The prolonged grounding of the Boeing 737 MAX aircraft is growing its burden upon the airlines. Carriers globally are losing profits as their MAXs are stuck on the ground. Additionally, the parking lots around Boeing’s factory are almost full, which has slowed down the production of the series and thus delayed even further some of the forecasted delivery dates. European low-cost carrier Ryanair is one of the airlines most severely impacted by the grounding.
Overview of the Boeing 737-8-200 issue at Ryanair
Lack of clarity about the possible return of the MAX series to the European skies makes fleet and network planning extremely difficult for all of the operators of the airplane. However, with 210 Boeing 737 MAX’s on order (135 firm + 75 options), Ryanair is one of the airlines where the impact of the grounding is felt the most.
In early November the airline reduced its growth forecast for summer 2020 to 3%, down from 7%. On top of that Ryanair was forced to close its bases in Nuremberg and Stockholm Skavsta due to the delay in deliveries.
According to a memorandum sent to pilots by Chief Operating Officer Neal McMahon in late November, Ryanair is now only expecting to receive 10 aircraft ahead of summer 2020, down from 20 previously expected, with a possibility of receiving none at all. Initially, Ryanair was planning to be operating 58 MAX during that period.
The cost of the grounding is definitely significant for Ryanair, impacting the airline across many areas of functionality. Reduced availability of seats and aircraft hurts revenues and is prolonging the use of older Boeing 737NG. This, in turn, increases operating costs and the uncertainty compromises network planning.
Calculation of the costs
An exact approximation of the actual cost of the grounding is very difficult, yet we have done our best to estimate it.
Firstly let us take a look at the average fuel consumption on a Ryanair flight. In its environmental report, Ryanair reported that its fuel burn per passenger-km is 0.019l. Assuming Ryanair’s average load factor of 93% and an average flight distance of 1,247km would give us a total fuel burn of 4,164.5kg/flight.
Assuming jet fuel is about 0.80kg/L, that gives us around 5,200 liters, which in turn is about 32.7 barrels of jet fuel. Taking a jet fuel price average for 2019 from IATA of $79.6/bbl would give us a total fuel expenditure on an average flight of around $2,603.
Boeing 737 MAX equipped with the new CFM LEAP-1B engines together with its scimitar winglets and other aerodynamic improvements are expected to reduce fuel consumption by approximately 16% per seat compared to the Boeing 737-800NGs. If Ryanair were to operate a Boeing 737-8-200 instead of a 737NG, on an average route it would use 4,368 liters, reducing the fuel cost per flight to $2,187.
Boeing 737-8-200 also provides an increase in the number of available seats by 4%, bringing the total to 197. Flying at an average load factor would increase Ryanair’s revenue from the additional 7 seats by around $412/flight (assuming reported avg ticket price of 37 Euro + average ancillary revenue of $18/passenger)
Assuming other costs and revenues remain constant, on average Ryanair is losing around $830 per flight due to the grounding of the Boeing 737MAX series. What is worth noting is that this loss translates almost directly to a loss in net profit for the airline, and thus has a significant impact on its bottom line.
Summer 2020 costs
Now, let’s take a look at the expected loss Ryanair will incur during summer 2020, assuming it receives 10 of the Boeing 737-8-200’s, versus 58 initially planned. The calculation is based on the assumption that all the new MAX’s would replace older Boeing 737 NG’s and not operate on new routes.
According to Airtravel genius Ryanair utilizes its aircraft 9.1 hours per day which, given an average flight duration of 1hr and 48mins, gives us five flights per aircraft per day.
Being short of 48 aircraft, each flying five times daily over the course of three months will cost Ryanair around $18 million. $18 million might not seem like a lot, however, it would directly translate to profits and there $18 million means a lot. In fact, it is about 2% of Ryanair’s 2018/19 total profitability.
Assuming a worst-case scenario of receiving zero aircraft by, let’s say, September 2020, this would cost Ryanair an approximated $60 million.
Of course, once we start adding lease extension costs and extra staff costs, the total burden of the grounding grows significantly.