While the airliner performed better than it had expected on the cost side as CASM (excluding fuel) improved at a greater rate than the reduction in TRASM guidance, higher fuel costs offset those improvements causing it to also lower its Q1 pre-tax margin outlook. Specifically, it now sees pre-tax margin of 2-4% compared to its prior expectation of 2.5-4.5%.
With the government shutdown in the rear-view mirror and, investors are mainly concerned about how the ongoing grounding of its MAX aircraft will impact financial results going forward.
To rewind, the FAA grounded all 737 Max jets in the U.S back on March 14 following two fatal crashes of that particular aircraft. On October 29, 2018, a Lion Air flight that took off from Indonesia crashed 12 minutes after take-off. Then, on March 10, 2019, an Ethiopian Airlines flight crashed, marking the second crash for the 737 Max aircraft.
While there isn't a definitive conclusion as to what caused these crashes, the groundings were prompted by similarities between the two found by. There apparently was a fault in a sensor that fed incorrect data into the system, causing the plane to nose-dive downward. The flight paths for both aircraft followed the same type of pattern.
Shares of BA have been hit hard in the aftermath of the crashes, down about 12% since March 10. The near-term outlook took a hit as well as the company just announced that it will cut production of its 737 MAX to 42 planes per month from 52 as it focuses on fixing the software that is believed to be at the root of the problem. Furthermore, it is unclear how long the grounding of the existing aircraft will last. At the earliest, it seems like mid-summer may be the best-case scenario, which would continue to impact AAL and other airliners.
In terms of exposure to this particular aircraft, only about 90 daily flights of its ~6,700 total are serviced by the jet. That amounts to less than 2%. Competitor, United Continental (UAL 83.87, -0.71, -0.84%), which reaffirmed its FY19 and FY20 EPS guidance on March 5, just prior to the crash, has even less exposure as it has only 9 Max 9 jets in its fleet.
Delta Airlines (DAL 57.17, -0.54, -0.94%) has zero exposure, so, it isn't experiencing any of these issues. In fact, it seems DAL has benefited as flight cancellations have caused passengers to change airlines. On April 2, DAL raised its Q1 EPS guidance to $0.85-$0.95 from $0.70-$0.90, despite fuel prices coming in 3% higher that it expected. It actually experienced a record month in March with capacity up 5% versus its 4% guidance. As these Max 737 issues linger and disrupt flights, DAL should be poised to continue to benefit, which is reflected in its stock performance, launching higher by 17% since March 26.
On the flip side, Southwest Airlines' (LUV 51.63, -0.31, -0.59%) exposure is more material as the Max line accounts for around 6% of total hours flown. Therefore, it's not surprising that its stock is getting hit on AAL's news this morning, down about 1%.