Southwest to save by delaying delivery of planes

DALLAS — Southwest Airlines Co. is delaying delivery of new airplanes and filling the gap with used planes to reduce spending over the next five years.

It’s also raising its dividend and could soon buy back more of its own shares.

Southwest said Wednesday that it will delay 30 firm orders for Boeing 737 jets, which CEO Gary Kelly said would cut capital spending through 2018 by more than $500 million. The airline is also giving up or delaying options for additional planes.

Meanwhile Southwest will buy 10 used 737s from Canada’s WestJet over the next two years. They average about 11 or 12 years old and should bide Southwest over until Boeing begins producing a new, more fuel-efficient 737 model called the Max late in this decade, Southwest officials said.

The airline isn’t disclosing financial details of the Boeing and WestJet deals, which were announced at the Dallas company’s annual meeting.

Kelly offered an upbeat forecast for summer and suggested that April might turn out to be the weakest travel month of 2013.

“We’re certainly feeling better about May-June than we were about April,” Kelly told reporters after the meeting. “There is a softness in the economy right now, so our folks are working very hard to generate traffic. I think we’re going to see very full airplanes.”

Kelly said, however, that he was uncertain whether the airline could boost prices. Southwest and other airlines reported a drop in a key per-mile revenue ratio in April.

Southwest is raising the quarterly dividend due on June 26 to 4 cents per share, up from a penny per share. It’s also boosting share-buyback authority to $1.5 billion from $1 billion. The company has bought $725 million in its own stock since August 2011, increasing the value of remaining shares.

Southwest is alone among major U.S. carriers in being consistently profitable for many years and having an investment-grade credit rating. It was the only major U.S. airline to offer a dividend until Delta Air Lines Inc. announced last week that it too will begin paying a dividend. Delta also increased its share-buyback program.

Other kinds of companies routinely pay dividends and buy back shares, but the lack of dividends is fitting in the airline industry, where most big operators have lost billions and gone through bankruptcy in the past decade. Delta’s dividend and the increase at Southwest are further signs that the airlines believe they’ve turned a corner.

Mergers have reduced competition among airlines, helping to prop up fares, and the carriers have raised billions from new fees.

Southwest shares rose 36 cents, or 2.6 percent, to close at $14.34. Shares of Delta, United Continental Holdings Inc. and US Airways Group Inc. were each up more than 3 percent in a broad market rally.

More in Herald Business Journal

Happy accident leads Edmonds couple to make Hunniwater drink

The latest line of energy drinks by Karin and Eric… Continue reading

Single payer is no panacea for our costly health care system

We must address the cost of health care before designing an insurance system.

Voters are on the sidelines as the port fills a vacant seat

Troy McClelland resigned from the Port of Everett commission too late for an election before 2019.

Career Fair planned next week at Tulalip Resort Casino

The Snohomish County Career Fair is planned from 10 a.m. to 2… Continue reading

American Farmland Trust president to speak in Mount Vernon

American Farmland Trust President John Piotti plans to give a talk about… Continue reading

Agent joins Re/Max in Smokey Point

Dennis Roland joined the Re/Max Elite Smokey Point office. The Navy veteran… Continue reading

In space capsules today, little room but big improvement

Boeing and SpaceX are relying on a tried-and-true design as they each develop new spacecraft.

Don’t rely just on productivity measurements to value a worker

The controversies swirling around the productivity data at the national level are… Continue reading

First Boeing KC-46 delivery to Air Force slides into 2018

Certification milestones have been missed, and problems have emerged in flight test, a source says.

Most Read