By Tracy Rucinski and Sanjana Shivdas
(Reuters) – American Airlines Group Inc <AAL.O> and Southwest Airlines Co <LUV.N> warned on Thursday of an increasing financial toll from the prolonged Boeing 737 MAX grounding this year even as strong bookings and higher fares helped drive quarterly revenue growth.
The two airlines are the largest U.S. users of Boeing Co’s <BA.N> top-selling jet, which was grounded worldwide in March following two fatal crashes, forcing both to cancel thousands of monthly flights as they try to operate with slimmer fleets.
American, the No. 1 U.S. airline, said it expected the grounding to hit its 2019 pre-tax earnings by about $400 million (£320.6 million), about $50 million more than it had previously forecast.
Low-cost carrier Southwest said it took a $175 million hit to operating income in the quarter from the MAX grounding, and said it sees additional cost pressure in the second half of 2019 after unit costs per available seat rose 7.5% in the quarter.
Both have ordered dozens more MAX jets, but with deliveries frozen, American said it is extending the lifespan of some of its other 737 models as well as some 757s and A320s, while Southwest is ceasing operations at weak-performing Newark Liberty International airport and will focus instead on growth in Hawaii, where it launched service this year.
Dallas-based Southwest also extended MAX-related cancellations until Jan. 5, 2020, saying it does not expect regulatory approval for the jets to fly again until the fourth quarter, which will be followed by one to two months to prepare the jets for fresh commercial service.
It had previously removed the MAX jets from its flying schedule through early November, a timeline that American maintained on Thursday.
Without the MAX, Southwest said, its overall capacity will now decrease between 1% and 2% this year, a reversal from its earlier forecast of nearly 5% growth. American’s capacity will still grow in 2019, the airline said, but at a slower rate than originally planned.
Boeing, which posted its largest-ever quarterly loss on Wednesday, has announced an after-tax charge of $4.9 billion related to potential compensation to MAX customers.
Southwest said it has had preliminary discussions with Boeing about MAX-related damages but has not reached any conclusions and did not include any amount in its quarterly results.
The scarcer seat supply helped drive unit revenue growth, a measurement of revenue per available seat mile, at both airlines, which were able to charge passengers more. That trend is expected to continue in the third quarter, they said.
American’s total operating revenue rose 3% to $11.96 billion in the second quarter from a year earlier, while Southwest’s grew 2.9% to $5.9 billion, a quarterly record for both.
(Reporting by Tracy Rucinski and Sanjana Shivdas in Bengaluru; Editing by Nick Zieminski and Steve Orlofsky)