According to reports, TUI could lose as much as €400m next year if its fleet of Boeing 737 MAX jets are still on the ground come next April. It has already been nine months since the worldwide grounding was imposed with no precise end declared. Unfortunately, the 737 MAX recertification could last into mid-February according to the latest information from the FAA.
Preparing for the high season
According to a report by the Financial Times, a grounding that goes into February 2020 will prevent leisure carrier TUI from preparing its fleet for the summer high season. RTE reports that TUI says it is benefitting from the demise of Thomas Cook in the form of increased bookings and higher prices for the current winter and coming summer seasons. Financial Times reports that bookings for its summer 2020 holidays were up 18%.
“2020 is the year when Thomas Cook is out of the market and a lot of capacity hasn’t been filled yet, so you would expect 2020 to be the year that Tui makes a lot of money,” -Richard Clarke, analyst at Bernstein (via Financial Times)
Breaking down the numbers
RTE reports that the grounding of the planes has already cost TUI €293m in lost earnings this year. Furthermore, the airline says that if the grounding is over by February there would only be a loss of earnings of roughly €130m.
The airline does forecast an earnings growth of at least 6% if the 737 MAX is back in service by the end of April. Reuters reports that an additional €220-270m could be wiped off profits if it was not.
Southwest Airlines recently reached a confidential agreement with Boeing for compensation over the grounding of its own 737 MAX fleet. The total remains undisclosed. However, the airline has revealed that US$125 million of the total will be distributed among its employees.
Previous to this, Boeing shared that it has reserved up to US$5 billion, to be used to pay airlines compensation for damages and lost revenue. Altogether, it is estimated that United States carriers are losing $1 billion due to the ongoing saga. Southwest Airlines has the largest grounded 737 MAX fleet in the world.
As revenue continues to be lost it will be interesting to see what kind of action Tui might take against Boeing. Back in May/June airlines were anticipating a return to service around October/November. As the days and weeks pass, it becomes more difficult to determine when the aircraft will return to service.
Earlier today we saw reports that Boeing is discussing whether or not it should halt production of the aircraft. Now, the FAA doesn’t anticipate re-certifying the aircraft before the new year, warning that the process could take until March. Despite an initial 20% reduction in production rates after the grounding, Boeing still struggles to find places to park the 42 per month it continues to produce.