Alaska Airlines to Face $150 Million Loss After Grounding of 737 Max 9
Alaska Airlines, one of the largest airlines in the United States, is set to face a significant loss of approximately $150 million following the grounding of its 737 Max 9 fleet. The grounding was ordered by the Federal Aviation Administration (FAA) after an incident on January 5, where a door plug blew off an Alaska Airlines flight, causing a hole in the side of the plane. While no passengers were harmed, the incident raised concerns about the safety of the aircraft.
The grounding of the 737 Max 9 jets will have a substantial financial impact on Alaska Airlines. The airline reported an adjusted income of $38 million in the final quarter of the previous year and $583 million for the entire year. The loss of revenue from canceled flights and the cost of compensating customers for hotels and overtime for staff will contribute to the significant financial hit.
Alaska Airlines currently has 65 of the 737 Max 9 jets in its fleet, making it the second-largest operator of these aircraft, behind United Airlines. United has also warned of a first-quarter loss due to the grounding. However, there is hope on the horizon as the FAA has recently outlined inspection procedures for the return of the planes to flight. Alaska Air has announced that its grounded jets will gradually return to service, with the first plane scheduled to fly again on Friday.
The cost to Alaska Air primarily stems from lost revenue, but the airline expects to be compensated by Boeing for the profit impact of the grounding. CFO Shane Tackett stated that they “fully expect to be made whole” by Boeing, although no details of the compensation have been provided yet. Despite the incident, Alaska Airlines remains committed to its long-term plan of using Boeing aircraft. CEO Ben Minicucci emphasized their deep relationship with Boeing but also expressed their intention to hold Boeing accountable and raise the bar on quality.
While the grounding has caused significant disruptions to Alaska Airlines’ operations, the airline believes that most passengers will be willing to fly on the 737 Max 9 once it resumes service. CEO Ben Minicucci acknowledged that there may be initial concerns and anxiety among passengers, but he is confident that confidence in the aircraft will be restored over time.
The grounding has resulted in the cancellation of approximately 3,000 flights for Alaska Airlines this month, reducing its overall capacity by about 7% for the quarter. The airline has conducted thorough inspections of its 737 Max 9 fleet and discovered loose bolts on many of the aircraft. Despite this, Alaska Airlines remains committed to its decision to exclusively purchase Boeing aircraft in the future.
Despite the financial setback caused by the grounding, Alaska Airlines still expects to report a profit for the full year. However, it may fall short of analysts’ estimates. Analysts predict a loss of $79 million in the first quarter, and Alaska’s guidance suggests that its full-year profit could range from $381 million to $635 million.
Alaska Airlines and United are the only US airlines with the 737 Max 9 jets in their fleets. However, other airlines, such as Southwest Airlines, have also been affected by problems at Boeing. Southwest Airlines announced that it expects fewer deliveries of the 737 Max this year due to the delayed certification of one of the models by the FAA. Southwest CEO Bob Jordan expressed confidence in Boeing’s ability to address the issues and stated that his airline would be ready to adjust its orders accordingly.
American Airlines CEO Robert Isom also expressed his concerns about Boeing’s product quality and emphasized the need for improvement. Despite these concerns, Southwest Airlines CEO Bob Jordan believes that passengers will continue to have confidence in Boeing and his airline. Southwest Airlines has a fleet consisting entirely of Boeing 737 aircraft, including the 737 Max 8.
In conclusion, the grounding of Alaska Airlines’ 737 Max 9 fleet will result in a significant financial loss for the airline. However, the airline remains committed to its long-term plan of using Boeing aircraft and expects most passengers to regain confidence in the 737 Max 9 once it returns to service. The impact of the grounding extends beyond Alaska Airlines, affecting other airlines like United and Southwest. Despite the challenges, airlines are hopeful that Boeing will address the issues and improve the quality of its aircraft.
