South Goes Southwest

Southwest earnings warning

Image source: Yupa Watchanakit, Phive - Shutterstock

What's going on?

Major US carrier Southwest Airlines warned investors on Wednesday that its first-quarter revenue would be $150 million lower than expected, with grounded Boeing planes partly to blame…

What does this mean?

Boeing’s new 737 MAX 8 model was recently involved in two fatal crashes, prompting aviation authorities around the world to ground the aircraft pending an investigation. Southwest flies only 737s, with MAX 8s making up 5% of its fleet. This, combined with severe weather disruption and disputes with mechanics, has led to the airline struggling for planes – it’s canceled nearly 10,000 flights so far this year.

As Boeing’s wings are clipped, arch-rival Airbus is ready to take off: on Tuesday, the company secured an order from China for 300 planes, worth an estimated $34 billion. With China on the cusp of overtaking the US as the world’s biggest aviation market, Airbus’s wing in the door is a major blow for Boeing.

Why should I care?

For markets: What’s bad for the goose may be good for the gander.

Southwest’s investors had probably seen some sort of downgrade coming, and the reality might not have been as bad as feared. 3% of rival American Airlines’ fleet and 2% of United Airlines’ are MAX models; their earnings are likely to be less badly affected by the grounding. All three carriers, along with fellow traveler Delta (which doesn’t fly any MAX planes), saw their share prices ascend 2% on Wednesday.

The bigger picture: China’s not back on its feet yet.

Promised tax cuts and other government help can’t come soon enough: data on Wednesday showed Chinese industrial companies’ profits fell at the fastest rate in a decade through January and February – down 14% on last year (tweet this). The slowdown was mainly due to falling prices in key sectors like oil and steel; trade war with the US has taken a toll on Chinese factory activity and exports. Still, analysts expect the government’s support measures to steady the economic ship later in 2019.

Originally posted as part of the Finimize daily email.

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