"When you look at the contractual order book, it has 70 aircraft getting delivered plus ASMs from the red-eye aircraft. So how should we think about that in the context of at or below GDP growth? Are we getting to the point maybe where fleet growth needs to be net neutral? Do you accelerate retirement? How do we think about that?"
Romo responded by highlighting their flexibility with Boeing orders and mentioned that detailed plans would be shared at their Investor Day in late September:
"[W]e have ample flexibility to reflow the order book to ultimately meet our needs. And we’ll balance all of that clearly, given all of our objectives and including CapEx spend and also our initiative to renew the fleet. So we’ll lay out all those details for you at Investor Day."
CEO Bob Jordan outlined three key areas that will be addressed during Investor Day:
1. "Transformational commercial initiatives" (such as assigned seats and extra legroom seats)
2. "Improved operational efficiency" (including faster turn times and increased air time for planes)
3. "Capital allocation discipline" (focusing on lower capital spending with a major emphasis on aircraft)
Southwest is scheduled to receive 73 planes from Boeing in 2025, including 40 Boeing 737 MAX 7s which are not yet certified. This could lead to reduced capital expenditures in 2025 if fewer planes are delivered than currently planned without retiring older -700 aircraft. Potential capital allocation strategies might involve sale-leaseback arrangements, converting capital expenses into current expenses.
Despite these indications, it is possible for Southwest to maintain capacity without canceling most deliveries by accelerating retirements or retrofitting existing planes with premium seating sections while avoiding densification of cabins.
In summary, while there are alternative explanations for maintaining capacity besides deferring or canceling orders, it appears likely that Southwest will reduce or defer some aircraft deliveries. This marks a notable shift as airlines generally cite delivery delays affecting growth plans; American Airlines recently delayed its plans for Boeing 787-9s.
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