American, Southwest Under Pressure from 737 MAX Grounding --Update
24 Outubro 2019 - 10:55AM
Dow Jones News
By Patrick Thomas
Two major airlines said on Thursday that they are facing a
rising price tag from higher costs and lost revenue as the
grounding of the Boeing Co. 737 MAX stretches into its eighth
month.
Southwest Airlines Co. 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.
American Airlines Group Inc., which also reported third-quarter
results, 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.
Both airlines said strong demand for travel helped boost
revenues during the quarter, even though they have had to curtail
growth plans. Gary Kelly, Southwest's CEO, said bookings are
healthy, bolstering the carrier'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.
"We know that our results should have been better," Chief
Executive Doug Parker said in a statement, citing the MAX grounding
and a dispute with mechanics that the airline said scrambled
operations over the summer.
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.
Southwest is the biggest MAX customer, with 34 in its fleet and
41 that were due to arrive this year. American had 24 MAX jets at
the time of the grounding.
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.
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, which also flies the MAX, have removed the plane from
their schedules until January, while Southwest has taken it out
until February.
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. American and Southwest have
both said the grounding has contributed to a rise in denied
boardings as they have been forced to accommodate passengers on a
smaller number of planes.
Some analysts have said the absence of the MAX likely resulted
in fares that were higher than they otherwise would have been.
Mr. Kelly said Southwest is negotiating with Boeing for
compensation, but hasn't reached a settlement. Boeing took a $5.6
billion charge earlier this year to cover potential payments to
customers, which could include discounts and services, as well as
cash payments.
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 as demand for travel starts to slow. At the same
time, airlines' costs are poised to climb due to new labor deals
being worked out.
American has also faced disruption from strife with the unions
that represent its mechanics, alleging in a lawsuit that the union
is encouraging a work slowdown that is wreaking havoc on its
operation and leading to hundreds of canceled flights. Union
leaders have denied that they are encouraging a coordinated
slowdown, but American has said the situation has started to
improve since a federal judge in August ordered the unions to
resume normal work levels. The two sides have returned to the
negotiating table and American said its operation has started to
improve.
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 Patrick Thomas at Patrick.Thomas@wsj.com
(END) Dow Jones Newswires
October 24, 2019 09:40 ET (13:40 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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