If you were planning on flying Southwest (LUV) anytime soon, you’re much likelier to have your travel plans upended due to President Donald Trump’s decision Wednesday to ground all of Boeing‘s (BA) 737 Max jets, analysts suggest. If you own airline stocks, one says, expect them to be all over the place in the days ahead.
Trump’s decision followed similar moves from nations worldwide after an Ethiopian Airlines 737 Max 8 jet crashed over the weekend, killing 157 people. In October, a Lion Air flight on a 737 Max 8 also crashed.
But as investors digested the news, analysts say their impact on U.S. airlines’ businesses would be minimal. Worldwide, about 350 737 Max jets were in service.
“737 Max aircraft are still a small part of (the) overall fleet for most U.S. airlines, which in off-peak travel season can likely be covered by higher utilization of existing fleet or delays in certain aircraft retirements,” Raymond James analyst Savanthi Syth said in a research note.
For the flying public, Cowen analysts noted the timing of the groundings comes as people prepare to travel for Spring Break and Easter. Nonstop flights will be replaced with stopovers, they say.
Meanwhile, airline stocks will be “somewhat erratic over the coming days,” they warned.
Unit revenue might get hurt in the near term, analysts say. Costs will likely rise as airlines redeploy aircraft. Still, S&P Global said the 737 Max groundings wouldn’t be a huge deal for the airlines.
Exposed Airline Stocks
The Boeing 737 is often the workhorse in an airline’s fleet, capable of flying short and longer-haul flights across the U.S.
The next-generation 737 Max, Boeing says, is the “fastest-selling” jet in the company’s history. It’s more fuel efficient, helping airlines contain what is often their biggest cost.
In terms of total airline flight capacity — broadly, the total amount of seats and flights an airline offers to passengers — WestJet and Southwest were most exposed.
The 737 Max was set to account for 7.8% of Southwest’s flight capacity this year, according to Cowen. For WestJet, which trades over the counter, the Max was set to make up 10.9% of capacity.
Airline Stocks Muted After 737 Max Groundings
As investors digested the news of the 737 Max groundings, airline stocks were mixed on Thursday. Southwest rose 1.1%. Delta dipped 0.2%. American added 0.9%. United inched 0.3% higher.
Airline stocks have pulled back recently over fears that swings in fuel prices will make it more difficult to manage profitability. Fears of a global economic slowdown have also hurt airline stocks.
The U.S. Jets Global Jets ETF (JETS), an exchange traded fund that tracks the airline and transportation industries, rose 0.2% to 29.36. The ETF was working on a handle of a cup base. But it was far from that handle’s 31.76 entry.
Shares of Boeing have crumbled in recent days on the news. The jet maker said it retained “full confidence” in the 737 Max’s safety. But the company said it supported the grounding of the aircraft out of “an abundance of caution and in order to reassure the flying public of the aircraft’s safety.” Rival Airbus (EADSY) could bring in more sales as a result.
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