Southwest trims first quarter outlook after 737 Max groundings

Southwest trims first quarter outlook after 737 Max groundings

A number of grounded Southwest Airlines Boeing 737 MAX 8 aircraft are shown parked at Victorville Airport in Victorville, California, U.S., March 26, 2019. REUTERS/Mike Blake

(Reuters) – Southwest Airlines Co on Wednesday was the first major airline to formally cut its financial outlook in the wake of the recent groundings of Boeing 737 MAX planes.

Shares of Southwest, the largest operator of Boeing’s 737 MAX 8 with 34 jets, were down as much as 2.5 percent at $48.8 in premarket trading after it said its operating revenue per available seat mile (RASM) would rise by a full percentage point less than previously forecast.

The revenue indicator is a closely followed measure of airline performance and had been forecast to grow by 3 percent to 4 percent before the crash of an Ethiopian Airlines jet on March 10 caused the grounding of 737 MAX planes globally.

The fourth leading U.S. airline, which has been battling flight cancellations on the back of bad weather, maintenance disruptions as well as the MAX 8 groundings, also cut its capacity forecast for the first quarter.

The Dallas, Texas-based airline estimates about 9,400 flights to be canceled through March 31, and said it now expects capacity growth to be about 1 percent, compared with its previous growth forecast of 3.5 percent to 4 percent.

Southwest expects costs to shoot up due to a substantial growth in flight cancellations and the airline now estimates first-quarter unit costs to increase about 10 percent, compared with its previous forecast of about 6 percent. This excludes fuel cost and profit-sharing expense.

Air Canada and United Airlines had earlier warned of negative impacts on business due to the groundings, with the Canadian carrier suspending its 2019 financial forecasts.

Several airlines are also reconsidering Boeing orders.

American Airlines Group Inc, the largest U.S. carrier, said earlier this week it was cancelling about 90 flights per day. American is the second-largest U.S. operator of the MAX with 24 jets, behind Southwest Airlines, while United has 14 737 MAX jets in its fleet.

Reporting by Rachit Vats and Sanjana Shivdas in Bengaluru; Editing by Patrick Graham and James Emmanuel

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