Boeing 737 MAX Delivery Delays Impact Airlines: Higher Ticket Prices Expected

Delays in deliveries due to safety concerns related to the 737 MAX aircraft cast a shadow over airlines.

Boeing has told airlines that they will receive fewer 737 MAX planes this year than expected, forcing those companies to reduce schedules and increasing the possibility of higher airline ticket prices in the middle of the busy summer travel season.

Airlines in the United States and Europe are preparing to have fewer short-haul planes on board than they expected, an unpleasant surprise that is causing increased operating costs. It will also keep older aircraft in service longer.

Boeing reduced production levels after a door exploded on an Alaska Airlines 737 MAX flight last January. The company announced this week that it had written off about $4 billion in cash in the first quarter.

The Federal Aviation Administration, the regulatory body, announced that they would not allow Boeing to produce more than 38 737 MAX aircraft per month, so that the company would focus on improving quality standards. In March last year, the aircraft manufacturer delivered 24 aircraft to customers, compared to 52 aircraft in the same month a year ago. At the same time, its European competitor, Airbus, delivered 51 A320 and A320neo aircraft, the two models that compete with the MAX.

For its part, Southwest Airlines said it would receive only 20 of the 46 narrow-body aircraft it was likely to receive this year. Southwest is the airline with the largest number of 737 MAX aircraft in service in addition to those it has ordered. In January, the company announced that it intended to receive 79 Max aircraft, not the agreed number of 85 aircraft.

As a result of the lower capacity, Southwest currently expects operating income for 2024 to grow by less than 10% compared to last year, after expecting growth to exceed 9% The airline, which posted a first-quarter net loss of $231 million, adopted a set of cost-saving measures, limiting its services to four airports within the United States, and reducing the number of employees by 2,000 by the end of the year. Last year. The company is suspending positions, giving access to voluntary leave, as well as reducing schedules for the second half of this year.

Southwest has also postponed the retirement of some aircraft, is also in the process of reducing the time required to prepare an aircraft for its next flight, and has increased the number of flights that take off at night and land the next morning, while trying to generate more revenue from the aircraft it owns. “I don’t underestimate the challenges of Boeing’s problems,” said Bob Jordan, CEO of Southwest. He continued: “It is deep, and most of the things that are not understood cannot be left. “

As for American Airlines, it expects to acquire 16 narrow-body aircraft in 2024, according to a management statement, down from its January estimate of 20 aircraft, and its previous estimate of 25 aircraft. The airline suffered a net loss of $312 million in the first quarter of the year, compared to net income of $10 million in the same period a year ago.

United Airlines said last week that it expects to deliver 61 narrow-body aircraft to Boeing in 2024, down from an estimated 101 at the start of this year. “As we started this year, the business plan was based on larger airlines, but deliveries were down more than 40 aircraft compared to our expectations,” said Andrew Nocella, the company’s chief commercial officer.

Instead of receiving 23 Max aircraft this year, Alaska Airlines indicated that Boeing will deliver between 10 and 20 aircraft. The company had expected to expand its aircraft capacities by up to 5% compared to last year, but currently expects its capacities to grow by at least 3%.

Ryanair, Boeing’s biggest European customer, had expected to take delivery of 57 aircraft on schedule at the height of the summer season, but Michael O’Leary, the airline’s CEO, told the Financial Times that the company is currently awaiting delivery of about 40. The low-cost airline has abandoned some of its flights and scaled back its growth plans, reducing the number of passengers it expects to carry on its flights this fiscal year to 200 million from 205 million.

At the beginning of the year, Turkish Airlines was expected to receive 15 737 MAX aircraft in 2024, then 16 additional aircraft in 2025, according to Cirium, which provides flight data services. The company currently plans to acquire 4 aircraft this year, which it will lease from Air Cap, as well as another 31 aircraft last year through lessees. Helan Baker, an analyst at TD Coin, pointed out that Boeing delivery delays, along with the grounding of planes powered by defective turboprop engines made by “Pratt & Whitney,” will combine with strong demand for air travel to ticket push up airplanes. prices rise starting in mid-May.

O’Leary expects air ticket prices to rise between 5% and 10% annually due to the shortage of aircraft in Europe. There may be an opportunity to increase airfares and offset the higher costs of whole flights. Joe Rollina, an analyst at Fitch Ratings, believes that ticket prices will increase later in the year. He said: “It will bring net negative results for airlines, but there are things that compensate for this.”

Rob Morris, president of Ascend Consulting, a subsidiary of Cirium, pointed out that the global capacity of both United and Alaska in June will be about 6% less than what they expected on January 7, that is, just from after the explosion. Bab on board the plane “Alaska”, indicating that the shortage of 737 MAX aircraft will be the main driver of this issue.

United hired flight crews, especially pilots, under the assumption that it had more planes to fly. The company has since asked them to take voluntary unpaid leave in May. Scott Kirby, the CEO of United, said that the company plans to lose its schedule by designing schedules that are suitable to use 90 flights or less if it is going to have 100 flights per year.

He said: If everything goes according to the date and plan, we will have several additional aircraft for use for two months He said: This will be quite expensive, but the cost will not be close to the cost of 40 fully staffed aircraft.

Turkish Airlines, which is seeking to double the size of its aircraft fleet over the next decade, is negotiating with Boeing to place what is expected to be a large order, possibly for to consist of 150 aircraft, according to Morris. Murat Cekir, the chief financial officer of Turkish Airlines, told investors this month that discussions were still ongoing, particularly on the Max planes, but that decisions could be made a little later. forward.

As for Alaska, it expects to operate a reliable schedule despite having fewer new planes, according to Andrew Harrison, chief commercial officer. Harrison explained that the company has decided to continue to retire old aircraft over the coming months, while using jet aircraft in their fleet more often.

However, American Airlines executives, in a discussion with analysts last Thursday, pointed out that despite the decline in the expected deliveries, like the rest of the airlines, it is not that big depends on new aircraft manufactured by Boeing, due to its modernization of the aircraft. floating it is already several years ago. “We will be better off than the rest of our competitors,” said Robert Isom, CEO.