For more than a month, Southwest Airlines (NYSE:LUV) has been dealing with an elevated level of flight cancellations, due to a raging dispute between the airline and its mechanics. (The two sides appear to have resolved their differences, though, reaching a tentative agreement for a new contract last weekend.)

The low-fare airline's flight cancellation problems just got a lot worse with the grounding of its Boeing (NYSE:BA) 737 MAX fleet. That could be good news for a pair of rivals that don't use any Boeing 737s: Spirit Airlines (NYSE:SAVE) and Hawaiian Holdings (NASDAQ:HA).

Expect a lot of flight cancellations

In mid-February, Southwest Airlines experienced a sudden spike in the number of aircraft that it had to take out of service due to maintenance issues. The airline plans for 20 of its more than 750 aircraft to be unavailable on any given day. Instead, that number climbed to about 40. On several days, these maintenance issues led to about 100 canceled flights.

The grounding of the Boeing 737 MAX -- implemented in the U.S. last Wednesday following two crashes in the span of five months -- will make matters worse. Today, Southwest Airlines is the No. 1 operator of the 737 MAX, with 34 Boeing 737 MAX 8 aircraft in its fleet.

Check out the latest earnings call transcript for Southwest Airlines.

A blue Southwest Airlines 737 MAX 8 on a tarmac under blue skies.

The FAA grounded the Boeing 737 MAX 8 last week. Image source: Southwest Airlines.

Southwest has noted that more than 95% of its fleet is unaffected by the 737 MAX grounding. However, after accounting for planes out of service due to normal maintenance issues, the carrier now has even fewer aircraft available than during the peak of the maintenance-related issues last month.

Not surprisingly, the number of flight cancellations has spiked again. On Wednesday, when Southwest Airlines was dealing with severe weather as well as the sudden grounding of its 737 MAX fleet, the carrier canceled 446 flights, more than 10% of its daily schedule.

Between Thursday and Sunday, Southwest averaged more than 200 cancellations a day. Even on Saturday, when fleet utilization would typically be at its lowest level -- making it easier to operate with fewer aircraft -- the airline had to cancel 163 flights.

An opportunity for Spirit Airlines to gain market share

For the past few days, Southwest has been scrapping 4% to 5% of its flights each day. With that level of flight cancellations, the carrier can strategically cancel flights on routes with ample service while also spreading cancellations across its route network. Southwest does appear to be following this playbook in order to maximize its ability to reaccommodate passengers on other flights.

However, a side effect of this strategy is that the remaining flights in its system are suddenly becoming even more crowded than usual. This will sharply reduce Southwest's inventory of seats available for last-minute bookings for at least the next few weeks.

That's good news for Spirit Airlines. Over the past few years, Spirit has targeted markets that Southwest dominates -- particularly Orlando and Las Vegas -- as it has expanded. As a result, there is substantial overlap between the two carriers' route networks.

A yellow Spirit Airlines jet parked at an airport gate

Image source: Spirit Airlines.

To give an example, a traveler looking to book a weekend trip from Houston to Las Vegas from March 29 to April 1 would find ample availability on Southwest for the first leg of the trip. But four of the five nonstop return flights on April 1 are already sold out -- and the one that's left departs Las Vegas at 5:10 a.m. By contrast, as of Sunday evening, Spirit had availability on both of its nonstops from Las Vegas to Houston on April 1, with a starting price of just $132.29 for its evening flight. A similar situation is playing out on many other routes across the country.

Spirit Airlines has dramatically improved its on-time performance and customer service in the past year or so. That means Spirit has a good shot at converting some travelers who try it due to Southwest flights being sold out into repeat customers.

Another respite for Hawaiian Airlines

The grounding of Southwest's Boeing 737 MAX fleet could also slow the carrier's expansion in Hawaii, which would help Hawaiian Airlines.

Southwest Airlines began ticket sales for its inaugural Hawaii routes earlier this month, but it still hasn't scheduled any nonstop flights from San Diego or Sacramento to Hawaii, even though those are supposed to be two of its gateway cities for Hawaii flights. It also hasn't scheduled any nonstop flights from the West Coast to Kona or Lihue: two of the Hawaiian destinations it plans to serve.

Southwest probably planned to expand its Hawaii flight offerings when it extended its schedule last week. But without enough planes available to operate its existing routes, Southwest Airlines is in no position to add lots of new flights to its schedule.

As a result, the surge in competition that Hawaiian Airlines might have seen beginning next quarter has been postponed indefinitely. That will help it return to unit revenue growth soon.

A Hawaiian Airlines jet parked on the tarmac, with air stairs attached

Image source: Hawaiian Airlines.

When will Southwest Airlines get its 737 MAX fleet back?

At this point, we don't know how long the Boeing 737 MAX will stay grounded. However, there's a decent chance that the planes will get back in the air sometime next month. By then, the preliminary findings regarding the most recent accident should be available. Moreover, a Boeing software update meant to address the scenario that caused the Lion Air crash last October (and perhaps also the recent Ethiopian Airlines crash) will be ready by then.

In the meantime, Spirit Airlines could win itself some new long-term customers if it continues its recent streak of strong on-time performance. And the longer Southwest is forced to delay adding more Hawaii flights to its schedule, the more time Hawaiian Airlines will have to get bookings for the important summer travel season. By the fall -- when Southwest Airlines will presumably be ramping up its schedule -- Hawaiian Airlines will probably have rolled out its basic economy fares and received approval for its planned joint venture with Japan Airlines, two developments that should help it improve its profitability.

Thus, even if Southwest returns to its normal schedule by late April, Spirit Airlines and Hawaiian Airlines will have benefited significantly from their rival's temporary aircraft shortage.