Southwest posts record quarter despite biggest Boeing 737 Max exposure

Southwest Airlines delivered a record third quarter despite having the biggest 737 Max exposure of all U.S. airlines.

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“We are engaged in ongoing discussions with The Boeing Company (Boeing) regarding compensation for damages related to the MAX groundings,” said Southwest chairman and CEO Gary Kelly in the company’s earnings release.

“The operating income reduction from the MAX groundings is estimated to be $435 million for the nine months ended September 30, 2019, and we expect the damages to continue to grow into 2020. We have not reached a settlement with Boeing, and no estimated settlement amounts have been included in our third quarter 2019 results.”

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Southwest is the U.S. carrier with the most exposure to the Max. In March, Stifel Financial said nearly 10 percent of the airline's October available seat miles were expected to come from the Max. Last year, Southwest added 18 Max aircraft to its fleet.

The airline reported a record third-quarter profit of $659 million, or $1.23 per diluted share, as total operating revenue rose 1.1 percent year-over-year to a record $5.6 billion. Wall Street analysts surveyed by Refinitiv were expecting adjusted earnings of $1.08 a share on revenue of $5.6 billion.

Southwest says third-quarter operating revenue per available seat mile rose 4.2 percent to a record 14.32 cents, seeing a two-point benefit from lower available seat miles due to the Max grounding. 

Looking ahead, Southwest sees fourth-quarter revenue per available seat mile in the range of flat to up 2 percent versus last year. The outlook assumes no benefit revenue per available seat mile benefit from Max groundings, unlike the second and third quarters.

The airline expects fourth-quarter fuel costs to be in the range of $2.05 to $2.15 a gallon, close to the $2.07 it paid in the third quarter.

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Southwest has removed the Max from its flight schedule through Feb. 8, 2020.