Southwest Airlines Is in Trouble

Major U.S. carrier Southwest Airlines is facing a huge shake up after posting poor first-quarter financial results this week.

On Thursday, April 25, the airline announced it would cease operations at four airports and cut 2,000 jobs after it reported a net loss of $231 million—$0.39 loss per diluted share—in the first quarter of 2024, despite record first-quarter revenue of $6.3 billion, up 11 percent from the same period last year. The changes have been put down to financial issues caused by the ongoing problems at aircraft manufacturer Boeing, leading to a hiring freeze and major operational changes.

Despite highlighting some successes during the first quarter of the year, chief executive Bob Jordan admitted the company requires serious changes to push it through the difficult period.

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"While it is disappointing to incur a first quarter loss, we exited the quarter with healthy profits and margins in the month of March," Jordan said in a statement on Thursday. "We are focused on controlling what we can control and have already taken swift action to address our financial underperformance and adjust for revised aircraft delivery expectations."

The Boeing Issue

The blame has been largely laid on Boeing, with problems highlighted following a midair door blowout on an Alaska Airlines flight in early January.

Since then, the manufacturer has been placed under intense scrutiny over the safety record of its 737 MAX 9 planes, including an federally mandated grounding of all MAX 9 aircraft for several weeks, delay to the certification of two new models of the plane, and an audit by the Federal Aviation Administration (FAA), which found the plane's production process was plagued with issues. Newsweek has contacted Boeing via email for comment outside of normal working hours.

Boeing's safety record has also directly affected Southwest. Earlier this month, an engine cowling on a Southwest operated Boeing 737-800 fell off during take off from Denver airport. Flight 3695 reported the engine cowling "fell off during takeoff and struck the wing flap" an FAA spokesperson previously told Newsweek.

In 2018, an engine on a Boeing 737—not the MAX variety—traveling from New York to Dallas failed in midair. Most of the engine inlet and parts of the cowling broke off, shattering a window and resulting in the death of passenger Jennifer Riordan, who was one of 149 people aboard.

As a result of Boeing's troubles, Southwest, the world's largest operator of the 737, is expecting growth to be thwarted. The company is now only expected to receive 20 new Boeing aircraft this year—down from 46.

"I won't downplay the challenges from the Boeing issues—they're a big deal," Jordan told investors this week, according to a report by the Wall Street Journal.

"Every aircraft brought to market has had its own share of teething issues, and the Max and 777X are no different," Chad D. Cummings, an attorney who has previously worked for American Airlines, told Newsweek. "To be clear, there is no suggestion that Max is inherently unsafe, and this is demonstrated by the number of successful and uneventful flights since the first Max flight in 2016. It is not difficult to imagine that Boeing will continue working behind-the-scenes to resolve these issues and regain the public trust.

"The difficulties that Boeing is experiencing are not unique to a single product line, and there are obviously negative synergies spilling across product lines."

Cummings explained that unless Boeing's problems are rectified, the issue could spread to other airlines, having a knock-on effect on other aircraft manufacturers too.

"Unless and until that course correction can take place, the capacity cuts announced by Southwest will continue to be replicated at other carriers, even those airlines that are not Boeing customers," he said.

"This is because Boeing customers are turning to the only other game in town, Airbus, to backfill and compensate for Boeing's inability to deliver aircraft on time, thereby adding to Airbus' already substantial order backlog."

When asked for comment, a Boeing representative referred Newsweek to chief financial officer Brian West's comments at the Bank of America Industrials Conference on March 20, which do not directly address the recent announcement made by Southwest.

"We put the customers in [a] tight spot, the most important thing we do is communicate with them," he said. "And they have been supportive of everything we're trying to do to enhance safety and quality for the industry. We are in regular, very transparent communications [with Southwest] and they know precisely where we stand and the progress that we're making and we, at the same time, have to understand what their needs are as they think about their flight schedules and their passengers."

Operational Changes

As part of its cost-cutting plans, Southwest announced on Thursday that it would end all services at Bellingham International Airport, Cozumel International Airport, Houston's George Bush Intercontinental Airport, and Syracuse Hancock International Airport. Capacity reductions will also be implemented in Hartsfield-Jackson Atlanta International Airport and Chicago O'Hare International Airport.

The last time Southwest dropped operations at an airport was in 2019, when it ceased all operations out of New Jersey's Newark Liberty International Airport.

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Some of the service cancellations are at airports that Southwest only recently began servicing. Southwest has operated flights out of Syracuse and Bellingham since November 2021, but will now end operations from both in August this year.

The airline also announced it is reviewing its one-class, open-seating policies which are uncommon among major airlines. To shore up its financial position, Jordan said in an interview with CNBC that the airline is "looking into new initiatives, things like the way we seat and board our aircraft," most likely in the form of additional paid for perks.

Employment Changes

In its statement on Thursday, the company said it was "implementing cost control initiatives, including limiting hiring and offering voluntary time off programs," confirming that it expects to "end 2024 with approximately 2,000 fewer employees as compared with the end of 2023."

A spokesperson for Southwest told Newsweek that the employee reduction is being completed through "attrition and other voluntary programs," and that the company is "not laying off or furloughing employees."

Pay has been bumped up for tens of thousands of Southwest's staff recently. Just this week, flight attendants employed by the airline voted in favor of an immediate 22 percent pay raise and 3 percent per year raises until May 2028.

Earlier this year, Southwest agreed an immediate 29 percent salary increase with its 11,000 pilots, ending nearly three years of negotiations between airline management and Southwest Airlines Pilots Association (SWAPA).

Do you work for Southwest Airlines and have something to say about the changes being made? Email a.higham@newsweek.com.

Correction, 4/29/24, 4:15 a.m. ET: An image caption was amended to say Ontario International Airport in California, not Canada.