Southwest CEO says he was blindsided by recent Boeing Max moves

Boeing Co.’s recent announcements about the 737 Max came as unpleasant surprises to the grounded jetliner’s biggest operator: Southwest Airlines Co.

Gary Kelly, Southwest’s chief executive officer, said he was caught off guard early this month when Boeing reversed course and recommended flight-simulator training before pilots fly the Max. Kelly got another jolt this week when Boeing said the plane’s return will probably slip to midyear.

“We ought to be able to get it done earlier than that,” Kelly said in an interview Thursday. “If you go back a month or month and a half, we thought we’d be ungrounded here in January. Now all of a sudden, in the space of 30 to 60 days, we’ve slipped six months? Why? What’s changed? As far as I can tell, nothing has changed.”

Kelly’s unusually candid comments about Southwest’s sole aircraft supplier reflect mounting airline-industry frustration with the grounding, which began in March after two Max crashes killed 346 people. The flying ban has stymied growth plans at Southwest, which, according to Kelly, has missed out on serving as many as 7 million customers.

He said some Max issues that have emerged recently shouldn’t necessarily hold up the process of certifying the plane, since they are unrelated to the Maneuvering Characteristics Augmentation System, which played a key role in the crashes.

“We just need to address the MCAS issue and get that to a certification flight,” he said. “If there are other issues on the airplane, they can be addressed. But I think there needs to be some clear thinking about what needs to impact the certification versus what does not.”

Simulator ‘Surprise’

Boeing didn’t immediately comment. The planemaker’s new CEO, Dave Calhoun, said Wednesday that the decision to push back expectations for the Max’s return was “a reality-based prognosis.” The delay was due primarily to the recognition that Max pilots would need simulator training and not because of any new glitch, he said.

Calhoun may be trying to “take some of the expectations off a February and March return, giving them room to get it done right,” Bloomberg Intelligence analyst George Ferguson said earlier this week. A more conservative approach would follow a series of disappointments last year when Boeing proved overly optimistic about when the Max would return.

But Boeing’s reversal on simulator training “was a surprise,” Kelly said. “In terms of what they’re communicating and their views, they’ve made a change: No simulator training and now recommending simulator training.”

Pilots at Southwest don’t see a need for it, he said. “We’d like the training to be driven by data, to be driven by facts.”

Still, the carrier already has arranged to receive three simulators in addition to the three it has now, and aims to have nine by the end of 2020.

Southwest, which has been a major Boeing customer for decades and operates an all-737 fleet, had 34 Max jets when the plane was grounded in March. The Dallas-based company was to have received 41 more before the end of 2019 and 38 this year.

Falling Capacity

Lacking those aircraft, Southwest’s seat capacity declined 1.6% instead of growing almost 5% as planned, according to a company earnings statement. Capacity will fall about 2% this quarter, well below earlier plans for 8% growth.

“What we can’t put a check mark on is: Are we meeting all our customers needs in all markets and can we expand our opportunities,” he said. “That is one big black X. We’ve kind of lost a year. Is that fatal? Absolutely not, but we’re going to have to work to catch up.”

Still, Kelly said it would be an uphill battle for the airline to add any Airbus SE planes to its fleet. The CEO committed last quarter to an in-depth evaluation of whether Southwest should veer away from operating just one aircraft type. Sticking with the 737 enables the airline to save on training, parts inventory and other costs.

“Just because we had a problem with the Max doesn’t mean we are lusting after a different supplier or airplane,” he said. “We’re going to look at this very carefully with a jaundiced eye.”

Southwest has reduced spending in other areas to offset an increase in costs for each seat flown a mile, a benchmark measure of airline efficiency. That yardstick has worsened because of the Max’s absence, given Southwest’s drop in capacity and need to continue flying older planes that burn more fuel.

The cost measure will rise as much as 8% this quarter, excluding fuel and employee profit sharing. The carrier may consider offering workers voluntary unpaid leaves of absence to reduce spending further if the Max grounding is prolonged, Kelly said.

But such action, if it occurred, would be temporary and limited to small work groups or a specific location because it probably wouldn’t produce much savings. Southwest has already slowed hiring and is counting on employee attrition to limit growth in the workforce.