Air Canada, West Jet brace for return of Boeing 737 Max jets to service
Canada’s two largest airlines reported solid results for their busiest summer season despite lower capacity and extra costs from the grounded Boeing 737 Max jets, with executives now preparing for the challenge of returning the planes to the skies after months of disruption.
The Boeing 737 Max jets were grounded worldwide in March after two fatal crashes in Indonesia and Ethiopia related to an anti-stall system killed 346 people, including 18 Canadians. But with the U.S. regulator expected to re-certify the jets for flight in the coming months, Air Canada and WestJet Airlines Ltd. don’t expect the turbulence to dissipate immediately when it comes to scheduling, hiring and customer confidence.
“It could take a year to get them all in,” Air Canada chief executive Calin Rovinescu said on a conference call with analysts Tuesday. “You will not see capacity for all 50 flooding markets.”
Air Canada has 36 Max planes and expects to have 50 by next year. When the Boeing jets come back online, Rovinescu said Air Canada will be able to retire some older, less efficient planes it has relied on during the grounding. Air Canada expects 38 planes, including short-term leases, will exit its fleet next year.
“There’s not really a desire to have inefficient airplanes flying around on inefficient routes,” Rovinescu said.
Still, analysts questioned whether the return to service could lead to a capacity glut and lower prices, especially since WestJet will resume flying 13 Max jets with plans to receive 37 more in the coming years. Lower capacity in the third quarter — Air Canada’s capacity dropped 2.1 per cent in the latest quarter and WestJet’s fell 0.5 per cent — led to higher yields as fares rose for the remaining seats.
In an interview with Bloomberg, WestJet chief executive Ed Sims also raised the challenge of a significant capacity jump and said he’s having “robust commercial discussions” with Boeing that includes what will happen in the next six months.
For Air Canada, finding people to fly its new planes will also be a bottleneck in the return to service. Air Canada had hired only 400 pilots for the 24 Max jets it operated before the grounding. Once the Federal Aviation Administration signals a return to service, Air Canada will start a process to hire and train an additional 350 pilots.
The airline is confident it can find the talent thanks to a program with regional carriers Jazz and Sky to promote pilots, Rovinescu said, describing it as a “farm system.”
There’s not really a desire to have inefficient airplanes flying around on inefficient routes
Air Canada has removed its Max jets from its schedule until Feb. 14, while WestJet has so far deleted them until Jan. 4.
WestJet’s Sims stated consumer perceptions of the Max as another challenge in return to service, telling Reuters that half of customers the carrier surveyed would be reluctant to fly on a 737 Max.
“We understand that some of our guests may have concerns and we have conducted some research to determine what they will require to feel comfortable when the MAX flies again,” WestJet spokeswoman Lauren Stewart said in an email. “When the time comes, we are committed to doing all we can to provide comfort that these aircraft are as safe as any aircraft that we fly.”
The question of safety was front and centre Tuesday as Boeing’s chief executive Dennis Muilenburg faced scrutiny in public testimony at a congressional hearing in Washington. He admitted mistakes were made in communications about the MCAS anti-stall system and in delayed disclosures to the FAA.
While the planes must receive the green light from Transport Canada as well as the FAA, Air Canada’s Rovinescu said he’s hopeful the regulators will act in tandem.
“There’s no doubt the grounding is preventing us from realizing our full potential,” he said.
Air Canada reported record third quarter revenue of $5.55 billion and adjusted earnings before interest, taxes, depreciation, amortization and impairment of $1.47 billion, up 9 per cent, increases Rovinescu called “even more meaningful” given the Boeing grounds. Its profit slipped to $636 million from $702 million in the same period last year, but the airline maintained its long-term financial targets on the assumption that regulators will approve the return of the Max series in the near-term.