Southwest cuts revenue outlook on Boeing 737 Max groundings

Earnings

Southwest Airlines shares slipped 1 percent in premarket trading on Wednesday after the low-cost carrier trimmed its revenue forecast following the grounding of its Boeing 737 Max planes.

The Dallas-based airline expects its revenue per available seat mile, a key industry metric of how much an airline generates for each seat it flies a mile, to grow 2 to 3 percent compared with an earlier forecast of as much as 4 percent growth.

The Federal Aviation Administration grounded Boeing 737 Max planes earlier this month following two fatal crashes. Investigators have said there are “clear similarities” between an Ethiopian Airlines crash of a 737 Max on March 10 and another deadly crash of that model of plane in Indonesia in October.

Southwest operates an all-Boeing 737 fleet, and has 34 737 Max 8 planes in its fleet of about 750 aircraft.

Southwest said its operating costs, excluding fuel, in the quarter will likely rise 10 percent from a year ago, up from a previous forecast of a 6 percent year-over-year increase.

The airline said it expects to lose $150 million in revenue in the first quarter of 2019, up from a February estimate of $60 million, due to weather-related cancellations, maintenance issues, weak leisure-travel demand and the Max groundings, the airline said.

It is a small amount compared with the $5.3 billion in revenue analysts expect Southwest to generate in the first three months of 2019, but investors are focused on how the suspension of the 737 Max planes will financially impact airlines.

American Airlines earlier this week said it planned to cancel about 90 flights a day through April 24 due to the grounding of the Max planes. That period encompasses the busy Easter and Passover travel period.

Boeing is scheduled on Wednesday morning to outline the changes to a piece of software that Indonesian investigators have indicated that it played a role in the Lion Air crash in October, raising worries about links between the two fatal crashes.

“Due to the current uncertainty regarding the duration of the Max groundings and any requirements for reinstatement of the aircraft into service, it is difficult for the company to forecast the impact of the MAX groundings beyond first quarter 2019,” Southwest said.

As of March 13, Southwest said it had 41 deliveries of Max planes scheduled for this year as well as firm orders for 221 firm orders, 115 options for the aircraft and deliveries for three more planes past 2019.

Southwest reports first-quarter earnings in late April.

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