Southwest ranks third in fuel efficiency
According to the study by the International Council on Clean Transportation (or ICCT) on fuel efficiency of U.S. domestic airline companies, Southwest (LUV) ranked third in 2012 with a Fuel Efficiency Score (or FES) of 1.05. A FES of one indicates the industry average. A score higher than one represents performance better than the industry average. However, there’s further room for improvement for Southwest as its fuel consumption is 7% higher than Alaska Airlines which is ranked first with a score of 1.13. Jet Blue (JBLU), ranks seven with a score of one and matches the industry average. United (UAL) is the only mainline carrier with efficiency scores above industry average. All other mainline carriers’ scores including Delta (DAL), U.S. Airways, and American (AAL) are below industry average.
How will fleet modernization improve Southwest’s fuel efficiency?
Although Southwest ranks third in fuel efficiency or fuel consumption, its fuel cost as a percentage of total operating expense is higher than its competitors. It has been on a rising trend. Also, Southwest’s fuel consumption is 7% higher than Alaska Airlines. As a result, to further contain fuel costs Southwest has implemented fuel efficiency initiatives including weight reduction, fuel planning, single-engine taxi, use of winglets, engine wash, and fleet modernization. Fuel savings from these initiatives are estimated at $30 million. It’s expected to reduce greenhouse gas emissions by more than 100,000 metric tons annually. Among the various initiatives, fleet modernization is the most significant strategic initiative. It’s expected to contribute to the growth of earnings before interest and taxes (or EBIT) by $500 million in 2014 and $700 million in 2015. During 2013, Southwest purchased 16 new 737-800s from Boeing, leased two new 737-800s and two 737-700s from third parties, and retired few older less efficient aircraft. Southwest’s capital expenditure was $1.45 billion in 2013. It’s expected to be $1.8 billion in 2014.
- Boeing 737-700s: These aircraft are supposed to be 6%–7% more fuel efficient than the 737 classic fleet. As a result, these aircraft will reduce fuel consumption because they replace old and less-fuel efficient aircraft. They will be used until the expected launch of 737 MAX in 2017.
- Boeing 737-800s: With more seating capacity, these aircraft will enable Southwest to expand to new long-haul international markets. The increased fuel efficiency from these aircraft is expected to reduce unit cost and greenhouse gas emissions by more than 42,000 metric tons of carbon dioxide equivalent in 2013.
- Boeing 737 MAX: These aircraft are to be launched in 2017. They’re expected to have the lowest operating unit costs in the single-aisle segment with the capability of reducing fuel burn and carbon dioxide emissions by an additional 13%.