Despite 737 MAX woes, two US airlines turn quarterly profit

American Airlines and Southwest say they are negotiating with Boeing over compensation for the 737 MAX grounding.

Southwest's net income rose to $659m in the third quarter from $615m while dealing with fallout of Boeing's 737 MAX crisis [File: Mike Blake/Reuters]
Southwest's net income rose to $659m in the third quarter from $615m while dealing with fallout of Boeing's 737 MAX crisis [File: Mike Blake/Reuters]

American Airlines Group Inc and Southwest Airlines Co posted quarterly profit increases on Thursday thanks to strong travel demand in the United States even as the two carriers pointed to a rising cost impact from the continued grounding of the Boeing 737 MAX.

Both companies said they remained in negotiations with The Boeing Company over compensation for the 737 MAX grounding, now in its eighth month following two crashes in Indonesia and Ethiopia that killed 346 people. “We’re working to ensure that Boeing shareholders bear the cost of Boeing’s failures, not American Airlines’ shareholders,” American Chief Executive Doug Parker said on a conference call.

Southwest and American are the largest US operators of the 737 MAX, with 34 and 24 MAX jets in their fleets respectively at the time of a March safety ban that has also frozen deliveries of dozens more aircraft that were on order for this year.

That has led to more than 100 daily flight cancellations at both airlines into early next year and constricted their growth plans, while rivals like Delta Air Lines Inc pick up market share.

“We’re temporarily losing some share, which we don’t like,” Southwest Chief Executive Gary Kelly told analysts on a conference call.

The low-cost carrier is preparing for some “uneasiness” from a small number of customers in the early days of a 737 MAX return, the timing of which remains uncertain, but Kelly said the majority of its customers had indicated they would not change their flying behaviour based on aircraft type.

Southwest’s net income rose to $659m, or $1.23 per share, in the third quarter from $615m, or $1.08 per share, a year earlier on a 1.1 percent rise in operating revenue to $5.64bn.

Net income at American rose to $425m, or 96 cents per share, from $372m, or 81 cents per share, a year earlier. Total operating revenue rose 3 percent to $11.91bn.

American shares rose 3.8 percent to $29.375 and Southwest shares were up 5.2 percent at $56.02.

Cost hit

With 737 MAX jets still parked pending Boeing’s software updates and regulatory approval, airlines have been forced to continually revise their flying schedules and growth plans.

American trimmed the top end of its adjusted 2019 forecast to $5.50 per share versus its previous forecast range of $4.50 to six dollars per share and raised the estimated costs related to the MAX grounding to $540m for the year from $400m.

Southwest did not provide a full-year profit forecast but said it took a $210m hit to operating income in the quarter from the MAX safety ban, bringing the nine-month total to an estimated $435m.

Boeing, which has faced increasing concerns in the past week over how the MAX was developed and certified, has set aside $5.6bn in part to cover potential payments to customers for MAX-related damages.

Southwest has based its low-cost business model on operating an all-Boeing 737 fleet, a strategy that Kelly has said could be reviewed in the future.

This month, the Southwest Airlines Pilots Association (SWAPA) filed a lawsuit against Boeing alleging that the planemaker “deliberately misled” the airline and pilots about its 737 MAX aircraft and is demanding over $100m in lost wages.

The American Airlines’ pilots union is also demanding compensation for lost wages but has not filed a lawsuit.

Source : Reuters

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