Airlines Flag Rising Costs as MAX Grounding Drags On
January 23 2020 - 10:13AM
Dow Jones News
By Alison Sider
U.S. airlines that operate the Boeing Co. 737 MAX are facing the
prospect that the continued grounding of the aircraft could weigh
on their earnings and operations well into this year.
Southwest Airlines Co. Chief Executive Gary Kelly said Thursday
that the carrier will likely have to push back its plans for the
MAX to return to flight in June. Southwest and American Airlines
Group Inc. also said they remain in discussions with Boeing about
appropriate compensation for their mounting costs.
"We continue to incur financial damages in 2020, and we will
continue discussions with Boeing regarding further compensation,"
Mr. Kelly said in a statement.
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 had 34 MAX jets at the time of the grounding, more
than any other airline, and expected to have 75 by the end of 2019,
with another 38 due to be delivered in 2020. 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 compensation from Boeing
that it partly shared with employees after striking a deal with the
plane maker late last year.
Mr. Kelly said the grounding will restrain Southwest's plans to
expand its network this year. Southwest had planned to expand
flying capacity by 5% in 2019, but instead cut flying by 1.6%
because it didn't have enough planes to meet those plans. Southwest
said it expects to decrease capacity by 1.5% to 2.5% in the first
quarter of this year.
American, which like Southwest has removed the MAX from its
schedule until June, said Thursday that it continues to assess that
timeline. 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.
Shares in American rose 1.21% in premarket trading, and shares
in Southwest fell 0.77%.
American has previously said it believed the grounding would
reduce its 2019 earnings by $540 million. It didn't provide an
updated estimate of the impact on Thursday. American has also
struck a deal with Boeing to cover costs incurred in 2019.
"The agreement reflects our priority to ensure our shareholders
are adequately compensated with real value," American's CEO Doug
Parker said during a conference call with analysts and investors.
"We'll continue to hold Boeing accountable for future financial
damages to protect our company and our shareholders."
Boeing said earlier this week that it doesn't expect regulators
to approve the return of the MAX until midyear -- months longer
than most analysts expected. 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 Airlines Holdings Inc., 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. 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.
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's 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 23, 2020 09:58 ET (14:58 GMT)
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