Bloomberg News

Southwest Delays 30 Jets to Save $1 Billion

May 16, 2012

Southwest Airlines Co. (LUV:US) deferred deliveries of 30 Boeing Co. (BA:US) 737-800 jets by about four years, as the largest discount carrier extends a cap on fleet size and works to curb rising costs until it hits financial targets.

“We’re more conservative right now in our ambitions with respect to expansion,” Chief Executive Officer Gary Kelly said today, following the company’s annual shareholder meeting. “Right now we’re very focused on hitting our profit target. We’ll have plenty of aircraft in future years to be able to grow the airline.”

The deferrals will save more than $1 billion in capital spending as the airline continues efforts to hold down costs and remain profitable (LUV:US) while offering discount fares. Even though travel demand is “really strong across the board,” Southwest wants to slow growth until it hits a goal of 15 percent return on invested capital, the CEO said.

“It’s just not the kind of environment I’m willing to be aggressive in terms of increasing our fleet next year,” Kelly said.

Southwest is delaying 20 deliveries that had been set for next year, and another 10 scheduled for 2014. Half of those aircraft instead will arrive in 2017 and half in 2018, the Dallas-based airline said today.

As a result, Southwest will receive 20 737-800s in 2013 and 24 in 2014, along with five 737-700s. It is adding 34 737-800s to its fleet this year while retiring a similar number to end 2012 with about 692 planes.

Trimming Spending

Kelly has told employees they needed to be diligent in increasing efficiency and trimming spending as competitors narrowed Southwest’s historic unit cost advantage.

“We have to work with our employees in a forward-looking way to find ways that we can beat every competitor on costs,” he said. “We need to beat them in every way.”

Southwest rose 1.7 percent to $8.21 at the New York close. The shares of the fourth-largest U.S. airline have tumbled 32 percent in the past year, trailing the 14 percent slide for the 10-carrier Bloomberg U.S. Airlines Index. (BUSAIRL)

The airline also raised its quarterly dividend to 1 cent a share, from 0.45 cent, to be paid June 20 to stock holders of record as of June 6. The dividend, the only one paid by any major U.S. carrier, had been projected to stay unchanged, according to data compiled by Bloomberg.

Southwest added $500 million to an existing stock buyback program, bringing the total to $1 billion. The carrier already has spent $325 million of the initial authorization, said Chief Financial Officer Laura Wright.

Southwest in December agreed to buy 208 Boeing 737s with a list value of $19 billion, the largest aircraft order ever and the first to include the more fuel efficient MAX model. The deal also included options for another 150 planes.

Boeing had 1,530 unfilled orders for the 737-800 through April, the most of any aircraft, according to its website. The Chicago-based planemaker has 345 pending 737 orders with Southwest.

To contact the reporters on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net; Mary Jane Credeur in Atlanta at mcredeur@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net


The Good Business Issue
LIMITED-TIME OFFER SUBSCRIBE NOW

Companies Mentioned

  • LUV
    (Southwest Airlines Co)
    • $41.91 USD
    • 0.25
    • 0.6%
  • BA
    (Boeing Co/The)
    • $131.63 USD
    • 0.39
    • 0.3%
Market data is delayed at least 15 minutes.
 
blog comments powered by Disqus