United profits soar, buys old 737’s as MAX falls back to years end…

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In line with the other US majors, United has now put back 738 MAX operations to the start of November, and along with everyone else is highly skeptical that they’ll be back in service before February 2020. Even if they are, it will be a drip feed return as upgrades are installed and tested, and there’s already a back-lot bun fight over who’s going to get theirs done first. American took them out of its fleet on Sunday, cancelling 115 flights a day.

United has signed a deal to buy 19 used 737-700’s and get them into service as soon as viable, supplementing the lost aircraft, but they won’t be in use until December which implies they’re expecting a long gap between in service of the 14 grounded aircraft and the return to deliveries of new ones, 7 of which are built and parked up.

(Southwest has 34 parked and 4 waiting delivery, American Airlines 24 parked and 7 waiting, delta of course has none and admits its doing fine).

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It also announced a substantial rise in profits, up 50% year on year in Q2.

There’s an interesting paradox here. The US market is generally benefiting from a notable lack of capacity on routes dominated by one of the USB3, but likely served as well by one of the smaller or lo-cost airlines – there are hundreds of such routes across the US. that lack of capacity is driving up fares and increasing profits.

The counter-punch to that is the airlines are looking at more and more, more economical but expensive aircraft, to offer more cheap seats, to get higher market share, but lower prices as capacity increases, thus lowering profitability.

This is what’s happened in Europe. Big airlines keep adding new aircraft to increase capacity and drive out the smaller competition, but the result is lower profits as seat availability exceeds demand. RyanAir’s cut backs yesterday shows that it’s well aware reducing capacity/bases/growth rates will in fact improve its margins.

Yet despite the obvious maths, the airlines seem obsessed with growing passenger numbers, and market share, more than profitability. It makes even less sense in the US as there is effectively no major airline left, that the DoT would let merge with another of the operators, in a massively diminished post-Great Recession world.

In Europe however, there is still a good deal of thinning out to go in the minds of most large airlines, and they won’t stop until they’ve squeezed the pips and the EU stops it getting worse.

 

 

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