Healthy travel demand helps cushion 737 MAX toll for American, Southwest

Healthy travel demand helps cushion 737 MAX toll for American, Southwest

Healthy travel demand should continue to cushion results for American Airlines Group Inc and Southwest Airlines Co , the two said on Thursday, even as the prolonged Boeing 737 MAX grounding continues to hit costs and profits.

A number of grounded Southwest Airlines Boeing 737 MAX 8 aircraft are shown parked at Victorville A
FILE PHOTO: A number of grounded Southwest Airlines Boeing 737 MAX 8 aircraft are shown parked at Victorville Airport in Victorville, California, U.S., March 26, 2019. REUTERS/Mike Blake

REUTERS: Healthy travel demand should continue to cushion results for American Airlines Group Inc and Southwest Airlines Co , the two said on Thursday, even as the prolonged Boeing 737 MAX grounding weighs on costs and profits.

American and Southwest have had to cancel thousands of flights following a Boeing 737 MAX safety ban in March, prompted by two deadly crashes.

"Our 2019 earnings were negatively impacted by the Boeing 737 MAX being grounded for more than 7 months, bringing a lot of uncertainty and frustration to our customers, our team and our shareholders,” American Airlines CEO Doug Parker told analysts.

Shares of American Airlines fell 2per cent to US$26.77 in early trading while those of smaller rival Southwest were up 1.9per cent.

American edged past Wall Street estimates for quarterly profit. Net income rose to US$414 million, or 95 cents per share, in the fourth quarter ended Dec. 31, from US$325 million, or 70 cents per share, a year earlier.

Excluding items, American earned US$1.15 per share, above the average analyst estimate of US$1.14 per share, according to IBES data from Refinitiv.

Revenue rose 3.4per cent to US$11.3 billion.

Parker said it was too soon to see any impact from the coronavirus that has emerged from Wuhan, China but said the carrier is working with U.S. public health officials. In response to the outbreak, passengers are being screened as a precaution at airports around the world.

American said it expects 2020 full-year adjusted earnings between US$4 and US$6 per share, compared with the average analyst estimate of US$5.10 per share, according to Refinitiv data.

Southwest, which as the world's largest 737 MAX operator is among the airlines hardest hit by the global grounding, posted a 0.4per cent rise in revenue to US$5.7 billion in the quarter.

"The underlying demand environment remains healthy which will drive unit revenue, but MAX grounding remains a cost headwind," Cowen analyst Helane Becker said.

Southwest warned that unit costs excluding fuel and profit-sharing expenses are seen spiking between 6per cent and 8per cent in the current quarter as the company manages an operation built around more flights than it is now able to operate due to fleet constraints.

Net income declined 21per cent to US$514 million, or US$0.98 per share, in the quarter ended Dec. 31, from US$654 million, or US$1.17 per share, a year earlier.

The profit was below a Wall Street consensus forecast for US$1.09 per share, mainly because Southwest said it treated a US$124 million profit-sharing payment to employees that stemmed from a partial compensation agreement with Boeing last month as an operating expense while most analysts treated it as a one-time item.

Boeing said on Tuesday it does not expect to win approval for the 737 MAX to fly again until mid-year as regulators continue to scrutinize software and flight control updates and debate new pilot training requirements.

Vasu Raja, American Airlines senior vice president of network strategy, told analysts the carrier knows pilots will need to have training in a 737 MAX simulator before they can fly the plane again.

American anticipates the MAX coming back into service in late summer or early fall.

(Reporting by Tracy Rucinski, Sanjana Shivdas and Allison Lampert; Editing by Nick Zieminski)

Source: Reuters

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