Southwest Airlines Flouts Maintenance Norms: Fine in Cards?

The Federal Aviation Administration (FAA) may levy a $325,000 fine on low-cost U.S. carrier Southwest Airlines Co. LUV for operating a Boeing 737 plane which was not serviced even after it had crossed the 24,000-flight limit set by the regulators.

In July last year, an FAA official submitted its inspection report on Southwest Airlines’ Boeing 737 carrier, which was due for repair since May 2, 2002. As per FAA rules, after every 4,000 flights, a plane is required to go through temporary repairs while permanent restoration should be done after 24,000 flights.

However, in this particular case, Southwest Airlines failed to comply with the rules and did not carry out a permanent repair even after exceeding the flight limit.

Also, last year, the FAA levied a $12 million fine on Southwest Airlines for non-maintenance of 44 Boeing 737 aircraft. Thus, it is being observed that Southwest Airlines has made flouting maintenance norms quite a practice.

To add to the woes, the carrier is also under investigation by the DOJ on the possibility of unlawful coordination to limit the availability of seats, with the objective of keeping airfares high.

Meanwhile, in Jul 2014, Southwest Airlines witnessed an increase in air traffic. Traffic – measured in revenue passenger miles (RPMs) – came in at 11.5 billion, up 8.2% from 10.6 billion recorded in the comparable month a year ago. The load factor or percentage of seats filled by passengers climbed to 87.7% from 86.7% in Jul 2013.

Recently, Southwest Airlines announced two new non-stop flights connecting Washington and Omaha and Atlanta, with fares starting at $69. Furthermore, the completion of its Wright Amendment at Dallas Love Field has allowed the company to boost its fleet size from 118 (as of Oct, 2014) to 180.

However, we believe that profits arising from these positives will continue to be hit by penalties such as this.

(Zacks Equity Research - Yahoo Finance News)