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Boeing 737 MAX fallout will weigh on Air Canada, WestJet earnings through Q2

A Boeing 737 MAX 8 airplane being built for India-based Jet Airways lands following a test flight, Wednesday, April 10, 2019, at Boeing Field in Seattle. (AP Photo/Ted S. Warren)

The worldwide grounding of the Boeing 737 MAX aircraft will weigh on Air Canada and WestJet Airlines Ltd.’s earnings results for the first half of the year – and could extend further, the longer the jets are kept on the ground.

Both Canadian airlines will face cost headwinds and decreased capacity growth in the first and second quarters as a result of the grounding of the aircraft following the Ethiopian Airlines crash in March that left 159 dead, National Bank analyst Cameron Doerksen wrote in a note to clients this week.

National Bank lowered its first quarter financial forecasts for both airlines on Thursday.

This comes as some airlines in the United States cancel more 737 MAX flights through the busy summer season. Southwest Airlines and American Airlines both extended the length of the grounding, to August 5 and June 5, respectively.

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Both Air Canada and WestJet have removed the aircraft from their fleets and adjusted flight schedules accordingly. Air Canada, which had to ground 24 737 MAX 8s, said its new schedule will cover 98 per cent of the flying originally planned with the grounded aircraft. The 737 MAX has been removed from the airline’s schedule until at least July 1.

WestJet said it would be able to rebook 86 per cent of passengers that were scheduled to fly on their 13 MAX 8s, and that the airline was able to cover 75 per cent of flights that were supposed to use the jet.

Both airlines have also suspended its 2019 financial guidance, citing uncertainty related to the Boeing 737 MAX jets.

Whether the grounding decision will be lifted by the busy – and typically very profitable – summer season remains to be seen.

“Given the uncertainty surrounding when the 737 MAX may be cleared to to return to service by regulators, we have taken the prudent step of assuming the plane remains grounded through Q3 with some residual impact in Q4 due to the push out of previously planned new aircraft deliveries,” Doerksen wrote in a note to clients.

WOW Air collapse ‘a small positive’

Last month also saw the collapse of Icelandic low-cost carrier WOW Air, which abruptly announced its closure, leaving passengers stranded after all flights were cancelled.

Doerksen said the collapse of the trans-Atlantic competitor was “a small positive” for Canadian airlines, as WOW represented about 1.2 per cent of the total seats between Canada and Europe in the summer season, a popular route for Canadian carriers.

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