Southwest Airlines (NYSE: LUV ) may be having a change of heart.
The company has been able to benefit cost efficiencies by operating only a single aircraft model, the Boeing (NYSE: BA ) 737 jet, throughout its 40-year history. Its fleet now consists of 550 of these same aircraft. That may be about to change, as rumors have been circulating that executives at Southwest and Boeing's European rival Airbus are in discussions. The company has denied that it is negotiating an order for the A320neo.
If Airbus is able to woo Southwest with its revamped A320 airliner, it would be a painful blow to Boeing's market share in the United States. Increasing fuel efficiency for planes is all the rage nowadays, and Airbus is acutely aware of the changing times.
Airbus has been able to win orders for nearly 600 aircraft, compared with its original forecast of 500. Boeing had better not fall asleep in the cockpit, lest it be in store for a rough crash landing. American Airlines parent AMR (NYSE: AMR ) was previously an exclusive Boeing customer until recently, when it ordered a total of 460 aircraft -- an order that mostly went to Airbus. Let's hope American won't have any trouble paying the bill.
Say it ain't so
Southwest CEO Gary Kelly is now coming out to quash the rumors despite the company's initial silence. There's no doubt that Southwest and Boeing's relationship has been through its ups and downs just like any other, but it would also be downright silly for Southwest not to consider other alternatives if Boeing can't keep up with the times. Kelly even acknowledged this himself in the company's recent Q2 conference call, saying that "we'll consider what other options we have" if Boeing can't meet Southwest's needs.
Rumors are just that: rumors. I would never make any investment decision based on hearsay, but if these rumblings turn out to have some truth, it could have a major impact on Boeing's results. Even if these rumored talks don't pan out, it can still provide Southwest with some bargaining chips, and it may be able to get some pricing concessions at the expense of Boeing's bottom line.