Sunday, April 14, 2019

It's Just Plane Economics

Airlines are having to cancel hundreds of flights daily right now because of grounded Boeing 737 MAX jets, and not enough other planes available to meet regular summer flight demand.

Normally U.S. airlines compete to sell tickets and fill seats during the peak summer travel season. But operators of the grounded Boeing 737 MAX are facing a different problem: scarce planes and booming demand.

The grounding of Boeing Co’s fuel-efficient, single-aisle workhorse after two fatal crashes is biting into U.S. airlines’ Northern Hemisphere spring and summer schedules, threatening to disarm them in their seasonal war for profits.

“The revenue is right in front of them. They can see it, but they can’t meet it,” said Mike Trevino, spokesman for Southwest Airlines Pilots Association and an aviation industry veteran.

Southwest Airlines Co, the world’s largest MAX operator, and American Airlines Group Inc with 34 and 24 MAX jetliners respectively, have removed the aircraft from their flying schedules into August.

Southwest’s decision will lead to 160 cancellations of some 4,200 daily flights between June 8 and Aug. 5, while American’s removal through Aug. 19 means about 115 daily cancellations, or 1.5 percent of its summer flying schedule each day.

Low-cost carrier Southwest, which unlike its rivals only flies Boeing 737s, had estimated $150 million in lost revenue between Feb. 20 and March 31 alone due to MAX cancellations and other factors.

So far airlines have said it is too soon to estimate the impact of the MAX grounding beyond the first quarter, but the extended cancellations signal that they do not expect a quick return of Boeing’s fast-selling jetliner. The 737 MAX was grounded worldwide in March following a fatal Ethiopian Airlines crash just five months after a Lion Air crash in Indonesia. All on board both planes were killed.

Economics tells us that when you have scarcity of supply and ineleastic demand,  you can raise prices and keep them there.  If you think airlines are somehow upset that they no longer have to offer discount summer ticket prices this year in order to compete, I have a few airplanes to sell you.

No, as usual in this industry, the big loser is going to be the flying public.  Longer lines, longer flight delays, and a more miserable experience with everyone packed into 100% full planes.  It's going to be the worst summer to fly in several years.

Not for the airlines, though.  They'll be fine.

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