At Denver shareholders meeting, Southwest Airlines CEO addresses Boeing 737, contractor controversies

Southwest Airlines held its annual shareholders meeting in Denver on Wednesday, and there was an elephant the size of a 737 inside the conference room and a labor protest on the street outside.

Southwest, the Dallas-based low-cost carrier with the striking blue, red and yellow planes, was hit hard by the worldwide grounding of Boeing’s 737 Max jets this spring following fatal crashes in Ethiopia and Indonesia.

The airline flies exclusively on 737s, including 34 Max aircraft, which is about 5 percent of its active fleet of 753 planes, CEO and board chairman Gary Kelly said Wednesday. Those 34 jets are now parked in a desert in California while federal regulators work to review the aircraft’s automated flight control system and ensure the planes are safe to return to the air.

Southwest has orders in with Boeing for 249 more 737 Max jets, at least a handful of which are to be delivered later this year. Naturally, Kelly began his report to investors at Renaissance Denver Downtown City Center Hotel with an update on the situation. The airline has shuffled its schedule through Aug. 5 to deal with the sidelining of the 737 Max, though it is selling space on its Max planes starting Aug. 6. It is working with Federal Aviation Administration and Boeing on a response to the crisis.

“I do not know when the Max will be returned to service. I am hopeful it will be this summer,” Kelly said. “We’ll assure ourselves, of course, that it’s safe before we return it to service and in the meantime, we’ll continue to offer one of the strongest, if not the strongest route networks in the continental U.S.”

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The grounding came at the tail end of a strong first financial quarter for the airline. Over the first three months of the year, Southwest brought in $5.1 billion in revenue compared to $4.6 billion in expenses, according to financial filings. The result was $505 million in operating income and 70 cents of net income per share of its stock. The company stock price closed Wednesday at $52.01, up from $47.14 on Jan. 2.

The company also announced Wednesday it is upping its quarterly dividend payment to investors to 18 cents per share, up for 16 cents, and preparing to embark on another $2 billion round of stock buybacks as soon as it wraps up its current $2 billion buyback program.

During the meeting, many shareholders chose to focus their questions on the 737 Max, voicing concerns that in the coming years much more of the airline’s traffic is expected to be moved to the planes. One shareholder who declined to give his name for this article asked if Southwest was considering a merger with an airline that uses Airbus jets, such as Denver-based Frontier Airlines, to diversify its traffic. Kelly declined to address a potential merger but did call diversifying the Southwest fleet impractical given all of the processes and technology in place at the airline around the 737.