Southwest Airlines is embarking on a decade of fleet modernisation after its decision to become the launch customer for the Boeing 737 Max.
The aircraft in today's record order valued at $19 billion for 150 737 Max and 58 Next Generation 737s, join the airline's 142 737 orders already recorded in Boeing's order book. The order also includes a further 150 options for the 737 Max, joining 92 Next Generation 737s for a total of 242 options.
Southwest CEO Gary Kelly said the order maintains its financing and flat fleet plan replacing aging 737-500 and -300 aircraft, allowing for "flexibility in the future with retirements and options" if the carrier chooses to grow its fleet.
The order, for which Southwest said received at a "substantial discounts from the list price", will result in an average yearly capital expenditure of $1.2 billion each year between 2012 and 2022, said carrier COO Mike Van De Ven.
"The cost benefit equation allows us to invest in a longer term fleet renewal programme with the expectation that will meet our 15% pre-tax [return on invested capital] hurdle," said Van De Ven.
In total, the company holds 127 orders for Next Generation 737 aircraft, for which the airline can substitute the larger -800, along with 73 firm orders for the -800, including the 58 ordered today, the first of which is due in 2012.
Next year Southwest is taking delivery of 33 new aircraft -- 28 directly from Boeing and five from lessors -- to replace older aircraft exiting the fleet.
The carrier expects to take delivery of four -800s in 2013 and four in 2014, with options for 92 aircraft between 2014 and 2018. Southwest expects to accept delivery of 35 -700s in 2014, 36 in 2015, 31 in 2016, 15 in 2017 and 10 in 2018.
Southwest expects four Max deliveries in 2017, suggesting either a modest production ramp up or a service entry late in the year, with delivery of 15, 33, 34, 34 and 30 in the respective years between 2018 and 2022. Options for deliveries of 18, 19, 23 and 23 737 Max aircraft are available to Southwest between 2021 and 2024.
Further, Van De Ven also suggested that Southwest's commitment to the 737 Max would return the carrier to a single aircraft family, with possible early retirement of the AirTran 717s.
"Our choice today of the 737 Max, guarantees to Southwest Airlines a single-fleet type well into the next decade, with all of the operational benefits associated with training, and schedule recovery and our maintenance programmes," he said.
Assessing Southwest's approach to managing the 86 Boeing 717s it gained through its acquisition of AirTran Van De Ven said: "We have the 717s in long term leases with Boeing from 2017 through 2024, I believe. We've talked with Boeing about how to replace them with newer more efficient airplanes and we're going to work as hard as we can to see what the alternatives are there, but ultimately we're responsible and are willing to operate those airplanes through the lease terms if we have to."