Southwest Airlines profit plunges as 737 Max grounding bites

'Remarkable' performance after Max-related schedule cuts, CEO says

Southwest Airlines shrugged off the grounding of the 737 Max aircraft and posted record fourth-quarter revenue.

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Sales of $5.7 billion, a 0.4 percent increase from the previous year, were overshadowed by a 21 percent drop in net income to $514 million. Per-share profit of 98 cents trailed the $1.12 average estimate from Wall Street analysts surveyed by Refinitiv and shares fell. Southwest said seating capacity dropped by 0.9 percent because of the grounding of the 737 Max after two deadly crashes.

BOEING 737 MAX PRODUCTION FREEZE TO END IN MONTHS

"Our operational and financial performances in 2019 were truly remarkable considering an estimated $828 million reduction in operating income and the significant reduction in planned flights due to the MAX groundings,” CEO Gary Kelly said in a statement.

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LUVSOUTHWEST AIRLINES CO.56.53-0.41-0.72%

Southwest is the U.S. airline with the most exposure to the 737 Max, currently operating 34 of the jets. It was expected to have 75 by the end of last year, according to projections before the jet's sidelining in March, and add another 38 to its fleet in 2020.

During the fourth quarter, Southwest reached a confidential agreement with Boeing on compensation for costs due to the aircraft's grounding, which followed two overseas crashes that killed all 346 people aboard. Production of the 737 Max was frozen at the beginning of this year.

"I am pleased with the Boeing agreement for 2019," Kelly said. "But we continue to incur financial damages in 2020, and we will continue discussions with Boeing regarding further compensation."

Last week, Southwest pulled the 737 Max from its schedule through June 6.

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Southwest shares were down 0.9 percent year-to-date through Wedensday, underperforming the S&P 500's 2.8 percent gain.