Grounding the 737 Max eases turbulence

Grounding the 737 Max eases turbulence.

The grounding of Boeing Co.’s 737 Max after a pair of accidents killed 346 people might seem an unmitigated disaster for the world’s airline industry.

Look at flight data, though, and you can glimpse a grim benefit supporting carriers’ bottom lines.

To see why, it’s worth remembering just how crucial the 737 and its arch-rival, the Airbus SE A320, are. Each plane family constitutes about a third of the roughly 24,000-strong global passenger airline fleet. Other aircraft put together — including all wide-body planes like the 747, 787, A330 and A380, turboprops and smaller jets like the Bombardier Inc.

CRJ — make up the remaining third. According to Boeing, a 737 takes off or lands somewhere in the world every 1.5 seconds, and there are about 2,800 in the air at any one time.

If anything, that probably underestimates their importance in terms of air traffic. Narrow-body aircraft like the 737 and A320 fly shorter distances and are turned around more times. In the US, they depart from airports roughly two to three times a day for every time a wide-body jet takes off, according to the Massachusetts Institute of Technology’s Airline Data Project.

By a very rough back-of-the-envelope estimate, the two aircraft together account for about 80 per cent of global departures.

That matters because one of the most important determinants of airline profitability is load factor, the share of seat capacity filled by paying passengers. Flying planes involves very high fixed costs, but once more than about 70 per cent of seats are filled, the marginal cost of dealing with an additional passenger will be far outweighed by the revenue to be earned from selling the ticket — one reason that last-minute bookings can be such good value.

Load factor, in turn, is largely a function of whether airlines have over-estimated or under-estimated the pace of passenger traffic growth, and how that relates to the capacity they’re putting into the market by buying or leasing planes and using them more or less frequently.

This year has been an uncertain one for carriers on that front. The impact of the trade war and general darkening economic outlook has meant that the International Air Transport Association’s forecast from the end of last year of a 6 per cent pace of passenger traffic growth is likely to be a significant overestimate. In the first six months of the year, the increase was just 4.7 per cent.

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