737 MAX grounding hits North American airlines' high season
The two US major airlines American and United have already cut their 2019 capacity forecast as a result of the grounding, and American has also slashed its earnings per share (EPS) projections for this year.
Canada’s two largest airlines – Air Canada and WestJet – are also facing lower capacity deployment in 2Q2019, and Air Canada in particular has been forced to take several mitigation measures, including using larger gauge aircraft that could affect higher yielding connections in hubs and wet-leasing aircraft to cover other operations.
Even when the MAX jets eventually gain approval to re-enter service, it will take some time for airlines to restore their network and operational efficiency. Operators are declining to say whether discussions about compensation are occurring; but there is no doubt that they will eventually seek some form of reparation.
- 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.
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.
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.
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.
“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.