Despite its love for the Boeing 737, Southwest Airlines announced on 28th April that it would defer some of its 737 MAX orders. The airline was due to receive over 100 MAX aircraft between now and the end of 2021. However, the new delivery schedule will see it take just 48 new 737 MAX aircraft in that period.
Southwest cuts its MAX deliveries
Southwest Airlines has long been recognized for its affinity with the Boeing 737. It owns 740, according to Planespotters. 34 of those 737s are MAX 8s, and that number is due to rise. However, in the past few days, Southwest has announced that it will be taking far fewer MAX deliveries this year than anticipated.
Between 2020 and the end of 2021, the low-cost carrier was due to take 107 MAX aircraft. 62 of those would have been delivered this year. Yet, with the development of the coronavirus, Southwest has been forced to rethink its strategy.
It’s cutting costs where it can and making sure that its operation is viable. Speaking in a Q1 2020 Earning Call, Gary C. Kelly, the Chairman and Chief Executive Officer of Southwest Airlines, said that the airline’s strategy at present “is to have fewer airplanes, not more airplanes.”
As a result, Southwest expects to receive no more than the 27 new 737 MAX aircraft in 2020, which are those that Boeing has already produced. These aircraft are currently sitting in Boeing’s storage facility. In addition, Southwest will take ownership of 16 737 MAX from lessors. However, it says that its preference is always for new Boeing aircraft.
Southwest’s relationship with Boeing is still strong
Southwest’s decision to delay its deliveries has nothing to do with a change of heart for Boeing. The airline maintains a good relationship with the manufacturer, and the 737 MAX is still the best choice for the airline.
In the earnings call, Michael G. Van de Ven, Southwest’s Chief Operating Officer reassured that:
“…the MAX is a really good airplane. We’ve got a great price on the airplane. It’s fuel-efficient, it’s got great engine performance, the engine costs are really good. And just in the long-term of Southwest Airlines, it will be in our best position to bring that airplane into the fleet [but] it doesn’t make a lot of sense to go bring additional airplanes in from Boeing.”
The latest developments on aircraft deliveries simply show Southwest’s efforts to save cash where it can in a turbulent time. It’s clear that getting new aircraft has fallen down the list of priorities.
First, Southwest wants to ensure that it’s employees and customers are safe. Secondly, it’s looking to mold and adapt its operation to developments in the industry. Only then can it manage its fleet.
Southwest has plans to cut even more expenditure
The decision to halt some 737 MAX deliveries comes as part of a broader strategy to improve Southwest’s financial outlook. It is expecting part of a US government $25bn airline bailout. However, it also has to take matters into its own hands to minimize the cost of the coronavirus.
It says that it has cut out all spending this year that exceeds $1 billion to protect itself once travel restrictions are lifted. Boeing deliveries come into this.
Southwest’s CEO says that April’s cash burn was $900m. It’s looking to drive this figure down in May and June through further schedule cuts and methods of increasing revenues. On the call, Gary C. Kelly continued:
“…including spending cuts, schedule reductions, fuel price declines and the elimination of shareholder returns, we reduced our planned spending for 2020 by over $6 billion.”
It is still unclear what will happen to the remainder of Southwest’s deliveries post-2021. Its approach, for now, is measured, and as the industry picks back up, it will likely reassess future delivery schedules.
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