- Southwest is modernizing its fleet to aid profit growth by:
- Retrofitting its 737-700s with new
seats which increase the number of seats on board. This is
creating revenue growth opportunities through higher
- Inducting 737-800s which have higher seating capacities
and lower per seat operating expenses. This is adding to
revenue opportunities particularly in high demand
- Transitioning 717-200s to Delta which will bring cost
advantages associated with operation of a single aircraft
- Replacing older aircraft in its fleet with newer ones
which will lower maintenance and repair costs.
Southwest Airlines (
) is modernizing its aircraft fleet to aid growth in margins. The
carrier is retrofitting all of its 424 Boeing 737-700 aircraft with
seats which is increasing the number of on-board seats without
compromising on passenger comfort. It is inducting the larger 737
variant, Boeing 737-800, in its fleet which allows the carrier to
serve long haul routes more economically. Southwest is also leasing
out all 88 Boeing 717 aircraft, which it received as part of
AirTran acquisition to
). This will allow it to regain cost advantages that come with
operation of a single aircraft type. Finally, the carrier also has
firm orders for 321 new Boeing 737 aircraft with their deliveries
ranging from 2013 through 2022. This will allow it to replace aging
aircraft in its fleet with new ones and thus save on maintenance
and repair expenses.
In all, through the combined effect of these fleet initiatives,
Southwest is creating top line growth opportunities and saving on
operating expenses, thus promoting profit growth. Currently, the
carrier has 694 aircraft in its fleet - 88 Boeing 717s and 606
Boeing 737s (424 Boeing 737-700s, 128 Boeing 737-300s, 34 Boeing
737-800s and 20 Boeing 737-500s) and it is managing each type
suitably to bolster its profit growth.
Average age (in yrs.)
Number of aircraft
137 or 143
Less than 1
We currently have
a stock price estimate of $12.17 for Southwest
, approximately 5% above its current market price.
See our complete analysis of Southwest here
Evolve interior in 737-700s is adding to revenue growth
Southwest is retrofitting its 737-700 aircraft with
seats which are lighter, thinner and more durable. These seats
allow for greater passenger seating space and six more seats to be
placed on an aircraft. As a result, the total number of passengers
that can be seated on the carrier's 737-700s has increased from 137
to 143. This increase in the number of seats is creating revenue
growth opportunities through higher passenger traffic.
As of January 22, 2013, 270 of the carrier's 424 737-700
aircraft had been converted to
interior. Southwest anticipates to complete retrofitting all
its 737-700 aircraft with these interiors by the end of 2013. The
carrier will also introduce this interior in 78 of its 737-300s in
2013. The combined effect of higher seating capacity in over 500
planes by the end of 2013 will add significant growth
potential to Southwest's passenger traffic.
Incorporation of 737-800s is boosting economics on long
haul routes and at busy airports
Southwest is also incorporating the larger 737-800s in its fleet
that seat 175 passengers. This allows the carrier to improve its
passenger share at high demand, slot controlled airports like
Newark, New York. A slot is an approval for take-off and landing at
a pre-determined time and is an essential feature of busy airports.
In addition, the 737-800 with its longer range and lower operating
expenses per seat is enabling Southwest to fly longer routes more
profitably. The carrier can now even think of starting service to
distant destinations in Hawaii, Mexico, Canada and Alaska.
On the whole, the 737-800 is improving top-line through higher
passenger traffic at busy airports, reducing unit costs and
providing flexibility to the carrier in introducing service on new
routes. Southwest received 34 737-800s in 2012 and expects to take
delivery of 20 737-800s in 2013 and 24 in 2014.
Leasing out 717s will lower maintenance spend and create
Southwest also entered into an agreement with Delta under which
it will lease out all 88 of its Boeing 717-200 aircraft to the
latter from August 2013 through 2015. This will restore Southwest's
fleet to a single aircraft type (Boeing 737s) providing it with
advantages like lower spare part inventory costs and lower
maintenance and training expenses that come with operation of a
single aircraft type.
Additionally, these Boeing 717-200 aircraft seat 117 passengers.
When these get replaced by new Boeing 737s and delayed retirement
of existing 737s, all of which have higher seating capacity and
similar per mile operating expenses as 717s, they will create
additional revenue growth opportunities without increasing
operating expenses for the company.
Replacement of older aircraft with newer ones is saving
on maintenance costs
Finally, the average age of 737-300 and 737-500 aircraft in
Southwest's fleet is around 19 years and 22 years, respectively.
These older aircraft incur significantly more maintenance and
repair costs compared to newer ones. To replace these over the
coming years, Southwest has ordered 563 aircraft of which 321 are
on firm orders and the rest are on options. Deliveries of
these new planes will allow Southwest to retire older aircraft from
its fleet and thus save on heavy repair and maintenance that older
Some of these new planes may also be used to create additional
capacity in the future if the demand environment provides support.
Higher capacity in turn will promote growth in passenger traffic
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