On back-to-back days, executives from two major US airlines described how a major safety scare and the related weeks-long grounding of all Boeing 737 Max 9 jets undermined both companies’ otherwise strong first-quarter performances.
Alaska Airlines chief executive Ben Minicucci was the latest to detail quarterly results soured by the 5 January door-plug blow-out on Alaska flight 1282 and its aftermath. He immediately addressed the impact of the accident during the carrier’s first-quarter earnings call on 18 April.
“As you are all aware, the most significant event this quarter was the accident involving flight 1282 and the subsequent four-week grounding of a third of our fleet,” he says. “Our focus has been on the safe return of our fleet, caring for our employees and guests and enhancing oversight of the production of our new aircraft.”
As previously reported, Alaska suffered an $162 million loss from the rapid de-pressurisation of a 737 Max 9 taking off from Portland, which tore a hole the side of the fuselage, and subsequent grounding of the type for inspections.
Alaska took all 65 of its Max 9s out of service following the accident. Shortly afterwards, the Federal Aviation Administration issued an order that grounded most of the global fleet for about a month.
Minicucci says that Alaska would have turned a “small profit” during the historically challenging first quarter if not for the losses it sustained due to the Max 9 grounding – during which period it was forced it to cancel 110-150 daily flights.
Instead, it reports a $132 million loss during the first three months of 2024. Boeing has ”fully compensated” Alaska for the losses, paying it $160 million during the first quarter.
“With the immediate impact of the grounding behind us and our operational reliability back on track, we are optimistic about our outlook for the rest of the year,” says chief financial officer Shane Tackett. He cites an expanding US economy, wage growth and trends suggesting consumers are still “prioritising spending on travel and experiences over goods”.
Indeed, Alaska reports strong financial results during the first quarter – aside, of course, from its Max 9-related losses.
“Not only did we improve profitability – excluding the grounding – by $120 million year over year, when compared to the first quarter of 2019 and 2023, we closed the margin gap to our largest peers by approximately two to three points,” Tackett says.
PROFITS UNREALISED
It was much the same story during United Airlines’ quarterly results call on 17 April. The Chicago-based carrier’s profits during the period were consumed by the $200 million hit it took from the grounding of its 79-strong fleet of Max 9s.
”We clearly would have produced a profit in the quarter” absent the Max 9 grounding, says chief commercial officer Andrew Nocella.
United is also feeling squeezed by Boeing’s delivery delays, with Nocella noting that its cost per available seat mile would be pressured throughout 2024 due to reduced capacity.
The major US carrier has drastically altered its fleet plan in response to Boeing’s certification delays and FAA-mandated capacity restraints. It has converted 110 orders for Max 10s to Max 9s and recently signed deals to lease 35 new Airbus A321neos to offset the Max 10s it is no longer anticipating.
Alaska’s capacity growth will be limited to under 3% for the full-year of 2024 as it no longer expects to take its previously estimated 23 737 Max deliveries amid Boeing’s FAA-mandated capacity restraints.
Company executives have yet to update their expected fleet plan.
“We remain committed partners but we will hold Boeing to the highest bar for quality out of the factory,” Minicucci says. “To that end, we have enhanced our in-person oversight of our 737 production line and are regularly engaging with Boeing leadership on quality and schedule.
“Alaska needs Boeing, our industry needs Boeing and our country needs Boeing to be a leader in airplane manufacturing.”
STILL EYEING HAWAIIAN
Also during the first quarter, Seattle-headquartered Alaska received a second request for information from the US Department of Justice regarding its proposed $1.9 billion acquisition of Hawaiian Airlines.
“We are working to respond to these requests as quickly as possible,” Minicucci says. “Given the substantial volume of information involved, we have granted the government an additional 60 days to review our responses, so we’ll continue to work with them to advance the process as quickly as possible.”
Alaska still believes that the deal has strong merits, with Minicucci characterising it as “pro-competitive” and “pro-consumer”.
“We are excited by the opportunities this will unlock both domestically and internationally,” he adds.
Indeed, Alaska would stand to gain a significant foothold in the Asia-Pacific region, given Hawaiian’s existing presence there and its plans to add a dozen new Boeing 787s to its long-haul fleet through 2027.
Last month, Hawaiian chief executive Peter Ingram told FlightGlobal that its incoming 787s likely make it a more appealing partner for Alaska.
”Think about what you can do with a widebody network out of some of their big bases in the Western US,” he said.
It would also become a dominant player in the Hawaii-to-mainland-USA market.
Alaska is facing a consumer-led lawsuit that argues the deal is anti-competitive and will negatively impact air service to Hawaii, asserting that a post-transaction Alaska could gain more than a two-fifths share of that market
The US government has yet to take any legal action to block the Alaska-Hawaiian tie-up.
