Southwest Airlines Extends Boeing 737 MAX Grounding Period

Southwest Airlines (NYSE:LUV) extended the grounding period of Boeing 737 MAXjets by more than a month. This Dallas-based low-cost carrier now expects the jets in its fleet to remain grounded through Apr 13, 2020, as opposed to the earlier date of Mar 6. Notably, Southwest Airlines has the largest exposure to Boeing 737 MAX jets among U.S. carriers, with 34 such jets in its fleet.

Notably, Southwest Airlines’ decision comes close on the heels of The Boeing Co. (NYSE:BA) decision to suspend production of 737 MAX jets after the Federal Aviation Administration’s refusal to approve the plane’s return to service before 2020. As a result of the extension, Southwest Airlines will have to remove 300 weekday flights from its schedule.

Due to the MAX groundings, Southwest Airlines expects fourth-quarter 2019 cost per available seat miles (CASM), excluding fuel and oil expense and profit-sharing expense, to increase 4-6% year over year. Moreover, with the carrier’s most fuel-efficient aircraft being grounded, fuel efficiency is estimated to dip 1-2% in the December quarter.

With the extension of the grounding period, Southwest Airlines expects fourth-quarter available seat miles (a measure of capacity) to decrease approximately 1% year over year compared with its previous expectation of a decline between 0.5 and 1%. Detailed results of the December quarter are scheduled to be released on Jan 23, 2020.

Southwest Airlines Co. Price

Southwest Airlines Co. price | Southwest Airlines Co. Quote

Another U.S. carrier, American Airlines (NASDAQ:AAL) , recently extended the grounding period of the Boeing 737 MAX jets in its fleet through Apr 7, 2020, from Mar 4. (Read more: American Airlines Suspends Boeing 737 MAX Flights Until April)

Coming back to Southwest Airlines, we note that the carrier also stated that it has cancelled approximately 3,000 flights so far in the December quarter mainly due to inclement weather. The flight cancellations due to bad weather are, however, not expected to impact the carrier’s fourth-quarter results significantly.

Zacks Rank & A Key Pick

Southwest Airlines carries a Zacks Rank #3 (Hold). A better-ranked stock in the Zacks Transportation sector is GATX Corporation (NYSE:GATX) , carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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