AAL American Airlines Group Inc

By Alison Sider 

Airlines are ramping up pressure on Boeing Co. to help compensate them for lost revenue and higher costs as the grounding of the plane maker's 737 MAX aircraft stretches into its eighth month.

Southwest Airlines Co. Chief Executive Gary Kelly said on Thursday he is unhappy that the airline has been forced to shrink this year, and said settling up with Boeing is one of his top priorities, along with getting the MAX back in the air flying passengers.

The grounding has been costly for Southwest and other carriers that fly the MAX. Southwest said the grounding reduced its operating income by $435 million in the first nine months of the year and by $210 million in the third quarter. The airline expects the impact to spill into 2020.

Southwest, the largest carrier of U.S. domestic passengers, only flies variants of the 737, a strategy that has made it one of Boeing's most important customers and leaves the company particularly reliant on the U.S. manufacturer.

Mr. Kelly said Thursday the MAX grounding has forced the company to examine shifting from an all-Boeing fleet -- something it has resisted due to the cost savings and operational advantages of flying only one kind of plane.

"I don't know that we've ever focused on it with that kind of intensity, " he said, adding that the company will likely start reviewing the fleet next year.

A Boeing spokesman said the plane maker values its decades-long relationships with customers, including Southwest, and is sorry for the disruption.

"While we do not comment on our arrangements with particular customers, we will continue to work closely with them to reach a fair and reasonable outcome," the spokesman said.

American Airlines Group Inc., which also reported third-quarter results Thursday, said it expects the grounding to drag down its full-year pretax profits by $540 million, up from the $400 million impact it previously anticipated.

Meanwhile, Norwegian Air Shuttle ASA increased its estimate of lost profits this year from the grounding of its 737 MAX fleet by around 40% to 1 billion Norwegian krone, about $110 million.

American Airlines Chief Executive Doug Parker said he wants to ensure that ultimately Boeing's shareholders -- not American's -- would pay for what he described as Boeing's failures. The plane maker currently estimates compensation could cost it $6.1 billion, which could include discounts and services as well as cash payments.

Still, Southwest and American said strong demand for travel helped boost revenue during the quarter, even though they have had to curtail growth plans. Mr. Kelly said bookings are healthy, bolstering Southwest's outlook even though the airline won't be able to fly as much as it planned to during the coming holiday season.

American's revenue grew 3% during the quarter. But the airline lowered the high end of its full-year adjusted-earnings guidance to $5.50 a share from $6 a share. The low end of the range is $4.50 a share.

American shares closed up nearly 4% at $29.41, and Southwest rose almost 6% to $56.29.

The MAX has been grounded globally since March following a second fatal crash in less than five months, forcing airlines to cancel thousands of flights and miss out on the revenue they would have brought in.

Airlines that fly the MAX have spent much of the year waiting for Boeing to make software fixes and for regulators to sign off. The plane's expected return has slipped several times, with each delay requiring carriers to cancel flights and rebuild schedules.

The past week has been particularly tumultuous, with lawmakers and regulators raising fresh concerns about how the MAX was developed and certified. Some worried that the disclosure of a former Boeing pilot's internal messages, suggesting he had encountered trouble during tests in a simulator in 2016 and had unknowingly misled regulators in his work on the MAX, could derail progress toward the plane's return to service.

Mark Forkner, the former Boeing pilot, now works at Southwest. Mr. Kelly said Thursday that the messages are unrelated to Mr. Forkner's work as a first officer and that Mr. Forker is by all accounts a "very fine man and does a fine job for us."

Boeing on Wednesday said that it still believes it can secure regulatory approval for the return of the MAX this year. Airlines say it may take another month or two to work through training and prepare stored planes to fly, and the carriers aren't taking their chances with holiday travel schedules. American and United Airlines Holdings Inc., which also flies the MAX, have removed the plane from their schedules until January, while Southwest has taken it out until February.

Mr. Parker said Boeing's belief that the MAX will be certified to fly again this year is encouraging but probably a best-case scenario, given previous delays. American plans to phase the MAX back in slowly, beginning with just five planes starting in mid-January.

"We're frustrated," he said, adding that the current timing could change again.

For travelers, the grounding has meant fewer flight options and other inconveniences, like changes to long-planned trips as the MAX's return date has been pushed out.

Some analysts have said the absence of the MAX likely resulted in fares that were higher than they otherwise would have been.

Investors have started to become anxious that whenever the MAX does return to service, it will result in a flood of new capacity hitting the market when travel demand may ebb if the economy falters.

At the same time, airlines' costs are poised to climb due to new labor deals being worked out.

Southwest posted earnings of $659 million, or $1.23 a share, up from $615 million, or $1.08 a share, in the comparable quarter last year. Analysts polled by FactSet were expecting $1.09 a share.

American reported a profit of $425 million, or 96 cents a share, up from $372 million, or 81 cents a share, a year earlier. Adjusted earnings were $1.42 a share, ahead of the $1.40 a share analysts were expecting.

--Patrick Thomas and Dave Sebastian contributed to this article.

Write to Alison Sider at alison.sider@wsj.com

(END) Dow Jones Newswires

October 24, 2019 16:47 ET (20:47 GMT)

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