Southwest Airlines profits tumble after Boeing 737 Max grounding drove up costs

Earnings


Ground operations employees load baggage onto a Southwest Airlines Boeing 737 aircraft on the tarmac at John Wayne Airport (SNA) in Santa Ana, California.

Patrick T. Fallon | Bloomberg | Getty Images

Southwest Airlines‘ fourth-quarter profit tumbled more than 21% after the grounding of the Boeing 737 Max drove up the Dallas-based carrier’s costs, it said Thursday.

Southwest has the most Boeing 737 Max planes in its fleet and on order than any other U.S. airline. The planes have been grounded since March after two fatal crashes — one in Indonesia in October 2018 and another in Ethiopia less than five months later — killed 346 people.

The financial impact from the grounding isn’t over yet for Southwest, the carrier warned.

Boeing this week said it doesn’t expect regulators to allow the fuel-efficient planes to fly again until midyear, meaning carriers won’t have the Max in time for the peak summer travel season.

Southwest’s net income fell 21% to $514 million from a year earlier on revenue of $5.73 billion, which was slightly ahead of analysts’ estimates and up 0.4% on the year. The grounding reduced Southwest’s operating income by $313 million in the fourth quarter and $828 million for all of 2019, the carrier said.

Southwest has pulled the planes from its schedules until early June but said Thursday that it expects to make another adjustment based on Boeing’s new timeline.

The carrier last month said it reached an agreement with Boeing for the financial damages from the grounding last year, and it expects more money from the manufacturer to compensate it for additional costs this year.

Southwest said its costs rose 7.7% last year from 2018 mainly because of the Max grounding.

Southwest CEO Gary Kelly said in a statement the company will “continue to incur financial damages in 2020, and we will continue discussions with Boeing regarding further compensation.” He added that “no estimated settlement amounts relating to financial damages beyond 2019 have been factored into our 2020 outlook.”

The airline posted earnings of $1.16 a share on an adjusted basis, higher than the $1.09 a share analysts expected.



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