Southwest Airlines counts the cost of Boeing's delivery delays

By Rajesh Kumar Singh and Shivansh Tiwary

(Reuters) -Southwest Airlines is reeling from Boeing's ongoing safety crisis.

On Thursday, the Dallas-based airline said it expects higher costs and slower-than-expected revenue growth as the U.S. plane maker will now be able to deliver it just 20 aircraft this year. That is less than half of its estimate in March of 46 deliveries.

Reuters had exclusively reported the delivery cuts earlier this month.

Southwest's downbeat outlook sparked a sell-off in its shares, which fell as much as 11% on Thursday and closed down about 7%.

This is the third time Southwest has cut its aircraft delivery estimates. It originally planned on receiving 85 Boeing jets this year.

Southwest warned there was no assurance that Boeing would meet this most recent delivery schedule. It called the aircraft delivery delays "significant challenges" for this year and next as they have forced it to moderate its growth plans, leaving the company overstaffed.

"I won't downplay the challenges from the Boeing issues," CEO Bob Jordan said on an earnings call, adding that frequent changes in aircraft delivery schedules have made it difficult for the airline to plan staffing for its operations.

"All of that is costly."

As a result, Southwest has accelerated plans to control costs and improve productivity. It will end operations at four underperforming airports and reduce footprints in markets like Chicago and Atlanta.

It has stopped all hiring except for a limited number of critical positions and now expects to end the year with about 2,000 fewer employees than in 2023. It has offered voluntary unpaid time-off to staff in ground operations, call center and flight attendants.

It expects headcount to be down next year as well due to further reductions in its total seat capacity.

Southwest said it will hold on to 14 older planes that it originally planned to retire this year as a result of the aircraft delivery uncertainty.

Boeing's crisis - sparked by a January mid-air cabin panel blowout on an Alaska Air flight - has led to a shortage of planes, making it harder for airlines to keep up with travel demand that is set to hit record levels this year. But Southwest, which operates an all-Boeing fleet, is one of the hardest hit.

The airline had plans to start operating MAX 7 aircraft - the smallest version of MAX planes - this year. But the plane's FAA certification is now mired in uncertainty after Boeing withdrew a request for a safety exemption.

Jordan said he visited Boeing last month and was encouraged by the plane maker's comprehensive approach to deal with its ongoing crisis. He plans to visit Boeing and its supplier Spirit AeroSystems this summer as well.

"While it's impactful, I support Boeing taking the time to do the work to understand and fix the issues," he said. "A stronger Boeing company for the long term is good for Southwest Airlines."

Southwest reported an adjusted loss of 36 cents a share in the first quarter. Analysts on average were expecting a loss of 34 cents, according to LSEG data.

(Reporting by Rajesh Kumar Singh in Chicago and Shivansh Tiwary in Bengaluru; Editing by Pooja Desai, Jan Harvey, Marguerita Choy and Michael Erman)