I’ve been writing for some time that Southwest has maxed out its business model flying a single aircraft type and without partners. They’re starting to add a handful of minor partners but that doesn’t solve the problem.
Southwest can no longer expand like they used to with an all-737 fleet. And since their growth prospects aren’t great, their future profits aren’t orders of magnitude larger than current profits – and so their stock won’t trade at the multiples it used to.
- There aren’t as many cities to fly to in the United States and short-haul international that can be reached with a Boeing 737 and with enough passengers to justify a 737.
- They also can’t add as many 737 flights without connecting passengers from small cities to help fill the planes.
Before the pandemic they kicked the tires on Airbus A220s and looked at Embraer E2 regional jets. The E2 has been put off for several years, though demand from Southwest could bring it back.
Southwest is increasingly a hub-and-spoke carrier, carrying more connecting passengers than ever (as they’ve discussed in recent earnings calls and investor presentations). But they don’t have the right fleet mix for this.
Jamie Baker of J.P. Morgan says we’re entering another period of airline consolidation thanks to a Trump administration that should take a friendly approach to antitrust. He sees JetBlue on the selling block.
For Southwest, though, Mike Boyd says Southwest should buy Breeze Airways for its fleet of Airbus A220s. That way they wouldn’t have to wait years for new planes that they need.
The 737 gambit was okay for the former Southwest, but it represents a capacity straitjacket in regard to the re-direction the airline is pursuing.
Boeing is out, as all they have on the shelf are more 737s. Airbus has the A220, but it is being produced at something like 14 a month – and any order would be years to deliver. Embraer 195E2 is possible, but it also would be years. And time is not Southwest’s greatest asset at the moment.
The logical – if geeky-appearing – conclusion might be to purchase an existing operator. Like, maybe Breeze. They have 50 A220-300s on the ground (some probably literally due to the RTX powerplant fiasco) and another 45 on order. The -300 is a multi-role airliner that would allow Southwest enormous route flexibility.
Southwest needs new, smaller planes to serve more domestic markets and to fill the flights they already have. But they also need new, longer range aircraft to expand to long haul markets. They can fly to Iceland with the 737 MAX, but the Airbus A321XLR could make sense – still, no one has ever really made narrowbody long haul work before.
You need high yield passengers to do it, because seat costs are far higher than a full widebody. And Southwest is not a premium airline. So fleet diversification with smaller planes may make sense – even though most speculation has focused on the XLR.
Would Southwest ever be interested in the A220?
The thing is, the A220-300 is still smaller SW’s 737’s so how would acquisition of Breeze solve anything? …I think they need to lease 767’s or A330’s from a lease operator
@Joe the thesis is that they can use A220s to fly from smaller airports/markets to connect them to their 737 routes, filling them up.
Essentially adding the regional capability that the other legacy airlines have.
Of course, larger, perhaps twin aisle planes for long haul is also needed but those two aren’t either/or; why not do both.
I would think the A321neo would also benefit Southwest giving it heft on heavy routes. Of course, Breeze has no such aircraft and buying the disaster of what is Spirit Airlines would not be worth getting a different a/c type.
Breeze serves smaller underserved airports with direct flights that has none or little competition from other airlines mainly to vacation destinations, If Southwest bought Breeze that would most likely come to an end leaving those airports high and dry which would be unfortunate for them. Breeze is finally starting to make money, I don’t know if Neeleman wants his legacy to be just another sellout to another airline or something that can stand on its own. Only he knows for sure.
@John Robert Stone–
“Churchill: “Madam, would you sleep with me for five million pounds?”
Socialite: “My goodness, Mr. Churchill… Well, I suppose… we would have to discuss terms, of course… ”
Churchill: “Would you sleep with me for five pounds?”
Socialite: “Mr. Churchill, what kind of woman do you think I am?!”
Churchill: “Madam, we’ve already established that. Now we are haggling about the price.”
Mike Boyd says Southwest should buy Breeze…
Do you suppose privately-held Breeze might have something to say about that?
Breeze would be a dead end for WN. It doesn’t have the scale or serve the cities to move the neddle. Breeze can serve these smalller cities profitably since its pilots and staff are paid less than WN, DL, UA, and AA.
Picking up Spriit, Frontier, or JetBlue on the cheap would add scale, new hubs, and remove a competitor. Nothing stopping WN from leasing A220s if it wanted them ASAP.
“The E2 has been put off for several years, though demand from Southwest could bring it back.” Embraer has delivered over 180 E2s. They are all the 190 and 195 models. The 175-E2 has been delayed because of lack of interest because the original 175 meets the scope clause for regional use and the 175-E2 doesn’t. In the post Gary links to, he said they were looking at the 190-E2 and the 195-E2, both currently being produced.