During Southwest Airlines Investor Day, they – like so many airlines – blamed Boeing extensively for their problems. Boeing has had myriad production problems, and hasn’t been able to deliver planes on time. And in Southwest’s case, they expected to have the Boeing 737 MAX 7 in their fleet today. That plane isn’t certified yet. So they’ve been flying larger aircraft to Hawaii, and between the Hawaiian islands, which means more seat capacity than they want.
But when Southwest blames Boeing for their being overstaffed, it’s a bit of a stretch. Southwest is pulling back on growth plans, just as other airlines are. Every airline says there’s too much capacity in the industry, though of course they prefer other airlines to fly less.
For Southwest it’s an especially tough sell when airline CFO Tammy Romo says explicitly that they have “too many planes” ordered for current (new, scaled back) growth plan.
CEO Bob Jordan, in his opening remarks, says that they’ve achieved compensation from Boeing for its delays – delays that, ultimately, have been good for Southwest in many ways – through credits on future deliveries. And he wants to “unlock” that economic value.
Romo describes their plan for “excess aircraft we don’t need” as “pursuing direct sales of -800s” and also “sale/leasebacks” in order to reduce aircraft capital spending.
They’re not planning to sell their delivery slots. But when they take delivery of new planes, that’ll leave them with too many aircraft, so they will sell planes currently in their fleet. There’s not much of a market for Boeing 737-700s. They’re going to fly those longer than planned, in part because of the delayed MAX 7 program, and retrofit them with new seating arrangements. The larger -800s have a better market value.
Ultimately Southwest will fly less because they aren’t making much money on the seats they’re flying today. Their plan doesn’t even aspire to 10% operating margin until 2027, with all of the changes their making to their product. That’s because they haven’t just had the wrong product to grow, but also because their costs have risen.