Southwest (LUV) Falls Amidst Rising Costs and Boeing (BA) Recovery

Key Points:

* Southwest Airlines (LUV) shares declined 5% due to heightened costs and production delays.
* CEO Bob Jordan remains optimistic about Southwest's recovery strategy, buoyed by positive developments at Boeing (BA).
* Boeing faces production constraints that could take years to resolve, impacting Southwest's operations.
* Southwest's cost-cutting plan is on track, with strong consumer demand and strategic partnerships.
* Boeing is expected to ramp up 737 production, potentially surpassing targets and boosting Southwest's efficiency.

Southwest's Turnaround Plan Facing Challenges

Southwest's recovery plan has encountered challenges, with higher costs overshadowing progress. The airline warned of accelerated expenses in the first half of 2023, similar to concerns raised by JetBlue (JBLU). Despite these near-term headwinds, Jordan remains optimistic, citing progress at Boeing.

Boeing's Recovery Critical to Southwest's Business

Boeing's recovery is crucial for Southwest, which operates an all-Boeing fleet. Delivery delays have reduced Southwest's capacity and increased maintenance costs. Jordan expressed confidence in Boeing's ability to increase 737 production, with estimates of deliveries exceeding current targets.

Boeing Exceeding Production Targets

Boeing CEO Kelly Ortberg indicated that production is exceeding expectations, with the potential to reach a pace of 42 737s per month by year-end. This would mitigate production constraints faced by Southwest.

Southwest's Cost-Cutting Initiatives

Southwest's cost-cutting plan is progressing, with initiatives such as co-brand agreements and partnerships reducing expenses. Jordan emphasized the importance of revenue growth and efficient operations, noting strong unit revenue performance compared to competitors.

Southwest Shares Stabilize

Despite recent challenges, Southwest shares have gained 8% since the announcement of the turnaround plan. The stock closed at $30.71 per share, demonstrating investor confidence in the company's recovery efforts and the potential impact of Boeing's improved production.