Southwest Airlines will cease operations at Newark airport because of fleet shortages it faces following the grounding of the 737 Max 8, in a sign of how Boeing’s struggle to return the flawed aircraft to the skies continues to ripple through the industry.
Southwest, which was the largest US customer for the 737 Max 8, said the “extensive delays” in returning the jets to service meant 2019 available seat miles — the industry’s main measure of capacity — would decrease as much as 2 per cent over last year; the airline had previous expected to grow capacity by 5 per cent.
Southwest’s announcement comes just a week after Boeing said it was taking a $4.9bn charge to account for the amount it will have to compensate airlines for schedule disruptions and delays in aircraft deliveries. Boeing forced the global grounding of the 737 Max 8 jets following two fatal crashes earlier this year.
It also comes as American Airlines said that removing all Max aircraft from its schedule through to November 2 — two months longer than it had anticipated — had prompted it to forecast a $400m hit to pre-tax income, up from its previous guidance of $350m.
Gary Kelly, Southwest’s chief executive, said on Thursday that shutting operations at Newark, the second busiest airport in the New York metropolitan area, was part of “necessary steps to mitigate damages” from the Max groundings, as the airline worked to optimise its aircraft and resources.
“We will cease operations at Newark Liberty International Airport and consolidate our New York City presence at New York LaGuardia Airport, effective November 3, 2019,” Mr Kelly said. “The financial results at Newark have been below expectations, despite the efforts of our excellent team at Newark.”
Southwest shares opened nearly 3 per cent lower on Wall Street, while American Airlines was down nearly 5 per cent.
The challenges in dealing with the consequences of the Max groundings overshadowed an otherwise solid quarterly performance by both Southwest and American.
For the quarter ended June 30, Southwest reported a 7.9 per cent year-on-year increase in earnings to $1.37 a diluted share on a 2.9 per cent increase in revenue to a quarterly record of $5.9bn. While earnings came in three cents ahead of the median forecast among analysts, revenue missed the mark by $27m.
Mr Kelly said that despite difficulties caused by the grounding of the Max aircraft, Southwest’s network was “performing well, and our financial outlook for the second half of 2019 remains solid.”
American raised the outlook for the full year, saying it expected adjusted earnings to be in the range of $4.50 to $6 a diluted share, up from $4 to $6 previously. At the start of this year, before the grounding of Max aircraft and the tallying of impact from the US government shutdown, the carrier had forecast adjusted earnings of $5.50 to $7.50.
Doug Parker, American’s chief executive, said the company did a “tremendous job to deliver solid results despite a challenging start to our summer.”
Rivals United Airlines and Delta Air Lines earlier this month boosted their profit outlooks. United operated fewer Max aircraft than Southwest and American Airlines, while Delta did not have any in the fleet.
