737 MAX grounding hits North American airlines' high season

Summary

• North American airlines continue to face fallout from the grounding of the worldwide fleet of Boeing 737 MAX narrowbodies.
• Air Canada is taking several mitigation measure as a result of the grounding.
• WestJet is joining other airlines in its finding that close-in bookings during 1Q2019 were affected by the grounding of the aircraft.

More than 100 MAX jets remained grounded in North America

CAPA's fleet database shows that there are 115 MAX family aircraft that are inactive. Southwest has the largest inactive fleet, at 34, followed by Air Canada at 26 and American with 24 of the jets parked.

North American Airlines with parked Boeing 737 MAX jets

Airline	Parked Boeing 737 MAX aircraft
Southwest Airlines	34
Air Canada	26
American Airlines	24
United Airlines	14
WestJet	13
Sunwing	4

Source: CAPA Fleet Database.

Both American and United have stated that their respective capacity growth for 2019 will fall below previous projections due to the grounding of the MAX narrowbodies. Additionally, American has lowered its 2019 earnings per share (EPS) guidance: from USD5.50 to USD7.50, to USD4 to USD6.

Air Canada has to upgauge in hubs, which means sacrificing frequencies

Air Canada executives recently explained that the airline's 24 MAX 8 jets represented 20% of its narrowbody fleet and when in operation, were transporting 9,000 to 12,000 passengers per day. After the grounding in Mar-2019, Air Canada used various measures to protect approximately 98% of its flying through 30-Apr-2019.

Some of those mitigation measures include consolidating transcontinental flights within Canada with larger aircraft and, beginning in May-2019, deploying its LCC subsidiary Rouge on selected routes and frequencies.

Air Canada CEO Calin Rovinescu recently stated that there is always a balance between consolidating several flights into larger gauge aircraft with respect to giving up frequencies. Giving up those frequencies means fewer connections, and Mr Rovinescu said that during the past few years Air Canada had been "building up our strategy around connecting passengers in our hubs".

For 2Q2019, Air Canada estimates it has covered 96% to 97% of the MAX capacity, leaving a 3% to 4% capacity shortfall.

Air Canada warns MAX mitigation measures could affect its unit cost performance

Air Canada has been forced to make several other schedule adjustments resulting from the worldwide grounding of the aircraft. During Apr-2019 and May-2019 it placed larger jets on service to Honolulu and Maui and, starting in Jun-2019, Omni Air International will operate 767 widebodies on behalf of Air Canada on those two routes to Hawaii from its Vancouver hub.

Air Canada has also pushed back the launch of service from Montreal to Bordeaux and has brokered a wet-lease deal with Qatar Airways for the operation of flights from Montreal to Barcelona and Paris.

Other changes include: the temporary suspension 737 MAX flights from Halifax and St Johns to London Heathrow, and the suspension of other seasonal flights during the 2019 summer season.

Management at Air Canada has also warned that the effects of a prolonged MAX grounding, particularly during the busy summer season, will create pressure on its unit cost performance. Those pressure points include lower capacity growth, wet-lease costs and lower efficiency of aircraft leases that the airline has extended through the summer season.

Air Canada has extended leases for three Airbus A320s and three Embraer 190s that were slated to exit its fleet during that time period.

MAX groundings drive pressure on close-in bookings for various airlines

WestJet's 13 MAX jets represent 10% of its narrowbody fleet, 7% of its total fleet, and 10% of its total system capacity.

The airline's flight schedules reflect the removal of those aircraft from service through 2Q2019 and WestJet has covered 96% of its capacity for that period.

WestJet is now working on a contingency plan for the busy summer travel period in Jul-2019 that includes using its entire fleet to mitigate the loss of MAX capacity. The company has opted to extend a single 737 lease until the end of Jul-2019 to bridge the capacity gap for the summer high season.

Along with other airlines, WestJet has determined that the MAX grounding has affected its ability to capture all-important close-in yields during 1Q2019.

Southwest Airlines president Tom Nealon also recently stated that Southwest had recorded fewer close-in bookings during 1Q2019 due to reduced inventory.

"It's just a shame we have this MAX thing going on", Mr Nealon said. "Because it's a pretty good business environment."

Executives at American Airlines also said its MAX flights that were cancelled were higher yielding, and it was reaccommodating customers into seats that would have been sold at higher fare levels.

Most operators have been relatively patient with Boeing since the MAX grounding

North American airlines operating the Boeing 737 MAX have done a commendable job in working to mitigate the effects of the grounding of the aircraft, particularly during the busy summer high season in the region.

Publicly, most of those airlines have shown a level of patience with Boeing during the grounding of the aircraft, but there is no doubt that some operators will work to seek some form of redress from the airframer to compensate for the lost revenue opportunities.