Southwest Airlines source for 10 used 737-700s is WestJet

Southwest Airlines Co. is delaying delivery of new airplanes and filling the gap with used planes to reduce spending over the next five years.

It’s also raising its dividend and could soon buy back more of its own shares.

Southwest said Wednesday that it will delay 30 firm orders for Boeing 737 jets, which CEO Gary Kelly said would cut capital spending through 2018 by more than $500-million (U.S.). The airline is also giving up or delaying options for additional planes.

Meanwhile Southwest will buy 10 used 737s from Canada’s WestJet over the next two years. They average about 11 or 12 years old and should bide Southwest over until Boeing begins producing a new, more fuel-efficient 737 model called the Max late in this decade, Southwest officials said.

The airline isn’t disclosing financial details of the Boeing and WestJet deals, which were announced at the Dallas company’s annual meeting.

Southwest is raising the quarterly dividend due on June 26 to 4 cents per share, up from a penny per share. It’s also boosting share-buyback authority to $1.5-billion from $1-billion. The company has bought $725-million in its own stock since August 2011, increasing the value of remaining shares.

Southwest is alone among major U.S. carriers in being consistently profitable for many years and having an investment-grade credit rating. It was the only major U.S. airline to offer a dividend until Delta Air Lines Inc. announced last week that it too will begin paying a dividend. Delta also increased its share-buyback program.

Other kinds of companies routinely pay dividends and buy back shares, but the lack of dividends is fitting in the airline industry, where most big operators have lost billions and gone through bankruptcy in the past decade. Delta’s dividend and the increase at Southwest are further signs that the airlines believe they’ve turned a corner.

Mergers have reduced competition among airlines, helping to prop up fares, and the carriers have raised billions from new fees.

Southwest shares rose 20 cents to $14.18 in afternoon trading. Shares of Delta, United Continental Holdings Inc. and US Airways Group Inc. were each up about 3 per cent in a broad market rally.

(David Koenig - Associated Press)