Southwest’s Change of Plans Deals Boeing a Heavy Blow

Southwest Airlines (NYSE:LUV) announced today it will defer deliveries of thirty Boeing (NYSE:BA) 737-800 jets by about four years as it extends a cap on fleet size in an effort to cut costs.

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“We’re more conservative right now in our ambitions with respect to expansion,” CEO Gary Kelly said today following the company’s annual shareholder meeting. “Right now we’re very focused on hitting our profit target. We’ll have plenty of aircraft in future years to be able to grow the airline.”

By deferring the deliveries, Southwest will save more than $1 billion in capital spending, and though travel demand has been strong, the discount airline must hold down costs to remain profitable while offering low fares. The airline wants to slow growth until it reaches its goal of 15 percent return on invested capital, Kelly said.

Southwest is delaying 20 deliveries that had been scheduled for next year, and another 10 set for 2014. Now half of the aircraft will arrive in 2017, and the other half in 2018.

Southwest will now receive only 20 737-800s in 2013, and 24 in 2014, along with five 737-700s. This year, the airline will add thirty-four 737-800s to its fleet while retiring roughly that many to end the year with 692 planes.

Southwest’s decision to hold off on expanding its fleet is bad news for Boeing, which had 1,530 unfilled orders for the 737-800 through April, the most of any aircraft, according to its website. Boeing has 345 pending 737 orders with Southwest.

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