Southwest targets growth despite heavy MAX costs

MAX groundings and government shutdown among 'unexpected headwinds' hitting the airline for $200m in Q1 2019.

Southwest Airlines is still expecting to grow overall 2019 capacity and air service miles (ASMs) despite the heavy financial losses and cancellations caused by the Boeing 737 MAX groundings in the first quarter of 2019.

The carrier, which has more MAX routes in its network than any other, lost about $200m as a result of the groundings, along with the government shutdown, severe winter weather, a general softening of US leisure travel and other factors.

Second quarter 2019 ASMs fell by 2-3 percent year-on-year, rationalising full-year growth to 2-3 percent overall.

It will also reconsider its delivery and retirement schedule based on the “uncertain” timeline for the MAX jets to re-enter service.

Gary C. Kelly, chairman of the board and chief executive officer, said: "The flight cancellations in first quarter 2019, and the resulting lower available seat mile (ASM, or capacity) growth, year-over-year, created significant pressure on our first quarter unit costs.

“Flight cancellations are expected to drive unit cost pressure for the duration of the MAX groundings.”

Overall, the business posted a record Q1 operating revenue of $5.1bn. Passenger revenues were $4.75bn, up from $4.59bn in the corresponding period last year.

Despite the fall in ASM and a 0.5 percentage point decrease in load factors to 81 percent, revenue per ASM (RASM) grew by 2.7 percent driven by improved yields. Southwest expects total RASM to improve by 5.5 to 7.5 percent for 2019

Kelly added: "While we are adjusting our 2019 plans for the MAX groundings, our long-term financial goals remain unchanged: maintain a strong balance sheet, investment-grade credit ratings, and ample liquidity; generate robust operating and free cash flows; grow earnings, margins, and capital returns; and maintain healthy shareholder returns.”

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