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Report on Business American Airlines cuts outlook, estimates 737 Max groundings will cost it US$350-million

American Airlines' Boeing 737s taxi on the runway at San Francisco International Airport on April 24, 2019 in San Francisco.

Justin Sullivan/Getty Images

American Airlines Group Inc. cut its 2019 profit forecast on Friday, blaming an estimated US$350-million hit the grounding of Boeing’s 737 Max planes during its busiest travel season, but said it was confident that the jets would start flying again by mid-August.

American, the No. 1 U.S. air carrier by passenger traffic, said earlier in April that it was extending the grounding of all 24 of its 737 Max jetliners until Aug. 19, leading to about 115 daily cancellations during the peak summer travel season.

While the cancellations only represent about 2 per cent of American’s daily summer flight capacity, the financial impact is disproportionate as revenue is lost during the grounding while the vast majority of costs remain in place.

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The airline said its employees were working overtime to accommodate some 700,000 summer travellers and thousands of crew affected by 15,000 Max cancellations through Aug. 19.

As a result, Fort Worth, Tex.-based American said it now expects its 2019 adjusted profit to be US$4-6 per share, from a previous forecast of US$5.50-7.50 per share.

Analysts on average were expecting 2019 earnings of US$5.63 per share, according to Refinitiv data.

American also said it expects fuel expenses for the year to be about US$650-million higher than its earlier forecast, citing a recent run-up in oil prices.

Shares were down 2 per cent at US$32.77 in morning trading.

Following the worldwide grounding in March of the 737 Max after two fatal crashes, Boeing Co is developing a software fix and new pilot training for regulatory approval.

The U.S. Federal Aviation Administration is under scrutiny for its original certification of the airline and has said it will work with regulators worldwide to recertify the aircraft.

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In the event that the FAA approves the 737 Max before other regulators, American’s CEO Doug Parker said, “We will absolutely fly the airplane. That’s our regulator.”

Mr. Parker said pilots will play a critical role in helping rebuild public trust in the aircraft, and that his decision to remove the planes from American’s schedule through Aug. 19 was based on 95-per-cent certainty that they would be ready to fly by that date.

American reported first-quarter net income of US$185-million, or 41 cents per share, compared with US$159-million, or 34 cents per share, a year earlier.

Excluding items, the airline earned 52 cents per share, compared with the average analyst estimate of 51 cents per share.

Total operating revenue rose 1.8 per cent to US$10.58-billion.

American said it expects unit revenue, a closely watched performance measure that compares sales with flight capacity, to rise between 1 per cent and 3 per cent year-on-year in the second quarter.

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Southwest Airlines Co, the world’s largest Max operator with 34 of the jets, said on Thursday it sees unit revenue growing by 5.5 per cent to 5.7 per cent in the second quarter.

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