April 26, 2019 / 11:55 AM / 24 days ago

American Airlines cuts outlook on 737 MAX, sees jets flying again by mid-August

(Reuters) - American Airlines Group Inc cut its 2019 profit forecast on Friday, blaming an estimated $350 million hit from the grounding of Boeing’s 737 MAX planes during its busiest travel season, but said it was confident the aircraft would start flying by mid-August.

FILE PHOTO: An American Airlines Boeing 737 Max 8, on a flight from Miami to New York City, comes in for landing at LaGuardia Airport in New York, U.S., March 12, 2019. REUTERS/Shannon Stapleton/File Photo

American, the No. 1 U.S. carrier by passenger traffic, said earlier in April that it was extending the grounding of its twenty-four 737 MAX jetliners until Aug. 19, leading to about 115 daily cancellations during the peak summer travel season.

No. 3 U.S. carrier United Airlines also said it expects to cancel hundreds of flights during the peak summer season due to the groundings.

While the cancellations only represent about 2 percent of American’s daily summer flight capacity, the financial impact is disproportionate as revenue during lost while the vast majority of costs remain in place.

The airline said its employees were working overtime to accommodate some 700,000 summer travelers and thousands of crew affected by 15,000 MAX cancellations through Aug. 19.

As a result, Fort Worth, Texas-based American said it now expects its 2019 adjusted profit of $4.00 per share to $6.00 per share, from a previous forecast of between $5.50 per share and $7.50 per share.

Analysts on average were expecting 2019 earnings of $5.63 per share, according to Refinitiv data.

American also said it expects fuel expenses for the year to be about $650 million higher than its earlier forecast, citing a recent run-up in oil prices.

Shares were down 2 percent at $32.77 in morning trading.

IF FAA APPROVES, WE’LL FLY

Following the worldwide grounding in March of the 737 MAX after two fatal crashes, Boeing Co is developing a software fix and new pilot training for regulatory approval.

The U.S. Federal Aviation Administration is under scrutiny for its original certification of the airline and has said it will work with regulators worldwide to recertify the aircraft.

In the event that the FAA approves the 737 MAX before other regulators, American Chief Executive Doug Parker said, “we will absolutely fly the airplane. That’s our regulator.”

Parker said pilots will play a critical role in helping rebuild public trust in the aircraft, and that his decision to remove the planes from American’s schedule through Aug. 19 was based on 95 percent certainty that they would be ready to fly by that date.

United Airlines, which is part of United Continental Holdings Inc, said it expects to cancel about 35 to 40 flights a day during the month of June. In April, it expects cancellations of about 130 flights and 900 in May.

American reported first-quarter net income of $185 million, or 41 cents per share, compared with $159 million, or 34 cents per share, a year earlier.

Excluding items, the airline earned 52 cents per share, compared with the average analyst estimate of 51 cents per share.

Total operating revenue rose 1.8 percent to $10.58 billion.

American said it expects unit revenue, a closely watched performance measure that compares sales with flight capacity, to rise between 1 percent and 3 percent year-on-year in the second quarter.

Southwest Airlines Co, the world’s largest MAX operator with 34 jets, said on Thursday it sees unit revenue growing by 5.5 percent to 5.7 percent in the second quarter.

Reporting by Sanjana Shivdas and Arjun Panchadar in Bengaluru and Tracy Rucinski in Chicago; Editing by James Emmanuel and Steve Orlofsky

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