• Bloomberg


Fallout from the global ban on Boeing’s 737 Max got heavier as American Airlines warned that profit this year would take a $400 million hit, while Southwest Airlines cut service at a major airport and scratched the jet from its schedule into next year.

Southwest Airlines Co. said Thursday that caution dictated removing the plane from its flight plan through Jan. 5, becoming the first U.S. carrier to drop the grounded aircraft for the rest of this year. Southwest also will stop flights at Newark Liberty International Airport outside New York, citing a need to optimize aircraft use after the Max crimped the carriers’s 2019 growth plan.

Meanwhile, American Airlines Group Inc. forecast that hangaring the Max would levy a $400 million drag to 2019 pretax earnings. That includes last quarter’s recorded hit of $175 million. For now, the carrier has left the jet off its schedule through Nov. 2.

The announcements, made as the carriers reported second-quarter earnings, came a week after Boeing Co. said it would take a $5.6 billion pretax charge to compensate Max customers. On Wednesday, the manufacturer said it might need to halt output of the plane temporarily. The narrow-body jet — a fuel-efficient workhorse for airlines worldwide — was grounded globally on March 13 after two crashes killed 346 people.

Boeing has said that it expects regulators will return the Max to service in the fourth quarter. Southwest said it accepted that estimate but that it would take as much as two months to get aircraft out of mothballs and to comply with any changes ordered by authorities, such as pilot training.

Southwest’s operating income was reduced by $175 million last quarter as it parked its 34 Max jets and didn’t receive ones on order. The grounding will continue to raise costs as it cuts flight and seating capacity this year. With financial results at New Jersey’s Newark airport below expectations and to optimize fleet use, the carrier decided to scrap its 20 daily departures and consolidate service at New York’s LaGuardia Airport.

The shares climbed 1 percent to $55.29 at 11:47 a.m., recovering from an earlier loss of as much as 4.2 percent. American slumped 3.8 percent to $33.28 after tumbling as much as 5.9 percent, the most intraday since May 13. Boeing fell 3.6 percent to $348.51.

Southwest Chief Executive Officer Gary Kelly has expressed frustration with the Max grounding, telling employees this week that the longer the jet is parked, the more difficult it becomes to manage.

The Dallas-based airline previously pulled the plane from schedules through Nov. 2, a move that would have increased daily Max-related cancellations to 180 from the current 150.

Flight Capacity

The extended grounding means Southwest’s flight and seat capacity will shrink this year by 1 percent to 2 percent, compared with original plans to expand 5 percent.

To help cover the Max flying void, the carrier also will defer the retirement of seven Boeing 737-700s.

There’s a slim silver lining from the grounding. With fewer seats for sale and high demand for travel, airlines have been able to raise fares and still fill planes. Revenue for each seat flown a mile, a gauge of pricing power, increased 6.8 percent last quarter and will rise as much as 5 percent in the current quarter from a year earlier, Southwest said.

American, with 24 Max planes, is reaping similar benefits. The airline said so-called unit revenue would increase 1 percent to 3 percent in the current quarter.

The Fort Worth, Texas-based carrier had record sales in the second quarter and raised its 2019 earnings forecast to at least $4.50 a share, from a previous outlook of no less than $4.

In a time of both misinformation and too much information, quality journalism is more crucial than ever.
By subscribing, you can help us get the story right.