Southwest Airlines Shouldn't Replace The Boeing 737 MAX Anytime Soon

Nov. 15, 2019 10:17 AM ETThe Boeing Company (BA), LUVEADSY92 Comments


  • The ongoing Boeing 737 MAX safety crisis has Southwest Airlines considering whether to deviate from its longstanding strategy of operating only Boeing 737s.
  • Some travelers will avoid the 737 MAX when it initially returns to service, but customer behavior is likely to return to normal sooner than many people expect.
  • It would take a long time for Southwest Airlines to build up a sizable fleet of any existing alternative to the 737 MAX.
  • Southwest Airlines should stick with the 737 MAX for now and push for Boeing to accelerate development of a clean-sheet replacement model.

A pair of fatal accidents in late 2018 and early 2019 involving the Boeing (NYSE:BA) 737 MAX have sullied Boeing's reputation. The subsequent grounding of the 737 MAX has caused enormous financial harm to airlines that had ordered the latest version of Boeing's workhorse jet model.

Top customer Southwest Airlines (NYSE:LUV) has felt some of the greatest effects. Last month, management said that the grounding had cost the company $435 million of operating income between mid-March and the end of September. Given that Southwest recently extended the grounding of its 737 MAX fleet until at least March 6, 2020, those losses will continue to mount.

Not surprisingly, this crisis is forcing Southwest Airlines to rethink its loyalty to Boeing (and to the 737 MAX in particular). CEO Gary Kelly has said that the airline will reevaluate the merits of its decades-old strategy of operating a single fleet type. That evaluation could lead to a decision to add a second fleet type to the mix. Many industry pundits agree that Southwest needs to diversify away from the 737 (especially the 737 MAX). However, despite the Boeing 737 MAX's current reputational woes, Southwest should not change its fleet strategy anytime soon.

Two primary concerns about the 737 MAX

There are two main reasons why Southwest Airlines might want to diversify its fleet away from the 737 MAX.

A Southwest Airlines Boeing 737 MAX 8(Image source: Southwest Airlines)

The first one is more obvious. The two 737 MAX crashes have sapped the public's trust in Boeing. A series of consumer surveys have shown that a substantial number of people would avoid the 737 MAX at all costs, and many more would pay a premium to fly a different aircraft type.

While surveys are notoriously unreliable at divining respondents' true intentions, these responses are still concerning. In fact, in one recent survey, 12% of respondents said

This article was written by

Adam Levine-Weinberg is a value investor who has been researching and writing about stocks for Seeking Alpha and The Motley Fool since 2011. He graduated from Swarthmore College in 2007, received an M.A. in Political Science from the University of Chicago in 2009, and received his CFA charter in 2017. He is always on the hunt for irrationally beaten-down stocks, particularly in the aerospace, retail, real estate, and auto sectors.

Disclosure: I am/we are long LUV, ERJ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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