The Boeing 737 MAX grounding has strained operations and finances this year at several North American airlines, but executives caution the jetliner needs to be reintroduced to fleets in a gradual, coordinated way once authorities certify it to fly so they have time to build passenger bookings and conduct their own tests.
A controlled rollout presumably also would give cargo divisions better ability to fill belly space with shipments from freight forwarders, although the narrow-body planes like the MAX only carry a modest amount of freight on domestic flights, as an earlier FreightWaves analysis showed.
Once the Federal Aviation Administration lifts the grounding, Boeing should give customers plenty of notice about the planned cadence for producing new aircraft and delivering parked ones, Andrew Nocella, United Airlines chief commercial officer, said this week at the Cowen & Co. transportation investor conference in Boston.
“We’ve told them that there’s nothing that physically prevents us from taking as many aircraft as they can deliver to us. They’re going to be the constraint on that. However, what we’ve also said is they can’t call us today and say, ‘Hey, there’s an aircraft for you tomorrow,’ because it takes us time to work it back in the schedule to then be able to sell tickets on it,” he said.
Six to nine months of lead time is ideal, he added, “but 60 days would be the absolute minimum that we would want to do.”
United had 14 Boeing 737 MAX aircraft in service when the FAA grounded the fleet in mid-March following two overseas crashes that killed 346 people. Boeing is finalizing software fixes for its flight control system that is blamed for automatically overcorrecting the pitch during climbing and causing the accidents. Nocella said 16 more planes are scheduled for delivery by the end of the year.
A week ago, United pulled the MAX out of its schedules through Dec. 19 and has begun canceling thousands of flights.
The FAA has not publicly said when it plans to sign off on the so-called MCAS system, but Southwest Airlines financial chief Tammy Romo said she expects the MAX to be cleared for service by early-to-mid November.
The flight cancellations at United and other airlines will continue to hurt business, especially during the busy holiday travel season. Loss of traffic at other airlines because of the MAX and other problems was Delta Air Lines’ gain. But the extra passenger volume raised operating costs and stressed Delta’s workforce, with planes running load factors near 90%.
Higher Operating Costs
Southwest is halfway through its schedule revisions. It has removed the 737 MAX from its schedule through Jan. 5.
“Essentially we’re having to cut flying from higher demand holiday periods and adding flying to our lower demand periods outside the holidays to simplify our schedules,” Romo said.
The MAX grounding shrunk capacity 8% compared to the fourth quarter last year and negatively impacted Southwest’s operating income in the first half to the tune of $225 million. The Dallas-based carrier had 34 737 MAX aircraft in operation when the no-fly order was issued and was supposed to have another 34 delivered by the end of the year.
The airline hasn’t built out its capacity plan for 2020 yet, with its existing fleet only scheduled through early March, Romo said.
Southwest anticipates Boeing delivering 16 more 737 MAX jets by late December and the remaining orders by the middle of next year, but six could slip into 2021, she said.
“Our main priority is to bring the MAX into service in a very controlled and organized way,” Romo said. “We need to bring that capacity back to restore our efficiency, but we’re not going to do this in a reckless fashion.”
The MAX grounding also has pinched cross-town rival American Airlines, which was not able to fully implement margin-improvement initiatives. American has 24 737 MAX aircraft in storage, with another 16 originally scheduled for delivery by the end of the year. It has pulled the MAX from its schedule through Dec. 3.
American President Robert Isom said the company intends to carefully meter in the existing planes into its fleet once the grounding is lifted, but has no insight when Boeing will be able to deliver new builds.
It will take 30 to 40 days to bring the 737 MAX planes out of long-term storage and train pilots with the new software, he explained.
“During the period of time in which we have ungrounded aircraft, but are not flying in scheduled service,we anticipate that we will be using them for our own test flights and then potentially to do things like running shuttles for our employees so that we will have a really strong experience among our team members before we ever get out and fly them commercially,” Isom said at the Cowen conference.
Air Canada suffered more than many competitors because the aircraft comprised a larger portion of its seat capacity, Chief Financial Officer Michael Rousseau said. The airline was operating 18 737 MAX aircraft when the international grounding occurred and has 43 more ordered to replace older Airbus A320s. It was only able to replace about half the slots in its schedule with other aircraft and since it has no other 737s in its fleet, MAX pilots had no work.
“We have a couple hundred pilots sitting around not doing a lot,” he said.
United’s Nocella said the Chicago-based airline kept some planes it planned to retire to cover the lost 737 MAX capacity this year.
Several executives praised the MAX, despite its initial problems.
“We’re confident in the MAX. It’s going to be a great airplane for us,” Alaska Airlines CFO Brandon Pedersen said. “It’s a core component of our fleet going forward.”
Alaska was scheduled to receive three 737 MAX jetliners this year and has 37 firm orders for delivery over five years.
