Southwest Airlines(NYSE: LUV) is famously a one-airplane airline -- a strategic choice that dovetails with the company's focus on efficiency and keeping things simple. But that one airplane, the Boeing 737, is currently caught in turbulence, and it's impacting Southwest's plans for growth.
Shares of Southwest lost 14.8% in March, according to data provided by S&P Global Market Intelligence, after the company warned Wall Street that it was adjusting guidance downward due to uncertainty about new plane deliveries.
Boeing's woes are hitting customers hard
The 737 MAX has turned into a nightmare not just for Boeing but for its customers as well. The plane was grounded for 18 months beginning in 2019 after a pair of fatal crashes, and even after it was returned to service, a series of design and manufacturing issues stalled production.
The latest incident -- in which a door fell off an airplane while it was in flight -- has led to further regulatory actions, including manufacturing slowdowns.
Southwest from its start has been a 737 operator, taking advantage of the simplicity that comes with a fleet composed of variants on a single aircraft model. In mid-March, the airline said that Boeing had advised it to expect just 46 deliveries this year. Originally, Southwest had planned to take 58 737 MAX 8 jets and 21 737 MAX 7 jets in 2024, but the smaller MAX 7 has not yet been certified by the Federal Aviation Administration (FAA).
With the FAA closely watching Boeing's operations, it is possible the MAX 7's certification won't come until 2025.
Fewer planes mean Southwest will be forced to juggle its schedule, meaning fewer flights and less revenue. Southwest said it was reevaluating its 2024 guidance and plans to provide an updated forecast when it releases first-quarter results in late April.
Is Southwest stock a buy?
There's nothing right now to suggest that the 737s currently operating will be grounded, so the impact on Southwest should be solely on its plans for growth, not on its ability to fly its current schedule. Although it's unclear how long it will take to resolve the concerns about 737 MAX, Boeing will presumably either eventually work out its issues with the FAA or Southwest will look to source planes elsewhere.
Southwest, as one of Boeing's most important customers, will likely be one of the initial beneficiaries of any uptick in the pace of deliveries.
But the situation at Boeing has only gone from bad to worse since the start of the pandemic, and with the company now both seeking a new CEO and pondering a deal to reacquire one of its key suppliers, the timeline for its recovery is uncertain. Southwest will have to be patient, and so too will its shareholders.
There's no reason for long-term focused investors to abandon Southwest Airlines, but also no reason to believe the recovery will be quick. Those interested in buying shares would be wise to wait until after Southwest's April 25 earnings release, when they will get more color on what the airline expects for 2024.
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Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool recommends Southwest Airlines. The Motley Fool has a disclosure policy.
