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Boeing Jet Weighs On Airlines As Southwest's Profit Falls

Southwest Arilines Jet
Associated Press
The CEO of Southwest Airlines, the biggest operator of 737s including the Max, hinted at more delay in bringing back the plane.

The three big U.S. airlines that own Boeing 737 Max jets don’t expect the grounded plane back in their fleets before the end of the peak summer travel season, and that promises to lead to thousands more canceled flights and higher costs well into another year.

On Thursday, American Airlines executives said they canceled 10,000 flights in the fourth quarter because of the Max grounding, and they don’t expect to use the plane until late summer or early fall. The CEO of Southwest Airlines, the biggest operator of 737s including the Max, hinted at more delay in bringing back the plane.

The airlines had hoped to add more flights in 2020 to take advantage of strong demand for travel. They are trying to stick to those plans.

“We are not going to have our strategy dictated by when the airplane comes or doesn’t come,” American Airlines CEO Doug Parker said on a call with analysts and reporters. “We know it will fly again some day. When it does, we’ll be ready.”

The comments, which echoed those by the president of United Airlines, came as American and Southwest reported fourth-quarter profits.

Both American and Southwest have reached settlements with Boeing over damages they suffered from the loss of their Max jets during 2019. Boeing said this week it doesn’t expect regulators to clear the plane to fly until this summer, setting up the airlines for more fallout.

“We continue to incur financial damages in 2020, and we will continue discussions with Boeing regarding further compensation,” Southwest CEO Gary Kelly said in a statement.

The Max has been grounded since last March after two crashes killed 346 people. Boeing is working on fixes to software and other items on the plane.

Analysts said demand for travel remains healthy, driving a closely watched measure of revenue per seat higher, but the grounding of the Max is raising costs at airlines that own the planes.

American said record high occupancy levels on its planes helped push earnings up 27% to $414 million. The results were slightly better than expected, with adjusted earnings of $1.15 per share being a penny higher than a FactSet survey of 18 analysts.

Revenue rose more than 3% to $11.31 billion, matching the analysts’ average forecast.

The Fort Worth, Texas, airline said 2020 adjusted earnings, excluding non-repeating items, will be be between $4 and $6 per share. That is in line with Wall Street expectations of $5.06 per share.

Cowen analyst Helane Becker said American’s 2020 forecast was probably conservative because of uncertainty around the Max and the economy.

However, Southwest’s profit slipped 21% to $514 million, partly due to higher costs related to the Max grounding.

Analysts were looking for earnings of $1.09 per share, according to FactSet, but Southwest delivered 98 cents per share, including 18 cents per share of Max-related costs. Revenue was $5.73 billion, slightly better than analysts predicted.

In late-morning trading, shares of American Airlines Group Inc. were down 41 cents to $26.91, while shares of Dallas-based Southwest Airlines Co. were up 61 cents to $54.09.