Southwest Airlines (LUV 2.57%) is cutting back in response to Boeing's issues delivering airplanes, and investors are heading for the exits. Shares of Southwest were down 10% as of 10:30 a.m. ET following the company's disappointing earnings release.
Tough choices because of a difficult supplier
Southwest is famously an all-Boeing fleet, relying exclusively on the aerospace giant's workhorse 737 line. Unfortunately, the 737 has had a lot of issues of late. The MAX generation planes were grounded for 18 months in 2019-2020 after a pair of fatal crashes and recent quality issues forced the company to slow production and push back new model certifications.
Fewer planes mean slower growth for Southwest. On Tuesday, the company announced it lost $0.36 per share in the quarter on revenue of $6.33 billion. The first quarter is historically a weak one, but the results were worse than the $0.34-per-share loss on sales of $6.42 billion that Wall Street had expected.
Southwest said it as cutting service to airports in Houston; Syracuse, New York; Bellingham, Washington; and Cozumel, Mexico, due to a lack of planes and intends to limit hiring. The airline expects to end 2024 with about 2,000 fewer employees than at the end of 2023.
"We are focused on controlling what we can control and have already taken swift action to address our financial underperformance and adjust for revised aircraft delivery expectations," CEO Bob Jordan said in a statement.
NYSE: LUV
Key Data Points
Is Southwest a buy following its earnings miss?
For decades, Southwest was one of the best growth stories in the airline industry. But those days were largely over even prior to Boeing's issues, as Southwest has evolved into one of the industry titans instead of a disruptor.
This remains a well-run airline with an attractive franchise, but with so little clarity coming from Boeing, it is hard to say when these current headwinds will subside. For investors interested in airline stocks, it would be wise to shop around instead of just buying Southwest on the dip.
