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Lynn University *

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AVS 584

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Management

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Apr 3, 2024

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Southwest Airlines and Boeing Relationship Downfall  Airlines are reassessing their exposure to Boeing, even Southwest Airlines, which made a small adjustment to its 10-K annual report. Southwest said it was dependent on Boeing as the sole manufacturer of its aircraft, but changed the wording from its previous annual 10-K filing to mention the risk of the MAX aircraft becoming "unavailable" for operations. Southwest Airlines has 223 MAX 8s and 495 firm orders for MAX 7s and 8s, but it is reassessing the risks of its exposure to Boeing in light of its problems, including the emergency-door plug blowing out on an Alaska Airlines flight last month. Southwest is sticking by Boeing, but United Airlines is rethinking its plans for the Boeing MAX 10 aircraft. Emirates says Boeing is in a "last chance saloon" and both companies have order backlogs of 10-plus years at current production rates. Keown, C. (2024, Feb 09). Southwest Airlines Flags a New Boeing Risk in 10-K Annual Report. Barron's (Online) http://lynn-lang.student.lynn.edu:2048/login?url=https://www.proquest.com/ newspapers/southwest-airlines-flags-new-boeing-risk-10-k/docview/2923948118/se-2  Southwest Airlines is rethinking its 2024 financial forecast, after Boeing said it would only be able to provide 46 Boeing 737 Max 8 aeroplanes in 2024, having previously committed to 58 aircraft. Southwest Airlines said it expects the delivery schedule to be fluid and will reduce capacity and re-optimize schedules, primarily for the back half of 2024, and will provide updated full year 2024 guidance in conjunction with the reporting of its first quarter 2024 financial results on 25 April 2024. Southwest is hardly the only airline facing this issue right now. Alaska Airlines has also revealed that its capacity has been impacted due to Boeing's aircraft groundings, and United Airlines has also announced that it would have to stop hiring pilots this spring due to this. A Boeing whistleblower, John Barnett, was found dead in South Carolina on March 12, allegedly from a self-inflicted wound. World: Southwest Airlines rethinks 2024 financial forecast due to Boeing woes. (2024, Mar 15). Asia News Monitor http://lynn-lang.student.lynn.edu:2048/login?url=https://www.proquest.com/newspapers/world- southwest-airlines-rethinks-2024-financial/docview/2956826348/se-2  Southwest Airlines is removing Boeing's 737 MAX 7 model from its 2024 plans, and said it won't take any MAX 7s. United Airlines has also said it no longer wants any 737 MAX 10s. Southwest Airlines has revised its expectations for aircraft deliveries and isn't assuming placing the MAX 7 in service this year. The airline still has many firm orders for the MAX 7 and can convert them to the MAX 8 and MAX 9 versions. Southwest's

