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United Airlines: 737 MAX Jets Grounded until September 3

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Jun. 27 2019, Published 9:11 a.m. ET

United Airlines

United Airlines (UAL) has extended the grounding of its Boeing (BA) 737 MAX planes through September 3. The company has extended the grounding period for the second time in the last three months. In April, United Airlines canceled all of its 737 MAX flights through early July, which it later stretched to August 3.

United Airlines owns 14 Boeing 737 MAX jets. Grounding the jets signifies ~1,900 flight cancellations for United Airlines in August. The cumulative cancellations will likely impact 5,340 flights from April through August. In the second quarter, United Airlines will likely face 3,440 flight cancellations due to the MAX groundings.

Flight cancellations are already hurting United Airlines’ financial performance. The company’s revenue growth rate slowed to 6.2% in the first quarter from the low-double-digit increase in the previous two quarters.

During the last quarterly earnings release, United Airlines stated that it has to run larger planes across canceled MAX routes, which is increasing its operating costs.

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Peers are suffering too

United Airlines isn’t the only carrier that’s facing massive flight cancellations due to grounding the MAX jets. On June 13, Southwest Airlines (LUV) extended the grounding of its MAX fleet through September 2. Southwest Airlines owns 34 MAX planes. The company expects ~100 daily flight cancellations.

On June 11, American Airlines (AAL) removed its 24 MAX planes from its flight schedule through September 3, which signifies ~115 daily flight cancellations. The company expects the MAX grounding to have a negative impact of $350 million on its 2019 pre-tax income.

Investors could choose the iShares Transportation Average ETF (IYT), which has allocated ~19% of its funds in the airline industry. The ETF has returned ~11% in 2019. However, IYT has underperformed the Dow Jones and the S&P 500, which have risen 13.8% and 16.2%, respectively.

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