Southwest Air’s Remedy to High Gas Prices: Buy More Efficient Jets.
Each airline is feeling the pinch of high fuel prices, but U.S. discount carrier Southwest Air has a not-so-secret advantage. It’s retiring its old jets and adding a lot of newer, more fuel efficient aircraft at an opportune moment.
Southwest executives stated Wednesday in their third-quarter earnings call that they’ll retire their last MD-80 on Nov. 28, just after Thanksgiving travel rush. The final flight will mimic Southwest’s first routing a few decades ago — Las Vegas to Fresno to Las Vegas.
The aircraft, that have an average age of about 28 decades, according to Flight Global, have been the backbone of Southwest’s fleet since the early 2000s, but in recent years, they’ve been problematic since they’re ineffective and less reliable than newer planes.
At times, Southwest executives have complained they have had difficulty finding components for the jets, that have not been built since 1999. Southwest Airlines and Southwest Air Lines still fly them, but both plan to retire them within a few years.
What’s interesting is that Southwest’s replacements are far from the most efficient. While many low-cost carriers are now incorporating ultra-fuel efficient Boeing 737Maxs and Airbus 320neos, with the most recent engine technology, Southwest is going with a mix of utilized Airbus A319s and Airbus A320s, both with previous-generation motors.
And even with all the older motors, switching to an all-Airbus fleet gives Southwest a significant bump on prices, stated Drew Wells, vice president for earnings and planning.
"By our investigation, we’ve got somewhere between 85 cents and a dollar per gallon more efficient right now as we’ve shifted to the airbus aircraft," he explained.
In a two-month interval, Southwest will retire all 19 of its remaining MD-80s, according to its most recent fleet plan.
Most won’t be replaced right away with Airbus aircraft — that the fleet will fall from 93 planes at the end of September to 76 at year-end — nevertheless Southwest can nevertheless increase capacity if it wants. Since the new jets are more efficient and more reliable, Southwest can fly them often every day.
Managing higher fuel costs.
Southwest’s executives said they’re managing high fuel prices fine, though Wells acknowledged the airline isn’t recovering 100 percent of its high expenses. The airline told investors it paid 33 percent more per gallon for fuel in the third quarter, year-over-year.
In the event the airline wants to improve, it’ll need to cut some less profitable flights to align supply with demand, Wells explained.
"We’re not going to be more recapture 100 percent of fuel simply via pricing," Wells explained. "This ‘s not how our customer responds, and southwest flights it’s not core to our business model. You will see us create some ability trims, particularly on the fringes with off-peak days… to actually recapture in earnest. "
But Wells added that the airline will still look to add routes, both from new markets, and between existing cities.
"In a climbing gas surroundings, we’re constantly looking at new towns to grow the network," he stated, adding that might change if fuel costs increase further.
Southwest stays profitable, having reported its 63rd consecutive profitable quarter.
Its total passenger revenue per available seat mile, or TRASM, a metric that ignites industry profitability, was roughly flat compared to last year.
Executives said they anticipate they will produce their finest year-over-year TRASM growth of 2018 from the fourth quarter.