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Southwest to Keep 737 MAX Jets Grounded until September 2

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Jun. 14 2019, Updated 10:34 a.m. ET

LUV extends MAX grounding period

Southwest Airlines (LUV) has extended the grounding of its fleet of Boeing (BA) 737 MAX jets through September 2. The move marks the second time in the last three months that Southwest Airlines has extended the grounding period of these planes.

The company first grounded all of its 737 MAX jets on March 13 for an undisclosed period following the deadly Ethiopian Airlines crash on March 10. Later on April 11, it announced it would keep its fleets of 737 MAX jets grounded until August 5.

Southwest Airlines is the largest global operator of 737 MAX with 34 aircraft. The grounding of Boeing’s troubled jets signifies approximately 100 daily flight cancelations for Southwest Airlines.

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Flight cancelations are already hurting the company’s financial performance. During the first quarter, Southwest Airlines recorded about 9,400 flight cancelations, of which 2,800 were due to 737 MAX grounded jets. As a result, the company’s top line registered sluggish growth of 4.2% in the first quarter compared with the high-single-digit increase it had recorded in the preceding four quarters.

Other airlines suffering too

Southwest Airlines is not the only carrier that’s facing massive flight cancelations due to troubled MAX jets. Most recently on June 11, American Airlines (AAL) announced extending the grounding of its MAX fleets through September 3. American Airlines currently owns 24 jets, which signify approximately 115 daily flight cancelations. The company is expecting a negative impact of $350 million on 2019 pre-tax income due to MAX grounding.

United Airlines (UAL), another major carrier, has 14 Boeing 737 MAX jets. The company last month extended the grounding period of these jets until August 3. During its first-quarter results, the airline said it has to run larger planes on 737 MAX routes, which is increasing its operating costs.

To gain exposure in the airline industry, investors can opt for the U.S. Global Jets ETF (JETS), which has allocated ~88% of its funds in the space. The ETF returned 10.3% in the year so far but has underperformed the Dow Jones and the S&P 500, which are up 11.9% and 15.3%, respectively.

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