Airlines

Southwest Airlines first-quarter earnings take a hit from 737 Max groundings, government shutdown

Key Points
  • The carrier has grappled with the prolonged Boeing 737 Max groundings since mid-March.
  • Southwest, which has 34 of the 737 Max jets, extended cancellations through Aug. 5.
  • The Max comprises less than 5% of its fleet.
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Southwest CEO Gary Kelly on Q1 earnings, Boeing 737 Max

Southwest Airlines first-quarter earnings took a hit from the prolonged grounding of the Boeing 737 Max jets that forced it to cancel more than 10,000 flights during the quarter. The U.S. government shutdown and maintenance issues also ate into the bottom line, the company said Thursday.

The airline, which has 34 of the Max jets, said it lost more than $200 million in revenue during the quarter as a result. The shutdown and groundings also impacted the company's revenue per available seat mile by 2 points.

The carrier said it's extending Max cancellations through Aug. 5. Still, its earnings and revenue were better than expected and its shares rose 2.5% in premarket trading Thursday.

Here's what the airline reported, versus average analysts estimates compiled by Refinitiv:

  • Adjusted earnings: 70 cents vs 61 cents per share forecast
  • Revenue: $5.15 billion vs $5.12 billion forecast

The 737 Max has been grounded since mid-March after the jet's anti-stall software was implicated in two fatal crashes in Ethiopia and Indonesia.

Southwest CEO Gary Kelly said the company was an "all-Boeing carrier" but it didn't mean the airline would use the 737s in "perpetuity."

"We're not happy about this Max situation obviously, who is. Two tragic accidents," he said on CNBC's "Squawk on the Street." "Our negotiations and our relationship with Boeing is something I'll take up with [the company] privately."

At the same time, he said he's happy with how Boeing is handling the crisis and thinks the carrier's "great historic partnership" will continue in the future.

"When we launched Max airplane, we felt like it was the best single-aisle airplane in the world, and we still feel that way," he said.

Raymond James downgraded Southwest stock and lowered its earnings projections in April, citing the Max groundings.

It's unclear when the Max will return to the skies. Boeing, which expects a hit of more than $1 billion from the grounding, said it's completed 96 flights totaling over 159 hours of air time with the new Max software fix.

"Flight cancellations are expected to drive unit cost pressure for the duration of the MAX groundings," Kelly said in a statement. He described the results as "solid" despite several challenges throughout the quarter.

"I am especially proud of our nearly 60,000 employees for the commendable job under operationally difficult circumstances," he said.

Fuel costs are expected to rise next quarter with second-quarter fuel efficiency to be flat-to-down 1 percent, year-over-year after the removal of its Max jets, which use less fuel than other planes.