Southwest Airlines is counting on last year's blockbuster deal for Boeing 737-800s and re-engined 737 Max narrowbodies to halt a trend of escalating maintenance costs, says CEO Gary Kelly.
Southwest is phasing out an aging fleet of 737 Classics, but the increasing age of the airframes and engines in its fleet have taken a toll on maintenance costs.
"Maintenance cost trends have definitely gone up," says Kelly, addressing the MRO Americas conference on 4 April.
A new study by the Oliver Wyman consultancy backs up Kelly's remarks. US low cost carriers could lose their advantage in maintenance costs compared to mainline carriers over the next decade, the Oliver Wyman report says.
Kelly acknowledges Southwest's fleet is growing older, particularly the CFM International engines powering its Classics and 737-700s.
"Our engines are pretty mature. They are very good engines, but we're in the age of the fleet where we have a pretty normal and regular burden of engine cost," Kelly says.
The key to reversing the trend will be completing Southwest's fleet renewal strategy by taking delivery of hundreds of 737-800s and Max aircraft over the next decade, he says.
"I would expect that with continuing innovation and with the Boeing 737 Max it will improve," he says. "Our desire is to - rather than have the unit cost of maintenance continue to escalate, that it flattens out."
The increasing maintenance cost trend is part of a wider problem for Southwest and the industry overall, he says.
Even as jet fuel costs have soared by 600% over the last decade to more than $120 per barrel. Kelly says, other operational costs are also increasing. The creeping cost burden is outpacing even record load factor and revenue performance by Southwest and other airlines.
For Southwest, the company is generating four times more revenue with roughly the same number of aircraft today compared to four years ago, he says. Even so, a $250 million increase in fuel costs will cause Southwest to post a rare loss when quarterly results are announced later this month, he says.
The existing cost and revenue trends are not sustainable, he says.
"These trends don't lend themselves to an industry that will last," Kelly says. "The challenge for all of us is to tackle this mountain of cost."