to the schedule, and whether it has the human and physical infrastructure to handle all 114 deliveries. If it can figure out those details, it is more likely that the airline will be taking a lot of MAX jets next year.
Do you think Southwest Airlines should exercise all of its Boeing 737 MAX options in 2022? Let us know in the comments!