Why Southwest Airlines Stock Is Flying Lower Today

Quality issues at Boeing (BA -4.49%) are wreaking havoc on the aerospace giant’s customers, causing airlines to rethink their growth plans. Shares of Southwest Airlines (LUV -14.00%) were down 14% as of 11:30 a.m. ET after the company said it was trimming capacity and reevaluating its financial forecasts for the year.

No planes, no growth

Boeing investors have been taken on a turbulent ride in recent years, and the company’s customers have not been treated much better. Boeing has been plagued by design and quality issues related to its 737 MAX and other airframes, leading to regulatory actions including groundings and manufacturing slowdowns.

Southwest, which is famously an all-Boeing 737 operator, is feeling the impact. The airline said it has been advised by Boeing to expect just 46 737-8 deliveries this year. The airline had planned to take 58 737-8s and 21 737-7s, but the smaller MAX-7 hasn’t yet been certified by the Federal Aviation Administration (FAA).

With Boeing under more intense FAA scrutiny, it is uncertain whether the new plane will be allowed to fly this year.

The slower production schedule is putting Southwest’s planning in flux.

“As a result of Boeing’s continued challenges, the company expects the delivery schedule to be fluid and, therefore, plans to reduce capacity and reoptimize schedules, primarily for the back half of 2024,” the airline said in the filing.

The company is also reevaluating its 2024 guidance and said it will provide an updated forecast on April 25, when it expects to release first-quarter results.

Is Southwest stock a buy?

Southwest’s reliance on the 737 has historically been a competitive advantage, simplifying scheduling and maintenance and helping to keep costs low. But that same dependence makes the airline particularly vulnerable to an aircraft-specific issue like Boeing’s troubles with the 737.

That said, Southwest is hardly alone in feeling the pinch. Alaska Air Group, another big 737 operator, is also sounding the alarm about its schedule, and United Airlines Holdings said it was scaling back pilot hiring because of late-arriving Boeing planes.

Given enough time, these issues should work themselves out and Southwest’s growth should only be delayed, not canceled. For those interested in what has been a historically strong airline, Tuesday’s drop could be a great opportunity to buy in.