American Airlines Shrank for First Time in 7 Years on Boeing 737 MAX Cancellations

July 10, 2019

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3 min read

American Airlines Shrank for First Time in 7 Years on Boeing 737 MAX Cancellations

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American Airlines shrank for the first time since before its merger with US Airways in the second quarter, when the Boeing 737 MAX grounding took a big bite out of its schedules.

Capacity at the Fort Worth, Texas-based carrier was down 0.8% year-over-year during the quarter, a second quarter investor update shows. The company had planned to grow by a little over half a percent in the period.

The last time American shrank was in the first quarter of 2013, when capacity fell 1.3% year-over-year, according to Diio by Cirium schedule data. The airline merged with US Airways in December 2013.

American was hard hit by the 737 MAX grounding in the second quarter. The airline cancelled roughly 7,800 flights as a result that, coupled with an on-going labor dispute with its mechanics and severe weather at several of its hubs, resulted in more cancellations than normal, the update shows.

The airline had planned to operate 31 737 MAX 8s by the end of June, the update states. It had 24 737-8s when the type was suspended in March.

American's cancellations have captured media attention. The Wall Street Journal has called June the beginning of a “nightmare summer” at the carrier, citing data showing that 4% of its flights were cancelled in June.

Even Florida Senator and 2016 Republican presidential candidate Marco Rubio was not immune from American’s operational struggles.

American has removed the 737 MAX from its schedules through Sept. 3. However, many expect the cancellations to slide into at least October as the Federal Aviation Administration, and other global regulators, have yet to determine a timeline for returning the aircraft to the skies.

The airline has temporarily suspended flights between Dallas/Fort Worth (DFW) and Oakland (OAK), California, due to the grounding.

The 737 MAX-related cancellations have also hit American where it hurts – in its pocket book. The grounding reduced the airline’s pre-tax income by about $185 million during the three months ending in June. That number is equal to about a quarter of the company's entire pre-tax profit over the same period a year ago.

Wall Street analysts, however, are bullish on the carrier's second quarter results. In a report today, Raymond James analyst Savanthi Syth calls the update "somewhat positive," citing improvements in both American's pre-tax margin and total unit revenue guidance for the period.

American anticipates a pre-tax margin of 8.5-9.5% in the second quarter, the update shows. It also forecasts a 3-4% year-over-year improvement in total revenue per available seat mile, a measure of demand, due to higher than expected load factors.

Featured image by American 737 MAX 8 aircraft stored in Oklahoma. (Photo courtesy of American)