A Boeing production assembly line at Everett near Seattle. Photo / Brett Phibbs
Boeing is telling airlines they will receive fewer 737 Max jets than expected this year, forcing them to trim schedules and raising the prospect of higher fares during the busy summer travel season.
Carriers in the US and Europe are preparing to have fewer new shorter-haul aircraft than they planned for, an unwelcome surprise that is driving up labour costs and keeping older aircraft in service.
Boeing has reduced production rates after a door panel blew out from a 737 Max during an Alaska Airlines flight in January. The company this week reported burning almost $4 billion (NZ$6.7b) in cash in the first quarter.
The US Federal Aviation Administration, a regulator, has said Boeing can make no more than 38 737 Max planes a month as it works to improve quality controls.
In March the planemaker delivered 24 jets to customers, compared with 52 the same month a year earlier. European rival Airbus, meanwhile, delivered 51 of the A320 and A321neo, planes that compete with the Max.
Southwest Airlines, the carrier with the most 737 Maxes in service and on order, said on Thursday it would receive only 20 of the 46 single-aisle jets it had expected this year. In January, it said it was planning to receive 79 Max aircraft, rather than the 85 that had been agreed.
With less capacity, Southwest now projects 2024 operating revenue will grow by less than 10 per cent compared with last year. Previously it had forecast double-digit growth.
The carrier, which posted a first-quarter net loss of $231m, announced a series of cost-saving measures, dropping service to four US airports and cutting headcount by 2,000 employees by the end of the year. It is limiting hiring, offering voluntary time off and trimming its schedule for the second half of the year.
Southwest also is delaying retirement for some aircraft, reducing “turn times” to ready a jet for its next flight and adding some red-eye flights, as it tries to generate more revenue from planes already in its possession.
“I won’t downplay the challenge from the Boeing issues,” said chief executive Bob Jordan. “They’re a big deal... We will control what we can control.”
American Airlines has said it expects to receive 16 of the narrow-body aircraft in 2024, according to a regulatory filing, down from a January estimate of 20 and previous one of 25. The airline on Thursday reported a net loss of $312m for the first quarter, compared with $10m in net income for the same period a year ago.
Last week, United Airlines said it anticipated Boeing would deliver 61 of the narrow-body aircraft in 2024, down from an expectation of 101 at the beginning of this year.
United’s chief commercial officer, Andrew Nocella, said: “As we entered the year, we built the business plan for a larger airline, and deliveries have fallen more than 40 aircraft short of our expectations.”
Alaska Airlines said instead of receiving 23 Maxes this year, Boeing would deliver between 10 and 20. The company had expected to expand flying capacity up to 5 per cent more than last year. Now it expects capacity to grow no more than 3 per cent.
Ryanair, Boeing’s biggest European customer, expected to receive 57 planes in time for the peak summer season, but it now awaits “towards 40″, chief executive Michael O’Leary told the Financial Times.
The low-cost airline has cut some flights and slowed its growth plans, reducing the number of passengers it expects to fly in the current financial year from 205m to 200m.
At the start of the year, Turkish Airlines was scheduled to receive 15 737 Maxes in 2024 and another 16 in 2025, according to aviation data provider Cirium. It currently expects to receive four this year, which it will lease from AerCap, and 31 next year, all of them coming from lessors.
Helane Becker, analyst at TD Cowen, said Boeing’s delivery delays plus the grounding of planes powered by defective Pratt & Whitney geared turbofan engines, could combine with strong demand for air travel to drive fares higher starting in mid-May.
O’Leary forecast fares would increase 5 per cent to 10 per cent year on year because of the aircraft shortage in Europe.
The potential to charge more for tickets and to operate fuller flights may partially offset higher costs. Fitch Ratings analyst Joe Rohlena said higher fares were likely to show up later in the year.
“It’s a net negative for the airlines but there are some offsets,” he said.
Global capacity for United and Alaska in June is about 6 per cent lower than what they had planned on January 7, immediately following the door blowout, said Rob Morris, head of Cirium’s consultancy business Ascend.
“I suspect lack of 737 Max is a key driver to that,” he said.
United hired flight crews, particularly pilots, on the assumption it would have more planes for them to fly. It has since asked pilots to take voluntary unpaid time off in May.
Chief executive Scott Kirby last week said United planned to build a hedge into its schedule. If it expected to receive 100 Boeing aircraft in a year, it will schedule for 90 or fewer.
“If everything is on time and on plan, then we’ll have a few extra spares around for a couple of months,” he said. “That will cost a little bit, but it doesn’t cost nearly as much as overstaffing by 40 aeroplanes.”
Turkish Airlines, which is trying to double the size of its fleet over the next decade, is negotiating with Boeing to place what is supposed to be a sizeable order, possibly about 150, Morris said.
Turkish Airlines chief financial officer Murat Şeker told investors this month that “negotiations are still continuing...With the Max in particular, the decisions could be a little later”.
Alaska said it still planned to operate a reliable schedule despite having fewer new planes. Chief commercial officer Andrew Harrison said it had extended the retirement of older aircraft over the next few months, while using jets across the fleet more frequently.
But American executives noted on Thursday’s analyst call that while the carrier, like its peers, had seen its expected deliveries shrink, it was less dependent on new jets from Boeing because it already refreshed its fleet several years ago.
“We’re going to be in better shape than the rest of our competitors,” CEO Robert Isom said.
Written by: Claire Bushey in Chicago and Philip Georgiadis in London
© Financial Times
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