Southwest May Bear Biggest Brunt After FAA Grounding of Boeing Max Jets

With the Federal Aviation Administration grounding all Boeing 737 Max jets on Wednesday, American Airlines, United Airlines, and Southwest Airlines now must rejigger schedules to ensure they inconvenience as few passengers as possible.

All three will need to cancel or delay flights, especially short term, before they’re able to make changes to which aircraft they fly on what routes. United, with 14 Max jets, and American, with 24, should be OK, because the Max accounts for a relatively smaller percentage of their enormous fleets.

What about Southwest?

The nation’s biggest domestic carrier may have more trouble than its peers maintaining a quasi-normal schedule. Southwest already has had trouble with on-time performance this year as it fights an increasingly public battle with its mechanics, who have been pulling more aircraft from service due to what the airline calls minor issues.

Southwest, which filed suit against its mechanics union earlier this month in federal court, has said in recent weeks it has had to double or triple the number of aircraft out of service because of what it calls a labor action. (The union has denied the charges.)

In a statement Wednesday, Southwest downplayed the effects of the grounding, noting its 34 Boeing 737 Max aircraft, the most of any U.S. airline, account for fewer than 5 percent of the airline’s fleet.

That’s a bit misleading, though. When airlines talk capacity, they’re usually not referring to the number of airplanes they fly. Instead, they speak of available seat miles, or ASMs.

Airlines calculate ASMs by multiplying the number of seats on the plane by the length of a flight, in miles. A 175-seat Boeing 737 Max 8 flying cross country generates many more ASMs than a smaller Boeing 737-700, with 143 seats, flying form Chicago to St. Louis.

Joe DeNardi, an analyst with Stifel, calculated this week that Southwest’s Boeing 737 Max 8s had been scheduled to fly 6.7 percent of Southwest’s ASM’s next month. By July, he said, Southwest has planned for its Max aircraft to fly almost 8 percent of capacity.

American’s 24 Max aircraft had been scheduled for about 2.5 percent of all of its capacity next month, Stifel said, while United’s 14 Boeing 737-9s were to fly 1.7 percent of all available seat miles. In July, American has planned to fly about 1.5 percent of capacity with Max jets, while United had scheduled 2 percent. (United flies many of its 737-9s to Hawaii, which generates a disproportionate number of ASMs because of the long flight.)

DOING MORE WITH LESS

The FAA’s decision means all three airlines probably will delay or cancel more flights in the next few weeks, as in the short-term there’s not much airlines can do quickly.

Longer term, though, airlines have tricks they can use to fly more passengers with fewer airplanes, aviation analyst Robert Mann said.  Carriers might not be able to take care of everyone, but they could get close.

In the spring, before the busy summer travel season begins, airlines generally have more slack in their fleets, making it easier to schedule spare aircraft to replace Max jets.

“There are school holidays during this period and there are parts of the network that are pretty busy, like to and from Florida and Mexico, but it not a heavy demand period in a lot of other parts of the network,” Mann said.

In summer, when airlines make hefty profits, airlines can be short on spares during peak periods of the day. But they have other options, Mann said.

An airline might fly its aircraft more hours each day, perhaps starting each day at 5 a.m. instead of 6, and flying until midnight instead of 11 a.m. The last time Southwest was short of aircraft, in 2018, it used this approach.

“You can flex up in utilization in the aircraft,” Mann said. “It won’t be at the right times of day, but you can schedule those and re-accommodate customers.”

Airlines can also play with frequencies. On a busy business route, on which an airline flies eight or 10 times per day, it can fly six or seven, if calculates that’s enough times per day to satisfy demand. It can use a freed-up aircraft on a former 737 Max route. (For this reason, customers should not assume their flight will be canceled just because they booked a Max; airlines can always substitute another plane.)

American and United also have another lever, should they need it. Each contracts with several regional airlines operating as United Express and American Eagle. American even owns three regional airlines, while United invests in some of its regionals.

Some of these smaller airlines have the ability fly more flights, so American and United can ask them to pick up the slack. (Some don’t, as they lack enough pilots to add flights.)

But because United and American don’t fly many Max flights, DeNardi, said he doubts they would ask two of the bigger third-party operators — Skywest Airlines and Mesa Airlines — to fly more.

“Given the relatively modest exposure to the MAX at United and American (1%-2% of ASMs), it would surprise us if the additional flying opportunity presented to Skywest or Mesa was significant,” he wrote.

Southwest doesn’t fly any regional jets, so it doesn’t have this opportunity.

FINANCIAL IMPACT

United President Scott Kirby likes to say the average major airline will see several unexpected events each year. Aviation is a highly regulated business, dependent on the whims of the world’s economy and the ups and downs of geopolitics.

Airlines have almost no control over these events.

It happened with the laptop ban in 2017, when the U.S. government told some airlines they couldn’t let passengers keep large electronics in the cabin. It also occurred in 2014 when Malaysia Air Flight 17 was shot down over Ukraine. Passengers wondered whether it was safe to fly.

Over time, these things usually sort themselves out. People continue to travel, and airlines either find a way to make the new reality work, or regulators loosen restrictions, as they did with the laptop ban. Eventually, regulators almost certainly will lift restrictions on the Max, and business will return to normal.

But even before that happens, all three U.S. airlines should be fine. All carriers plan for external shocks, and they have procedures in place to deal with them.

Jay Shabat, a senior analyst at Skift Airline Weekly, said in an interview he expects business to return to normal at all three airlines relatively soon. He acknowledged Southwest might have trouble with operational reliability until its Max jets can fly again, but said it probably won’t be material to its financial results. He noted Southwest did not change its financial guidance even during the worst of its dispute with mechanics.

“I think it’s important to recognize the scale of Southwest Airlines,” Shabat said. “It is so massive. When you are talking about a company with $22 billion in revenue, it takes a lot to have a meaningful financial impact.”

Shabat said corporate travelers — high-value customers airlines love — generally understand when an airline is struggling with something outside of its control.

He also said he expects leisure travelers to stick with the airline, even if they fear cancellations or delays, as Southwest’s network is unique. In many cases, because Southwest doesn’t have a hub structure, it is the only airline flying nonstop.

“If you have to get to Kansas City and Southwest is the only airline that can get you there nonstop, you are probably going to fly Southwest,” he said.

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