Southwest falls as Boeing woes force hiring freeze, cost review

Southwest Airlines Co. plans to cut capacity this year, halt most hiring and review its spending plans in response to reduced aircraft deliveries from Boeing Co., the planemaker facing regulatory and criminal investigations in the wake of a near-catastrophic accident in January.

The carrier expects a net loss this quarter and said in a regulatory filing Tuesday that it’s re-evaluating prior guidance for the full year because of the slowing growth. Hiring has already stopped for multiple work groups, including pilots and flight attendants, and Southwest expects to end the year with lower headcount than in 2023.

Southwest shares fell as much as 12% in New York, their biggest intraday drop since June 2020. The stock had risen 17% this year through Monday’s trading.

The carrier’s downcast outlook highlights how the crisis at Boeing is rippling through the broader aviation industry. The planemaker has been mandated by regulators to cap output of its bestselling 737 Max model, leaving many customers short of much-needed aircraft at a time when demand for fuel-efficient jets remains high. Alaska Airlines, the airline that suffered the accident on Jan. 5 with a Boeing 737 Max 9, also said Tuesday its capacity outlook remains “in flux” because of uncertainty around deliveries.

Southwest said it doesn’t expect to receive any of its long-awaited 737 Max 7 aircraft this year, and that deliveries of other Boeing models will come in at just 46 units, down from the 79 previously anticipated. Boeing has vowed to double down on its safety procedures as regulators put its manufacturing processes under the microscope, faulting the planemaker for sloppy standards at its factories.

Flat Revenue

Southwest already reworked its fleet plan last year based on earlier delivery delays. The company said in January that it plans to end 2024 with an employee headcount flat to below 2023 as part of cost-control efforts.

The US Justice Department has opened a criminal investigation into the January accident, in which a fuselage panel flew off of an almost-new 737 Max operated by Alaska Air Group Inc. A temporary grounding of all Max 9s after the incident reduced profits at Alaska Air by $150 million, the carrier said Tuesday. The carrier has returned its full fleet to service and restored its schedule, Alaska said in a separate regulatory filing. 

Alaska said it has received partial compensation from Boeing and its adjusted loss per share expectation reflects the outlay from the planemaker.

At Southwest, schedule changes planned in the second half of the year will reduce capacity at least one percentage point in 2024 compared to 2023 as the aircraft delivery schedule continues “to be fluid.”

Upper Range

Southwest’s unit revenue this quarter will be flat to up 2%, compared with an earlier forecast for an increase of up to 4.5% on lower-than expected leisure passenger volumes. Capacity will increase 11%, up from an earlier plan for 10%, and unit costs will increase 6% instead of as much as 7% earlier. Second-quarter bookings are ahead of normal, Southwest said.

The updates came ahead of an industry conference Tuesday in New York featuring many of the largest US airlines. Separately on Tuesday, US government data showed airfares rose a brisk 3.6% in February compared with the prior month, the biggest increase since May 2022.

American Airlines Group Inc. expects a first quarter loss at the low end of prior guidance for a deficit of 15 cents to 35 cents a share, according to a regulatory filing Tuesday. Delta Air Lines Inc. said it expects total revenue growth in the first quarter in the top half of its guidance range. 

JetBlue Airways Corp. said first-quarter revenue will decline as much as 7.5% from a year ago, compared with a prior outlook for a drop of as much as 9%. Non-fuel unit costs will climb as much as 9.5%, versus earlier guidance for an increase of up to 11%, and capacity will decline between 3% and 4%, less than the previously expected decrease of as much as 6%.