Southwest Air 3Q Profit Spikes Despite 737 Max Groundings

Associated Press
October 24, 2019 - 10:00 am
 Southwest Airlines

AP Photo/Ross D. Franklin, File

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DALLAS (AP) — Southwest Airlines said Thursday that third-quarter profit rose 7% on record revenue despite taking a hit from the grounding of its Boeing 737 Max aircraft fleet.

CEO Gary Kelly said Southwest is in discussions with Boeing about compensation for damages related to the grounded plane, which has forced the airline to cancel thousands of flights since March.

"We expect the damages to continue to grow into 2020," Kelly said.

Southwest said the grounding cut operating income by $210 million in the third quarter, and $435 million since March.

Southwest had 34 Max jets — more than any other airline — back in March and had expected to receive more by now. Instead, it has removed the Max from its schedule through early February as it waits for Boeing to finish updating the plane and getting approval from federal safety regulators. The airline estimates it will need one to two months for pilot training and other preparation.

Strong travel demand and rising ticket prices helped offset its Boeing issues.

On Thursday, Dallas-based Southwest Airlines Co. reported third-quarter profit of $659 million, or $1.23 per share. That easily topped Wall Street expectations for $1.09, according to a survey by Zacks Investment Research.

Revenue rose 1% to $5.64 billion despite a 2.9% reduction in passenger-carrying capacity due to the Max grounding. The revenue was in line with analysts' expectations.

The average fare rose 1.7% to $155.95. A closely watched figure, revenue for each seat flown one mile, rose about 4%. Southwest predicted it will be flat to up 2% in the fourth quarter.

Southwest expects that passenger-carrying capacity in the fourth quarter will be as much as 1% below the same period last year, an unusual trend at an airline that has grown rapidly through much of its history.

In trading before the market opened Thursday, Southwest shares were up 86 cents, or 1.6%, to $54.10.