Airlines are struggling to deal with the financial fallout from the extended grounding of the Boeing 737 Max commercial jetliner, now in its seventh week. Southwest and American Airlines, the two U.S. airlines that owned 737 Max 8 aircraft when they were grounded on March 13, both warned investors of extended losses due to the crisis.
Southwest and American have canceled all flights involving 737 Max 8 aircraft through Aug. 5 and Aug. 19 respectively. The cancellations have already complicated summer travel plans for thousands of customers, and they promise to cost the airlines hundreds of millions of dollars as they work to re-accommodate them.
American Airlines executives said Friday morning that the grounding cost the airline about $50 million in the first three months of 2019. The company expects to lose out on $350 million in 2019 assuming the grounding order is lifted by August 19.
And costs could grow if the grounding extends into the fall. Asked about the impact of a grounding that extends longer than August, an American Airlines executive said a continued grounding could impact the company by about $180 million for a full quarter.
In a quarterly earnings report released Thursday, Southwest reported revenue of $5.1 billion for the first three months of 2019, reflecting a 4.1 percent increase compared with the same period a year ago.
The airlines are waiting for Boeing and the Federal Aviation Administration to approve a software fix and a new pilot training course designed to fix the plane’s flight control systems, which were implicated in two deadly plane crashes that killed 346 people in Indonesia and Ethiopia.
Neither Boeing nor the FAA has committed to a timeline for lifting the grounding order. The FAA is still waiting for Boeing to submit a planned software fix and related training package for approval, something the two organizations initially said would come “no later than April.” The timing of the fleet’s return to flight could be pushed back months longer if the pilot unions or global regulators persuade airlines to require full simulator training with the new software.
“Our pilots will be not just involved but critical to this process,” American Airlines group CEO Doug Parker said Friday. “We’ll make sure that at whatever time the aircraft is deemed airworthy our pilots will have a leadership role in ensuring they are comfortable with that.”
Representatives from the airline’s pilot union have asked the company for flight simulators specific to the 737 Max, but have not yet clarified whether they see them as an essential requirement.
In the meantime, the global network of companies that build their business around 737 Max production is anxiously awaiting an FAA order that would allow delivery of the planes, with little indication as to how much longer they will have to wait.
The parent company of Collins Aerospace, a Boeing supplier that produced software and hardware related to the MCAS flight control system, reported Thursday that it expects to take a financial hit because of the crisis.
“Following a rescission of the Federal Aviation Administration (FAA) order to ground the MAX, we will return the aircraft to service once we are confident that we are in compliance with all necessary FAA directives and all necessary Pilot training has been completed,” Southwest Airlines chief executive Gary Kelly said in a news release. “Safety is our top priority, and that commitment will never be compromised.”
Southwest Airlines executives described the 737 Max crisis as one of several costly distractions that threw off an otherwise successful start to the year. The 737 Max grounding came just a week after the airline began offering flights to Hawaii for the first time.
“Flight cancellations and lower capacity [are] putting pressure on our non-fuel unit costs, but we continue to focus on strict cost control and being nimble,” said Tammy Romo, Southwest Airlines chief financial officer. “We continue to expect solid margins in 2019 with the opportunity to deliver stellar returns on capital. We continue to make important investments in our people, our fleet, airports we serve and technology, which will support our scalability and many future growth opportunities including Hawaii.”
American Airlines and Southwest ― which have fleets of 24 and 33 Boeing 737 Max 8′s respectively ― are struggling to deal with the business disruption caused by the grounding, which has already led to thousands of flight cancellations.
Southwest disclosed in a news release Thursday that the grounding ― together with some unrelated maintenance disruptions, the U.S. government shutdown, some severe weather and softer demand for leisure travel ― collectively cost the airline more than $200 million in revenue.
Suddenly pulling dozens of Max jets out of service has had economic ripple effects throughout the commercial travel industry.
Southwest spent more money on fuel in part because of the 737 Max grounding, executives said Thursday; the Max jet was designed to be more fuel-efficient than its predecessors. And they face the logistical challenge of finding seats for customers whose flights were canceled.
Helane Becker, a Cowen airline analyst, lowered her forecast for American Airlines’ 2019 earnings by 9 percent, owing to reduced capacity that was caused by the grounding as well as higher fuel costs.
“The airlines overall are doing the best they can to kind of backfill that max capacity,” Becker said, noting that some have extended their daily schedules beyond the normal 12 hours to 14 or 15 hours, and are getting the most out of each plane by taking more one-stop flights.
“You take that plane out of service, but you have to accommodate the passengers that plane would have flown,” she said.
In a call with investors Wednesday, Boeing chief executive Dennis Muilenburg expressed “deep regret for the impact that this has had on our airline customers and their operations, and the impact it’s had on the flying public,” saying the company has been working closely with airlines to minimize the impact on fliers.
A Boeing spokesman said Thursday that the company had sent teams of mechanics and engineers to help airlines maintain the 737 Max jets while they are in storage, and is helping airlines reposition their Max fleets as needed.
Airlines “have been working with us through this period,” Muilenburg told investors. “It’s been difficult. It’s been challenging for all of us, but we have a mutual respect based on the health of this industry and the important work that we do around the world.”