Southwest won't fly Boeing 737 Max until 2020 and will end Newark flights

Key Points
  • Southwest will leave Newark and consolidate its New York operations at LaGuardia on Nov. 3.
  • The airline warned on higher costs and a capacity contraction due to the 737 Max grounding.
  • The carrier posts profits slightly higher than expected.
Southwest Airlines Boeing 737 MAX aircraft are parked on the tarmac after being grounded, at the Southern California Logistics Airport in Victorville, California on March 28, 2019.
Mark Ralston | AFP | Getty Images

Southwest Airlines on Thursday said it won't fly the grounded Boeing 737 Max until next year, warned about higher-than-expected costs and announced it's pulling out of Newark Liberty International Airport this November as the grounding of the new jets drags on longer than expected.

Southwest dropped the Max from its schedules until Jan. 5, later than any U.S. airline, a move that means the low-cost carrier — and passengers — will face canceled flights and potentially higher fares during the busy end-of-year holiday travel period. The Dallas-based carrier expects its capacity this year to fall 1% to 2% in 2019 from last year, down from a forecast of a 5% expansion.

Southwest's measures and outlook show how airlines' struggle with repeated delays to the planes' return to service is getting worse, crimping their growth at a time of strong demand for air travel.

American Airlines said it took a $175 million-hit to pretax income in the second quarter because of the thousands of cancellations it was forced to make in the second quarter with the planes out of service. The extensive grounding will hit American's pretax earnings by $400 million this year, the airline estimated, up from its April forecast of a $350 million reduction. American still beat profit estimates, thanks to strong travel demand.

Regulators worldwide grounded the Boeing 737 Max in mid-March after two fatal crashes and have not said when they will allow the jets to fly again. Southwest has more Maxes than any other U.S. airline — 34 of its 750 planes at the time of the grounding, now in its fifth month. Southwest is Boeing's biggest customer with an all-Boeing 737 fleet and ordered the new, more fuel-efficient Max planes, touting their cost savings.

Watch CNBC's full interview with Southwest CEO Gary Kelly on Q2 earnings
Watch CNBC's full interview with Southwest CEO Gary Kelly

Boeing is testing a fix for software on board its 737 Max that investigators implicated in the two air disasters. Together, the two crashes — one in Indonesia in October 2018 and another in March of this year —killed all 346 people on board. The manufacturer aims to submit its fix and other materials needed get the planes flying again to the Federal Aviation Administration in September.

Boeing warned it could suspend production of the 737 Max, already coming out at a reduced 42 a month, if delays continue. It also said that its airline customers may have to wait longer for their planes, a signal that travel disruptions could last well into 2020.

"We're unhappy that it's taken so long," Southwest CEO Gary Kelly said in an interview with CNBC.

Kelly said that once the Federal Aviation Administration clears the plane to fly, the airline would need a month or two to get the planes back in service. American Airlines executives have also noted that it would take a month or more from the time regulators allow the planes to fly again for it to return to commercial service as it has to train its pilots and perform other tasks.

Southwest shares were up 1.9% in afternoon trading after the airline reported second-quarter revenues of $5.9 billion, slightly below estimates, its profits beat and the airline said the Max grounding would force it to reduce capacity this year.

The "extensive delays" in the Max planes' return to service prompted Southwest to take "necessary steps to mitigate damages and optimize our aircraft and resources," it said in an earnings release.

Starting Nov. 3, Southwest will no longer operate out of Newark, where United dominates. It will consolidate its New York operations out of LaGuardia Airport in Queens.

Southwest said its Newark operations haven't been profitable enough and that it is registering strong demand out of LaGuardia.

Southwest launched service out of Newark in 2011 and as of the end of June offers 20 daily departures to 10 cities, including Denver, San Diego and Chicago, from the New Jersey airport, the airline said.

Southwest to cease operations at Newark Airport in November
Southwest to cease operations at Newark Airport in November