Southwest Extends Max Cancellations & Plans Newark Pullout

Business Travel News 7/25/2019

AAA World Article

Southwest Airlines has removed Boeing 737 Max aircraft from its schedule for the rest of this year and is pulling its operations from Newark Liberty International Airport as part of its capacity adjustments with the groundings.

Southwest CEO and Chairman Gary Kelly said the latest guidance from Boeing indicates that the Max will receive regulatory approval to fly again sometime in the fourth quarter of this year. Southwest, the largest U.S. operator of the aircraft type, then likely will have to comply with FAA directives like software upgrades and pilot training, which will take a month or two to complete, he said. The Max is now off Southwest's schedule through Jan. 5.

The longer Max aircraft remain grounded, the more complicated schedule adjustments become for Southwest, as the carrier not only has to deal with the 34 Max aircraft in its fleet but also those that had been expected to enter the fleet over the coming months.

In all, Southwest now projects its 2019 capacity will be down between 1 percent and 2 percent year over year. Prior to the Max grounding, it had planned to increase capacity 5 percent year over year. In light of the fewer aircraft at its disposal, Southwest has decided to integrate its New York operations to LaGuardia Airport, ending service at Newark on Nov. 3. Southwest began service at Newark in 2010, when it acquired 18 slot pairs following the United-Continental merger; at that time, the carrier had limited presence at LaGuardia, where it had started service a year prior, Kelly said. Since then, Southwest has grown at LaGuardia via its acquisition of AirTran and via slots picked up following the American Airlines-US Airways merger, leaving Southwest with "a significantly larger presence at LaGuardia than we had contemplated," he said.

Financial performance at Newark, meanwhile, has "underperformed," and the carrier also has a single-airport presence in other major cities, including Chicago, Dallas and Houston, Kelly said. "New York is a huge market for us, but it is a destination market, and with our relatively small position at Newark and LaGuardia, we are unable to add meaningful flight capacity. LaGuardia is the choice for the vast majority of our customers, and we need the airplanes."

Southwest is not, however, cutting back on its Hawaii growth plans, despite delays in expansion due to the Max groundings. The carrier will announce new flight plans to the islands over the next few months. In terms of challenges, Kelly said the Max "is the only issue that we're dealing with" and that "everything else is rock solid." On the second-quarter earnings call, executives said both business and leisure demand were strong and passenger revenue increased 2.4 percent year over year during the quarter to $5.5 billion. Traffic declined 1.7 percent year over year, and capacity dropped 3.6 percent. Load factor rose 1.7 percentage points to 86.4 percent. Southwest's average fare increased 3.4 percent to $157.10. Southwest reported a net income of $741 million for the quarter, up from $733 million in the second quarter of 2018.

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