Southwest Airlines announced on Thursday that it will be cutting 2,000 jobs and closing operations at four airports due to higher costs and slower revenue growth.
The decision comes after the airline warned of a drop in new aircraft deliveries from Boeing, the aviation giant that has been facing a safety crisis since a midair cabin panel blowout on an Alaska Air flight in January.
According to Southwest, they will only receive 20 aircraft from Boeing this year, instead of the previously estimated 46. This is due to a production cap implemented by regulators on the 737 MAX, which Boeing is struggling to reach. The company also stated that it will end this year with 2,000 fewer employees than it had at the start of the year.
The decrease in aircraft deliveries has forced Southwest to revise its growth plans. The airline now expects its total seat capacity to rise by 4% in 2024, compared to the 6% growth estimated earlier. This, along with reductions in schedules, will result in slower revenue growth and higher operating costs. In order to offset these losses, Southwest is working on enhancing productivity and cutting discretionary spending.
In addition to job cuts, Southwest will also be terminating service to four airports: Syracuse, NY; Cozumel, Mexico; Bellingham, Wash., and George Bush Intercontinental Airport in Houston, where the airline’s major operation is at smaller Hobby Airport. The company will also reduce its capacity in markets like Chicago and Atlanta.
Southwest also reported an adjusted loss of 36 cents a share for the first quarter, which was worse than the loss of 34 cents per share forecast by analysts. The company’s CEO, Bob Jordan, stated that they are looking into new initiatives such as the way they seat and board their aircraft in order to improve their financial situation.
Southwest Airlines was the first low-cost, no-frills airline known for its single economy class cabin and no seating assignments. However, with other airlines constantly adding fees for checked baggage, seat assignments, and upgrades, Southwest is now considering implementing some changes to its policies. This includes the possibility of charging extra for certain services, a concept that was previously dismissed by the company.
While the idea of charging extra for extras may go against Southwest’s traditional approach, experts believe it may be necessary for the company to remain competitive. Craig Jenks, head of New York-based consulting firm Airline/Aircraft Projects Inc., states that Southwest is unable to attract higher-paying passengers due to their lack of additional fees and services offered by other airlines.
American Airlines also reported a loss for the first quarter, stating that labor costs rose by 18%. However, they are expecting to return to profitability in the second quarter and post earnings between $1.15 and $1.45 per share. This is slightly higher than the analyst forecast of $1.15 per share. The first-quarter loss for American Airlines was 34 cents per share, excluding special items.
