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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 email@example.com
(END) Dow Jones Newswires
January 24, 2020 02:47 ET (07:47 GMT)
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