report was still more upbeat than it was a year ago, despite a $140 million settlement with the U.S. Department of Transportation. Swint, B., Levisohn, B., & Root, A. (2024, Jan 25). Southwest Cuts Boeing 737 MAX 7 Planes From Its 2024 Fleet Plan. Barron's (Online) http://lynn-lang.student.lynn.edu:2048/login? url=https://www.proquest.com/newspapers/southwest-cuts-boeing-737-max-7-planes-2024- fleet/docview/2918189848/se-2  Boeing's problems are rippling across major U.S. airlines, with Southwest Airlines cutting flight capacity and re-evaluating financial guidance, and United Airlines pausing pilot hiring for two months and hunting for new planes from Boeing rival Airbus to fill the gap. Boeing has slowed down production of its bestselling 737 MAX jets as it faces increased scrutiny from the Federal Aviation Administration and the Justice Department.  The February tally signals that Boeing is well under its goal of producing 38 MAXs a month, and that production has been slowed by federal regulators and internal efforts to root out quality problems. Boeing announced a series of steps aimed at improving quality on Tuesday, including performing compliance checks and quality audits at its 737 factory and curbing a practice called traveled work. The steps are in response to an FAA production audit and recent findings of an independent panel. Boeing expects production to be below its 38-a-month target through the first half of this year.  Airlines are giving up on receiving the smallest and largest varieties of MAX jets this year due to growing uncertainty about when aviation regulators will sign off on those models. United has pulled the largest MAX 10 jets from its schedule indefinitely. Southwest, which flies only Boeing planes, is planning to reduce pilot hiring by more than 50% and reduce flight-attendant hiring by more than 60% this year, looking to reduce costs. Sider, A., & Terlep, S. (2024, Mar 12). Airlines Are Cutting Flight Schedules as Boeing Delivers Fewer Jets; Southwest and Alaska Air say flying plans are at risk; United and Southwest will slow hiring of pilots. Wall Street Journal (Online) http://lynn-lang.student.lynn.edu:2048/login? url=https://www.proquest.com/newspapers/airlines-are-cutting-flight-schedules-as-boeing/ docview/2955237712/se-2  An airline's flights appear to be full when the load factor is high, meaning that most seats are occupied by passengers. A low load factor might give rise to concerns and suggest that the airline is not making a profit (Beers, 2022). The load factor is a metric of aircraft usage that reflects the ratio between available seat miles and revenue passenger miles achieved. The load factor has a significant influence on the cost and quality of air transportation services provided. A high load factor enables reduced fares. Southwest Airlines' load factor is calculated using revenue passenger miles (RPM) divided by available seat miles (ASM). Southwest Airlines' load factor decreased by 3.4% between

2022 and 2023, from 83.4% to 80% (Southwest Airlines Reports Fourth Quarter and Full Year 2023 Results, 2024). With a decrease in their load factor, fares might increase and the revenue will decrease. Southwest Airlines reports fourth quarter and full year 2023 results. (2024, January 25). Southwest Airlines Newsroom. https://swamedia.com/releases/release- 0c3622ff1964cc8c017467eee0d85c82-southwest-airlines-reports-fourth-quarter-and-full-year- 2023-results Beers, B. (2022, July 28). How does load factor impact airline profitability? Investopedia. https://www.investopedia.com/ask/answers/041515/how-can-i-use-load-factor-indicator- profitability-airline-industry.asp#:~:text=If%20only%20half%20of%20the,expenses%20and %20generates%20a%20profit.  Available seat miles relates to how many seat miles are genuinely available for purchase on an airline. Seat miles are computed by multiplying the number of miles that an airplane will travel by the number of seats available for a particular journey (Kagan, 2020). A revenue passenger mile (RPM) is a transportation sector term that represents the number of miles traveled by paying passengers and is commonly used as an airline traffic statistic. Revenue passenger miles are computed by multiplying the number of paying passengers by the distance traveled (Kenton, 2022). 2019 ASM - 157.25 billion RPM - 131.35 billion 2020 ASM - 103.46 billion RPM - 54.22 billion 2021 ASM - 132.01 billion RPM - 103.56 billion 2022 ASM - 148.47 billion RPM - 123.84 billion

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(Available Seat Miles (ASMs) of Southwest Airlines 2022 | Statista, 2023) (Revenue Passenger Miles |Statista, 2023) Available seat miles (ASMs) of Southwest Airlines 2022 | Statista. (2023, August 31). Statista. https://www.statista.com/statistics/419351/southwest-airlines-available-seat-miles/ Kagan, J. (2020, June 14). Available Seat Miles (ASM): Overview of airline capacity metric. Investopedia. https://www.investopedia.com/terms/a/availableseatmiles.asp#:~:text=Available %20seat%20miles%20refers%20to,available%20for%20a%20given%20flight. Kenton, W. (2022, August 19). Revenue Passenger Mile (RPM): defining a transportation metric. Investopedia. https://www.investopedia.com/terms/r/revenue-passenger-mile-rpm.asp Statista. (2023, August 31). Revenue passenger miles (RPMs) of Southwest Airlines 2010-2022. https://www.statista.com/statistics/419348/revenue-passenger-miles-of-southwest-airlines/

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