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Southwest Airlines

Southwest Airlines’ Boeing 737 Max Order Signals Growing Confidence in Travel Recovery

Edward Russell

June 8th, 2021

Southwest 737 Max

Southwest Airlines has gone back to Boeing for more 737 Max jets ahead of its capacity recovering to 2019 levels later this summer.

The Dallas-based carrier has exercised 34 737-7 options with deliveries in 2022, Southwest disclosed in an investor update on Tuesday. The airline’s delivery schedule now includes 28 more 737-8s this year, 64 737-7s in 2022, and 30 737-7s each year from 2023 to 2025. Southwest holds another 222 737 Max options with delivery slots from 2022 through 2025.

(Source: Southwest Airlines)

The order comes as leisure travel demand has come roaring back in the U.S. Nationally, airline passenger capacity will only be down roughly 12 percent in June and 8 percent in July compared to 2019, according to Cirium schedule data. And Southwest forecasts capacity down just 7 percent in June and 3 percent in July before returning to pre-crisis levels in August — making it the first major U.S. airline to fully recover capacity.

However, the outlook for passenger traffic is grimmer. Airlines for America (A4A) does not expect traffic to recover until 2022 at the earliest under its best case scenario, or after 2024 under the worst case. The disparity is due to uncertainty over the timing and pace of the business travel recovery.

Holiday travelers, including those visiting friends and relatives, continue to make up the majority of those flying. Leisure fares and booking patterns have recovered to 2019 levels, Southwest said on Tuesday. On the other hand, its business travel revenues were down 77 percent in May compared to two years ago. Corporate travelers often pay more for last minute tickets and generate an outsize share of airline revenues.

The change in the mix of travelers has altered Southwest’s network. The airline has moved away from offering the high frequencies on shorter routes popular with the corporate set in favor of a broader array of destinations that is attractive to vacationers. Southwest has added or unveiled 17 new destinations since the pandemic began, and plans to leapfrog several competitors to become the third largest carrier to Hawaii by September.

“We’re going to have to acquire more airplanes to be able to restore the rest of our route network,” Southwest CEO Gary Kelly told the Dallas Morning News at the end of May. “And now that travel demand is coming back to life, we need to restore that capacity, and it will take us a while because we’ve diverted airplanes to these new markets.”

Kelly added that the airline still saw growth opportunities for “hundreds” of additional aircraft in the future.

Southwest’s order is just the latest as airlines clamor to lock in deliveries during a faster-than-expected recovery. Alaska Airlines, Lufthansa, Ryanair, Southwest and United Airlines have all made double-digit aircraft commitments during the past six or so months. However, nearly all of the new orders are for narrowbody jets that fly short- to medium-haul routes rather than widebodies that fly long-haul routes. This comes as the travel recovery moves ahead first in domestic markets with international forecast to lag by at least a year or two.

The order is not expected to herald a significant expansion for Southwest. Raymond James Analyst Savanthi Syth estimates “reasonable” 4-5 percent seat growth at the airline in 2022 when the order is coupled with its plans to retire 30-35 737-700s annually over the next decade.

Southwest has not provided full year 2021 capacity guidance citing the continued uncertainty in the recovery.

Edward Russell

June 8th, 2021

Tags: Southwest Airlines

Photo credit: Southwest has ordered 34 more 737 Max jets. Wikimedia / John Crowley

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