What to Know
- Southwest became the first U.S. airline to pull the 737 Max from its schedules until next year.
- Cancellations are set to climb because the carrier expected to have more new planes delivered during 2019.
- The 737 Max planes have been grounded since mid-March after a fatal crash in Ethiopia, five months after another in Indonesia.
With no end in sight to the grounding of Boeing's 737 Max, one airline is warning travelers that their Thanksgiving and Christmas travel plans might be disrupted.
Southwest Airlines on Thursday became the first U.S. airline to pull the planes, grounded by regulators worldwide in mid-March after two fatal crashes within five months of one another, from its schedule until next year. American and United expect the planes to return in early November.
Boeing this week said that it's testing a software fix for an automated flight-control system it added to the Max jetliners that was implicated in two crashes — one in Indonesia in October and another in Ethiopia in March — that killed 346 people. CEO Dennis Muilenburg said he expects the company will submit those fixes and other information needed for the plane to fly again to the FAA in September. He said the company anticipates the planes will be flying again early in the fourth quarter, but it warned that more delays are possible.
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Airlines have already canceled thousands of flights during the peak summer travel season as the Boeing 737 Max grounding wears on for months longer than expected. The groundings and paused deliveries of the planes to airlines cost Boeing more tan $7 billion in the second quarter: money it set aside to compensate to airline customers and increased costs.
"It's really all about the Max," said Southwest CEO Gary Kelly on an earnings call. The airline posted higher-than-expected profits despite the prolonged Max grounding thanks to strong travel demand. "That's the only issue that we are dealing with."
The airline's operating income took a $175 million-hit due to the grounding, the airline said.
Kelly said everything else at Southwest "is rock solid."
Hamstrung by the lack of its 737 Max planes, currently parked in the California desert, Southwest can't grow as planned, or ramp up flying as much meet demand during busy travel periods like the end-of-year holidays after it pulled the planes from its schedules until Jan. 5.
Southwest, which doesn't charge travelers fees to change or cancel their flights, will waive fare differences for customers who need to change their trips because of the extended schedule disruption.
"If demand remains strong as it appears to be, looking into the fall, I think there's going to be plenty of competition by consumers for the cheapest seats," said Henry Harteveldt, a former airline executive and founder of travel-industry consulting firm Atmosphere Research Group.
"I think the airlines are worried," he added. "Neither Boeing nor the FAA can provide 100% accurate insight right now because they're still working on the various fixes on the plane that have to be made."
Once the regulators clear the planes to return to service, airlines will have to train their pilots on the changes Boeing made aboard, a process that airline executives say can take more than a month.
Impact on travelers
Airlines affected by the Max grounding, now in its fifth month, are reducing the number of flights they operate on certain routes or eschewing less profitable routes, in hopes of minimizing travel disruptions.
Carriers try especially hard to to ensure that lucrative business travelers' trips aren't disrupted.
"On a year-over-year basis, there hasn't been a very material change in the completion factor for corporate customers," said American's chief of revenue management, Don Casey, on its earnings call Thursday. "So, we've done a good job of figuring out ... what to cancel."
That strategy has worked "relatively successfully" because it is dealing mainly with flights between large airports, but peak holiday travel raises demand for flights between large hubs and smaller airports "as travelers head home for the holidays," noted Hayley Berg, an economist at flight-tracking site Hopper.
"It's possible that travelers planning trips at Thanksgiving and Christmas will have more difficulty finding a great deal on flights home for the holidays if there is less capacity and less carrier competition on their particular route," she wrote in a note.
For its part, Southwest said it will hold on to older 737 jets longer but it won't be enough to make up for the fact that it won't have its new, fuel-efficient 737 Max jets flying.
That could mean fuller and more expensive flights for travelers, just when they need to get home for the holidays. Southwest said it expects revenue for each seat it flies a mile, a gauge of how much airlines are making for the amount of seats they're offering, to rise as much as 5% from a year ago in the third quarter, partly driven by the Max grounding.
"It is obvious that we're short capacity, that we're spilling traffic and leaving money on the table and helping our competitors," CEO Kelly said on the call.
Airline executives say taking the planes out of their schedules ahead of time reduces headaches for crews and customers should delays arise after they have been scheduled or booked.
Southwest, which operates an all-737 fleet, warned that it won't grow flying by the 5% it had planned this year. Instead, it will shrink capacity by as much as 2% due to the grounding. The airline is also pulling out of Newark, where United dominates, in November, as it looks to cut less profitable flights, and concentrate its New York operation out of LaGuardia Airport. It will use some of its planes instead for bigger money-making destinations like Hawaii and California, it said.
The Dallas-based airline has 34 Boeing 737 planes and expected to receive 41 more this year. That means that the airline will have to cancel more flights than it had in previous months. In the second quarter alone, Southwest canceled 20,000 flights.
"The total number of flights impacted daily will be higher as time goes on, and certainly with the holidays in November and December," said Southwest spokesman Chris Mainz.
Last week, Southwest had pulled the planes from its schedules only through early November and said it would need to cancel 180 flights a day in October, up from a previous estimate of 150 daily flights in September, out of around 4,000 daily trips.
American Airlines remains "optimistic" that the planes will return in November, its president Robert Isom said on an earnings call. The airline's profits grew 19% on the year in the second quarter to $662 million, but the carrier halved its capacity-growth forecast to a 1.5% expansion on the year and said the grounding would cost it $400 million in pretax profits in 2019. Harteveldt said airlines, like American and United, whose fleets include different kinds of planes, such as different Boeing models or those made by rival Airbus, are in a better position to weather the prolonged grounding.
Boeing has suspended deliveries of the planes but cautioned this week that the current reduced production rate that airlines may experience delays receiving their planes "in the future," which could further hurt airlines' growth during other peak travel periods like mid-winter holidays or spring break.
Some surveys have shown passengers may hesitate to fly on the 737 Max even after regulators approve its return.
Southwest's CEO Kelly said the company will "have communications campaign. We're good at that."
"Nobody in this company, and especially our pilots, is going to do anything that they deem to be unsafe," he said. "So then it's just a matter of convincing our constituents of that, and we're going to work hard to do that."
This story first appeared on CNBC.com. More from CNBC: