Airfares are almost certain to go up this summer. Troubles with the Boeing 737 Max are part of the reason.
The grounding of the Boeing 737 Max jet took 371 planes out of service worldwide for an indefinite period of time. Boeing (BA) also halted deliveries of new jets that could have been in service by the time the peak summer season arrived. Discount European carrier Ryanair (RYAAY)had been awaiting its first 737 Max when deliveries were halted.
Among 737 Max’s largest customers are discount airlines, like Southwest (LUV) in the United States and Norwegian Air in Europe. Those carriers put pressure on fares, forcing other airlines to offer more seats at lower prices to compete for leisure travelers. Fewer flights by discount carriers mean less competition for other carriers, and less incentive to offer lower-priced seats on their planes.
“I think it certainly has the ability to pressure fares higher as we get into the busy summer months,” said Helane Becker, airline analyst for Cowen.
Uncertainty over when the Boeing 737 Max will be back in service has led airlines to cancel hundreds of flights a day all the way into August. Southwest canceled flights through August late last week, and American Airlines (AAL), the world’s largest carrier, did the same on Sunday. United Airlines (UAL), the third US airline with a version of the 737 Max in its fleet, has canceled flights through early July.