The Boeing 737 Max Grounding Continues to Pound Low-Cost Airlines

The Boeing 737 Max saga continues to inflict damage on the aviation sector.

On Monday, Ryanair was the latest airline to reveal the escalating toll of the 737 Max grounding, now in its seventh month. The uncertainty over when the plane will fly again forced Europe’s largest airline to slash its 2020 growth rate as it sticks with plans to cut back on bases and reduce its work force.

In July, the company said it expected the delivery of 30 Boeing 737 Max planes by next summer—down from a planned 58. Today, it downgraded that number further. “We expect to receive only 20 MAX-200s,” the company said in a fiscal first-half trading statement. The net effect, the company said, would be to cut its growth rate from 7% to 3% as it forecasts carrying 5 million fewer passengers in the current fiscal year.

Ryanair’s predicament is similar to other airlines who were among the first wave of eager buyers of the more fuel-efficient, narrow-body aircrafts for mid- and long-range flights. Ryanair notes the planes contain 4% more seats, burn 16% less fuel and require less maintenance downtime. “When delivered,” the company reiterated, “it will transform our cost base and our business for the next decade. Due to these delivery delays, we will not see any of these expected cost savings delivered until FY21.”

The 737 Max has been grounded since March following two fatal crashes, one in Indonesia and another in Ethiopia that killed a combined 346 passengers. The ripple effects are particularly acute among the budget airlines. Norwegian Air in October reported “the 737 MAX grounding has affected both demand, operating expenses and production.” In the U.S., Southwest Airlines also reported last month that the 737 Max delays have so far this year cost the company $435 million in missed revenues.

Cautious Outlook

Between Brexit and the Max grounding, Ryanair said “our outlook for the remainder of the year remains cautious. We try to avoid the unreliable optimism of some competitors.”

Yet investors cheered on Monday, driving the company’s shares as much as 9 percent higher, before inching downwards. Overall, European stocks closed at a four-year high on Monday, buoyed by progress in the U.S.-China trade deal talks.

Earlier on Monday, Ryanair Holdings reported after-tax profits of €1.15 billion (around $1.3 billion) for the six months ending Sept. 30—its most profitable period of the year—roughly even with the equivalent period last year. Speaking before a backdrop showing red fall colors in a company-produced video address, company Chief Executive Michael O’Leary and Neil Sorahan, the chief financial officer, said add-ons like fees to allow passengers to board flights faster or reserve seats help offset lower fares and higher fuel costs.

The company also narrowed its profit forecasts full-year, which will end March 31, 2020, to €800-900 million, compared to €750-950 million previously.

Boeing says it expects the plane to be cleared to fly before Dec. 31, but the European Union Aviation Safety Agency, best known as EASA, has said the regulatory approval process could take longer.

Ryanair initially ordered 135 of the 737 Max aircraft. The company originally expected to receive 58 of the high-capacity models of the 737 Max ahead of the 2020 high summer season, but O’Leary said the company now expects to receive 20 of them in that time frame, with another ten possible later in the year if regulators recertify the aircraft before the end of this year. But he also said there was a “real risk” it could enter the 2020 high season with no new aircraft at all.

O’Leary expressed frustration with the slow pace of the EASA certification process, accusing the agency of “dragging their heels.” In a rare show of public support for Boeing, he said he was “very confident” the 737 Max was safe.

As it waits on the delivery of the first of the new 737 Max aircraft, O’Leary said the company would stick with plans to reduce the number of bases it uses while scaling back on jobs among pilots and cabin crews.

In July, Ryanair said the delays tied with the new fleet would mean it would fly around 30,000 fewer flights than it would have flown if the new planes had been delivered on time.