TOKYO -- Asian airlines are scaling back routes and curbing expansion plans as they brace for a difficult peak summer season without the aviation industry's newest workhorse, Boeing's 737 Max 8 single aisle, which has been grounded following two fatal crashes.
Singapore Airlines' budget carrier subsidiary Scoot announced this week it would suspend four routes from late June due to a shortage of aircraft. Its parent has had to halt plans to expand Scoot's fleet with the transfer of older 737s as its regional sister airline, SilkAir, will not now receive the new jets it had expected. SilkAir has also had to cancel flights.
In Indonesia, aviation group Lion has been forced to reallocate aircraft in its fleet to make up for the absence of the 737 Max, raising questions about its plan to revive expansion of its full service airline, Malindo Air, according to analysts. Malindo is now expected to have to transfer some of its fleet to Lion Air, one of the 737 Max's biggest customers. Lion Air is considering canceling its orders.
China Southern Airlines, which has the greatest number of Max 8s on order among Chinese carriers, has 24 of the single aisles in its fleet. It is expected to have to revise its growth target for passenger capacity, says Kelvin Lau, analyst at Daiwa Capital Markets Hong Kong.
Meanwhile lease rates are likely to rise due to a scarcity of replacement aircraft. This could bump up carriers' operating costs as they head into the crucial second half, which is Asia's peak travel season, analysts say.
The developments as a result of the 737 Max's longer-than-expected grounding are forcing analysts to reconsider their expectations for Asia's airlines -- which are among the aircraft's main buyers. "The impact on airline operations and airfares in Asia from the grounding of Boeing 737 Max jets [...] could worsen from 2Q2019," said Akash Gupta, director of Fitch Ratings Singapore in a recent report.
Boeing is racing to fix the software problem that affected the aircraft's anti-stall system, resulting in the crashes of first a Lion Air jet in October and then Ethiopian Airlines flight 302 in March, killing a total of 346 people. In both cases sensors appear to have sent erroneous data, suggesting an imminent stall, which prompted the system to push the nose of the aircraft down.
The Federal Aviation Authority in mid-April said Boeing's plan for a software update and training revisions were operationally suitable, giving hope that the aircraft might fly again soon. Boeing told the Nikkei Asian Review that "over the coming weeks, we will finalize the development of our update for certification by the FAA." A Boeing spokesperson said the company was supporting customers by deploying field service representatives to assist with questions and concerns.
In the meantime, however, airlines had "very few options" to make up for the lack of aircraft during the sector's most critical season. They would have to lease jets or reshuffle existing fleets, one industry insider said. As a result "There might be some airlines which cannot operate during the peak summer season," he said. The fate of each airline group depends on "how many non 737 Max aircraft they possess in their fleets," he said.
In the U.S., Southwest and American Airlines are already struggling with the financial fallout from the grounding of their 737 MAX 8 aircraft. Southwest canceled 10,000 flights using the 737 Max 8 until Aug. 5, and said it had lost $200 million of revenue in the first quarter of its fiscal year. American Airlines, which removed the troubled aircraft from its flight schedule through Aug. 19, has cut its full-year profit forecast, citing an estimated $350 million hit due to the grounding of its 737 MAX 8 aircraft.
Back in Asia, Indonesia's top aviation group Lion is under pressure to transfer jets to its leading airline Lion Air, which has 10 MAX 8s in the hangar, nearly 9% of its total fleet.
Although the group's Malindo Air has no 737 Max aircraft in operation, "as Lion ponders a potential cancellation of its 737 MAX orders the group could adjust its long term fleet plan, resulting in some adjustments for Malindo," said aviation consultancy CAPA in a recent report.
This will be a blow to the Malaysian full-service carrier, which has seen its fleet shrink for the last two years and was about to resume expanding. Malindo had planned to add three 737-800s by the middle of this year. This is now in doubt.
Danang Mandala, spokesperson for Lion, insisted that the main flag carrier Lion Air would "surely be able to operate [sufficiently] during the peak season" in June without the 737 Max aircraft. June is when the country takes roughly a week off for the Islamic holiday of Idul Fitri.
Its subsidiary Thai Lion Air has also grounded three MAX 9s, although this variant has not been implicated in the crashes. The group was expecting deliveries of four more Max 8s by May but "everything is under negotiation," Mandala added.
China Southern Airlines may face higher costs as it has to reallocate aircraft to meet summer demand. "China Southern Airlines will reallocate some of the wide body aircraft from international routes to domestic routes during the peak season to cover for the grounded 737 MAX aircraft," said Kelvin Lau, analyst at Daiwa Capital Markets Hong Kong.
India's SpiceJet will lease aircraft while its 13 737 MAXs, accounting for 17% of its fleet, are grounded. The financial crisis at India's Jet Airways, which led to the grounding of all its aircraft in April, has been beneficial to SpiceJet, said Gueric Dechavanne, vice president of the International Society of Transport Aircraft Trading Certified Senior Appraiser. "This is a unique situation whereby the lessors who had aircraft that became available due to the Jet Airways shutdown were able to place them fairly quickly with SpiceJet with minimal reconfiguration costs since the aircraft didn't have to be taken out of India," he said.
Nikkei staff writers Kentaro Iwamoto in Singapore, Shotaro Tani in Indonesia, Rosemary Marandi in Mumbai and Nikkei Asian Review deputy editor Zach Coleman contributed to this story.