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Southwest Air 3Q profit spikes despite 737 Max groundings

DALLAS (AP) — Southwest Airlines has had an all-Boeing fleet since it began flying 48 years ago, but that could change. CEO Gary Kelly said Thursday that the company's board has directed him to look at getting planes from other aircraft makers, which would almost certainly be Boeing's European rival, Airbus.

Kelly made the comment while discussing Southwest's third-quarter results. Profit rose 7% to $659 million despite taking a $210 million hit in operating income from the grounding of its Boeing 737 Max jets.

Southwest shares rose more than 5% in midday trading. Dallas-based Southwest has been forced to cancel thousands of flights since March, when the plane was grounded after two crashes in Indonesia and Ethiopia killed 346 people.

"We put our future in the hands of Boeing and the Max and were grounded," Kelly said on CNBC. Boeing said this week that it still expects approval this year from the Federal Aviation Administration for changes it is making to flight software and computers on the Max. Kelly said "everything has to go pretty perfectly" for Boeing to hit that target. Southwest has taken the Max out of its schedule until early February.

Kelly said earlier that Southwest is in discussions with Boeing about compensation. He gave no details on the talks. Southwest has 34 Max jets and expected to have about 40 by year-end. Strong travel demand and rising ticket prices are helping Southwest offset its Boeing issues.

Southwest Airlines Co. reported third-quarter profit of $1.23 per share. That easily topped Wall Street expectations for $1.09, according to a survey by Zacks Investment Research. Revenue rose 1% to $5.64 billion despite a 2.9% reduction in passenger-carrying capacity due to the Max grounding. The revenue was in line with analysts' expectations.

The average fare rose 1.7% to $155.95. A closely watched figure, revenue for each seat flown one mile, rose about 4%. Southwest predicted it will be flat to up 2% in the fourth quarter. Southwest expects that passenger-carrying capacity in the fourth quarter will be as much as 1% below the same period last year, an unusual trend at an airline that has grown rapidly through much of its history.

In midday trading, Southwest shares were up $2.79, or 5.3%, to $56.03. They began the day up nearly 15% this year, better than most rivals but behind the 20% gain in the S&P 500 index.

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