June 19, 2019 / 11:00 AM / 4 months ago

Southwest sees higher second-quarter unit revenues, and costs, due to 737 MAX groundings

(Reuters) - Southwest Airlines Co expects higher unit revenues, and costs, in the second quarter than previously forecast due to the ongoing grounding of Boeing’s 737 MAX aircraft, which has led to more than a hundred flight cancellations per day.

FILE PHOTO: A number of grounded Southwest Airlines Boeing 737 MAX 8 aircraft are shown parked at Victorville Airport in Victorville, California, U.S., March 26, 2019. REUTERS/Mike Blake/File Photo

The global MAX grounding, which followed two deadly crashes in Indonesia and Ethiopia, has meant that airlines have fewer seats to sell, even though costs remain.

But because planes are flying near capacity, airlines can charge more for available seats, driving up the closely-watched metric of revenues per available seat mile, or unit revenues.

Southwest last week joined larger rival American Airlines in extending its removal of the MAX planes from its schedules until the start of September.

The low-cost carrier said here in a regulatory filing it now expects second quarter unit revenues to increase in the 6.5% to 7.5% range compared with its previous forecast of 5.5% to 7.5%.

It sees unit costs, excluding fuel and profitsharing expenses, rising 11.5% to 12.5% versus previous guidance for 10.5% to 12.5%.

However, Cowen analyst Helane Becker said investors are concerned about the impact of additional seat capacity from the eventual return to service of the MAX. With more seats and low fuel costs, airlines may struggle to raise fares, she said.

Southwest continues to expect second quarter fuel costs in the range of $2.10 to $2.20 per gallon, but said its fuel efficiency will decline more than expected due to the absence of its most fuel-efficient aircraft, the MAX.

Airlines are widely expected to seek compensation from Boeing for the MAX grounding once it returns to service.

Southwest Airlines Pilots Association (SWAPA) said on Wednesday it will also seek compensation from Boeing for expenses related to its cooperation with the U.S. Justice Department’s criminal probe into the MAX crashes.

Pilots were testifying at a U.S. House Transportation and Infrastructure Committee panel on the status of Boeing 737 Max on Wednesday.

Reporting by Tracy Rucinski in Chicago and Sanjana Shivdas in Bengaluru; Editing by Patrick Graham and Sonya Hepinstall

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