The hundreds of 737 Max planes previously in service worldwide are all currently grounded. The grounding will likely hurt Boeing, whose shares are down after the Ethiopian Airlines crash and whose sales might take a hit.
It will likely hurt airlines, which now have fewer seats with which to shuttle customers around the country and the world.
And it will likely hurt passengers, who might have to adjust their schedule and, in some cases, their spending. But most notable is the scale of it all: Depending on the duration of the grounding, it could cost all involved parties billions of dollars.
The infamous 737 Max is now grounded and considered a liability, but this was not always the case. What made Boeing design this particular aeroplane?
In the below Video Wendover Production explains the economics behind this ill-fated airplane.
Part of the reason is that airlines would rather have a cheap small plane than an expensive super efficient small plane.
The 737 is just that: a cheap small plane. Priced at just $89 million, the now doomed plane was considered a great deal.
This is because Boeing had perfected the 737 manufacturing process and could, therefore, offer a cost-efficient deal on the planes. It was estimated that at their peak Boeing was making one 737 every fourteen hours. Talk about a lot of planes!
However, at some point, airlines started to change how they used their fleet and had begun using planes like the 737 for longer and longer flights. In addition, in 2011, jet fuels had reached an all-time high so fuel efficiency was key for the airlines.
Then in December 2011, Boeing’s competition Airbus announced the re-engined A 320 Neo. Unfortunately for Boeing, that model sold very well.
Airlines wanted a small efficient plane. On July 2011, American airlines then announced a massive order of Boeing’s redesigned 737.
But at this point, the new 737 had not been announced. So Boeing was essentially pushed in producing this re-engined 737.
The Economic effect after 737 Max planes grounded
The price of the company’s stock fell more than 10 per cent, which represented nearly $30 billion of the company’s market value, in the days after the crash
Airlines—Boeing’s customers—are not in a great position either. Grounding a certain model of plane, while it affects the supply of (not the demand for) seats, can have a similar effect. Planes are such a big investment that once an airline buys one, it wants to put it to use as much as possible, which means “it’s not like they have a bunch lying around” for situations like this. Basically, airlines are now stuck making the most of what they already have.
Where does all this leave passengers? Airlines passengers expect to see airlines cancel some flights and perhaps raise the prices of others to compensate for the lost revenue. That means some passengers might end up spending more to get where they need to go on their preferred timeline; others might just have to be flexible on their departure time, consider another mode of transit, or not go at all.
