Southwest Air sees lower flight capacity growth as retires old planes

(Reuters) - Southwest Airlines Co (NYSE: LUV) on Thursday reported first-quarter profit above estimates and said it will retire old planes earlier than planned, rolling back its growth plans and taking some competitive heat off rivals.

The No.4 U.S. airline by traffic said it grew profit 13 percent in the first quarter from a year ago to $511 million. Excluding special items, it earned 88 cents per share, compared with 84 cents per share that analysts on average were expecting, according to Thomson Reuters I/B/E/S.

The Dallas-based carrier said it moved up plans to retire classic Boeing Co (NYSE: BA) 737 jets in its fleet to no later than the third quarter of 2017 from 2018, in order to resolve uncertainty about U.S.-mandated pilot training for flying those aircraft and their next-generation model, the Boeing 737 MAX.

This will result in fewer aircraft and lower growth in flight capacity than previously forecast, Southwest said.

"These are the most expensive planes in terms of fuel (inefficiency) and in terms of maintenance," Sterne Agee CRT analyst Adam Hackel said.

At the end of 2015, Southwest had 129 classic aircraft that it has planned to retire out of a fleet of 704. As of March 31, it said it expected to take delivery of 155 new planes through 2018 and has options for 18 more, and will have about 720 aircraft by the end of 2016.

The early retirements will have the unintended effect of boosting rivals, Hackel added.

American Airlines Group Inc (NASDAQ: AAL) and others have reeled from Southwest's massive expansion from Dallas Love Field, an airport where its flying was limited by statute until October 2014.

Southwest also began flying abroad from Houston last year, where United Continental Holdings Inc (NYSE: UAL) had a grip on the international travel market.

The airline said it expected unit revenue to rise "modestly" in the second quarter, in contrast to United's forecast Wednesday that the measure would fall and that flights have exceeded demand.

"Solid bookings and revenue trends have continued," Southwest Chief Executive Officer Gary Kelly said in a news release.

Yet Southwest's move to scrap its old fleet early will mean less competitive pressure on rivals. It said it will not grow as much as the 5 to 6 percent expansion in flight capacity it has undertaken for 2016.

Southwest also said it intends to buy back $200 million of stock in the second quarter as part of an accelerated repurchase program.

Shares inched down less than 1 percent in morning trade.

(Reporting by Jeffrey Dastin in New York; Editing by Jason Neely, Lisa Von Ahn and Marguerita Choy)

You May Also Be Interested In

• Boeing, Spirit agree $425 million deal to address supplier's issues
• Timing of first BoE rate cut splits economists between June and Q3 - Reuters poll
• Trump meets with Japan's former prime minister Aso