Southwest provides Q1 guidance

Lauren Eldershaw
By Lauren Eldershaw March 27, 2019 16:36

Southwest provides Q1 guidance

Since mid-February and through March 31, 2019, Southwest currently expects cancellations of approximately 9,400 flights due to weather and unanticipated events. Of these expected cancellations, approximately 3,800 are due to weather-related and other disruptions; approximately 2,800 are due to unscheduled maintenance disruptions arising from contract negotiations with the Aircraft Mechanics Fraternal Association (AMFA); and approximately 2,800 are due to the grounding of the Boeing 737 MAX 8. As a result of the cancellations, Southwest now estimates its first quarter 2019 year-over-year available seat mile (ASM, or capacity) growth to be approximately one percent, compared with its previous growth guidance in the 3.5 to 4% range.

On March 13, 2019, Southwest complied immediately with a Federal Aviation Administration (FAA) emergency order issued that day for all US airlines to ground the Boeing 737 MAX 8, and grounded all 34 737 MAX 8 aircraft in its fleet. Southwest states that it is in the process of temporarily relocating its MAX aircraft to a third-party facility and implementing an enhanced storage program.

As of today, Southwest has reduced its published flight schedule through April 20, 2019, and is currently evaluating future schedule reductions. Due to the current uncertainty regarding the duration of the MAX groundings and any requirements for reinstatement of the aircraft into service, Southwest states that it is difficult to forecast the impact of the MAX groundings beyond first quarter 2019. The airline says that it is proactively managing cancellations, minimising operational disruptions, re-accommodating customers, and minimising the impact on its ontime performance.

Despite the ongoing effects of the MAX groundings, Southwest states that its current operational performance is “solid”. As of March 13, 2019, Southwest had 41 remaining MAX deliveries scheduled in 2019, and 221 firm orders, 115 options, and three additional MAX deliveries beyond 2019.

As previously disclosed, Southwest reiterated that it has experienced softness in passenger demand and bookings related to the government shutdown, resulting in an estimated $60 million negative revenue impact in first quarter 2019. Since then, first quarter 2019 revenue trends have also been negatively impacted by more winter weather disruptions than expected, unscheduled maintenance disruptions, further softness in leisure-oriented passenger demand and yields, and the MAX groundings. In total, these additional impacts are estimated to result in approximately $150 million in additional lost revenues in first quarter 2019.

Southwest expects its first quarter 2019 operating revenue per ASM (RASM, or unit revenues) to increase in the 2 to 3% range, year-over-year, compared with its previous guidance of a year-over-year increase in the 3 to 4% range. Despite the ongoing MAX groundings, Southwest says that it continues to expect a strong year-over-year RASM performance in second quarter 2019, based on current revenue trends and bookings.

Lauren Eldershaw
By Lauren Eldershaw March 27, 2019 16:36