Airlines With MAX Face Slow Growth -- WSJ
January 24 2020 - 3:02AM
Dow Jones News
Carriers that fly the grounded Boeing aircraft face rising costs
as rivals gain
By Alison Sider
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (January 24, 2020).
U.S. airlines that operate the Boeing Co. 737 MAX are facing the
prospect that the aircraft's prolonged grounding could stymie their
growth and benefit competitors well into this year.
Southwest Airlines Co. Chief Executive Gary Kelly said the
grounding will restrain the carrier's expansion plans this year.
Southwest said it expects to decrease capacity by 1.5% to 2.5% in
the first quarter of this year. Last year Southwest cut flying by
1.6%.
"Sitting here dog paddling for a year while our competitors grow
right past us, it's costing us this year six or seven million
customers," Mr. Kelly said on a call with analysts and reporters on
Thursday. "Yeah, I'm worried about that."
The MAX has been grounded world-wide since last March following
a pair of plane crashes within five months that killed 346 people.
The situation has been costly and at times chaotic for airlines
that have had to deal with months of uncertainty about when they
will be allowed to fly the jets and when they can expect the dozens
of planes they had on order.
Southwest has more MAX jets than any other airline. The airline
had planned to be operating 75 MAX aircraft by now, 10% of its
fleet, and expected to receive 38 more this year. Mr. Kelly said
that the airline will have to put off retiring some older jets to
make up for them. Southwest has said it is eager to put its MAX
jets back to work in markets including Houston, Baltimore and
Denver.
The Dallas-based carrier said its profit fell 21% in the fourth
quarter to $514 million due in part to higher costs associated with
the grounding. Southwest said that included the impact of sharing
compensation from Boeing with employees after striking a deal with
the plane maker late last year.
Southwest and American Airlines Group Inc. said Thursday that
they will continue negotiations with Boeing regarding compensation
for costs incurred as long as the MAX is grounded. Both have
removed the plane from their schedules until June. American Chief
Executive Doug Parker suggested it could be late summer or early
fall before the plane is flying again.
"We'll continue to hold Boeing accountable for future financial
damages to protect our company and our shareholders," Mr. Parker
said during a conference call with analysts and investors.
The Fort Worth, Texas, carrier said strong demand for travel
helped boost its profits to $414 million, or 95 cents a share for
the fourth quarter, compared with $325 million, or 70 cents a
share, in the prior year.
But the MAX grounding remains a threat to the carrier's
performance.
"There's a huge transfer of share from carriers that operate the
MAX to carriers that don't operate the MAX," said Vasu Raja,
American's senior vice president of network strategy.
Delta Air Lines Inc.'s chief executive, Ed Bastian, said last
week that the grounding of the MAX, which it doesn't operate, has
provided only a modest boost in business for the Atlanta-based
carrier. Delta reported a 5.5% increase in passenger traffic last
year, outpacing gains at American and United Airlines Holdings Inc.
American held on to its position as the largest airline by traffic,
according to company figures.
Boeing said earlier this week that it doesn't expect regulators
to approve the return of the MAX until midyear. The manufacturer is
now recommending that pilots be required to train in simulators
before flying the MAX, a fresh complication for carriers making
plans to reintegrate the plane into their schedules.
United, which had 14 MAX jets in its fleet and was expecting 16
more last year, hasn't detailed the cost of the grounding, but
executives have said the shortage of planes has held back United's
plans to add to its domestic network at hubs in Chicago and
Houston. United executives said Wednesday that they no longer
anticipate being able to fly the MAX this summer.
It isn't just Boeing causing delays for airlines. JetBlue
Airways Corp., which doesn't fly the MAX, said its capacity growth
was constrained by delays securing its Airbus SE A321neos. JetBlue
said it has identified used planes to add to its fleet if the
delivery delays persist.
JetBlue reported fourth-quarter profits of $161 million, or 56
cents a share, compared with $170 million, or 55 cents a share the
previous year, as the carrier streamlined costs but was affected by
volatility in Latin American and Caribbean markets.
Shares in JetBlue climbed 6.4%. Shares in American rose about
5.4%, and shares in Southwest rose about 3.6%.
American and Southwest have both contended with problems aside
from the MAX over the past year. Both have had disputes with unions
that represent their mechanics that spilled over into airline
operations. American alleged that its mechanics were engaged in a
concerted slowdown that led to a spike in delays and cancellations
last year. It is still trying to negotiate a new contract with the
mechanics.
American President Robert Isom said the airline's operations
turned a corner in the final months of last year and are now
running more reliably, which has helped it win over corporate
customers and control costs.
Write to Alison Sider at alison.sider@wsj.com
(END) Dow Jones Newswires
January 24, 2020 02:47 ET (07:47 GMT)
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