North By Northwest

Southwest profit drops 20%

Image source: Insomnia Cured Here - Flickr / North by Northwest - Metro-Goldwyn-Mayer, Usa-Pyon - Shutterstock

What's going on?

Things are headed in the wrong direction for Southwest Airlines: the grounding of the Boeing 737 Max has continued to take its toll on the carrier, which on Thursday announced a more-than 20% drop in profit last quarter.

What does this mean?

Southwest Airlines – which has more Boeing 737 Max planes in its fleet than any of its rivals – saw its expenses surge in 2019 as it tried to cover its costs with fewer passengers to its name. And while the carrier might’ve reported better-than-expected earnings on Thursday, it still lost over $800 million in profit from the grounding overall.

And the company’s not in the clear yet. Southwest has previously announced an agreement with Boeing to be compensated for last year’s financial damages, but this year’s are still up in the air. And given that Boeing doesn’t expect regulators to give the scandal-hit aircraft the okay until the middle of the year, it could be that carriers like Southwest are still out of pocket come peak summer travel season.

Why should I care?

For markets: Earnings delta.
American Airlines also reported earnings on Thursday, and – probably because it has far fewer 737 Max planes in its fleet – the company fared much better. But Delta Air Lines – which doesn’t have any – is in the top spot so far, beating expectations last week. Still, they might all be in the same boat-plane again soon enough: reports of the first US case of a deadly virus originating in China could hit travel demand, regardless of what planes the carriers fly…

The bigger picture: Less revenue turbulence, please. 
Aircraft-maker and Boeing archrival, Airbus, is setting up an exchange to allow carriers to trade “futures” contracts linked to the price of airplane tickets. So just as airlines use oil futures to protect themselves from the ups and downs of fuel costs, they’ll soon be able to do the same with the swings in ticket fares.

Originally posted as part of the Finimize daily email.

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