Price and that’s about it.

It’s got more than the old A330 in the sense that every vehicle enjoys a new, modern engine.  The A330 is positioned as being a still young aircraft when, in fact, it’s pretty old these days.  The technology that the A330/A340 airplanes got was solidly from the 1980’s and wasn’t that innovative even then.  Remember that it was designed to replace Airbus’ A300/A310 aircraft (partly) and designed to compete against the 767 and DC-10.

Airbus didn’t have its sights on the 777 which was a couple of years behind it in development.  In fact, the 777 was more a response to the A330/A340 and MD-11.

So the point I would make is this:  There is a reason why the 767 isn’t selling anymore.  Same for the 757.

There was also reason why Airbus wanted to sell an A330 Tanker to the US Air Force:  It would keep a production line running for a while.

If the A330NEO was as good as the 787, it wouldn’t be immediately advertised for considerably less money.  And for certain, if that kind of performance was what all airlines were looking for, Airbus wouldn’t have been strong armed into making the A350.  In fact, it’s notable that the original A350 was a lot more an A330NEO than anything else.

The A330NEO is a response to a few airlines who would like to have more A330 airplanes but with a little bit better price.  Delta, for instance, wants some.  A few other airlines will order them as well and if the A330NEO is done right, it might even be profitable for Airbus.

But it’s not a revolution.  It’s barely an evolution.  I strongly suspect it will be a 767-400 for Airbus which means that it will keep some customers happy and in the Airbus camp but let’s put away this talk that 1000 Airbus A330NEOs will be sold.  Only 1100 A330 airplanes have been delivered to date so far.

This is a bridge airplane to keep some people happy for a while so Airbus can figure out what to do with its product line gaps.  Presently, the A350 isn’t a 777 (new or old) and the smallest variant, the A350-800 is highly unattractive to customers because it offers no benefit over the A350-900.  Airbus has nothing new to fill the gap between the A321NEO and the A350-900 and that’s a big gap.

So, for now, the A330NEO will fill that gap.  Sort of.  Kind of.

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Emirates has cancelled its order for (70) Airbus A350 aircraft and that has left Airbus with a black eye.  It’s not a body blow to the program but it is an unhappy moment for Airbus and Airbus’ COO John Leahy whose best spin on the subject was that the 787 has had more cancellations over its program.  (The 787 has also been a program for years longer and has considerably more orders overall.)

The blow comes from the fact that Emirates is a good Airbus customer and it would appear that Emirates is rejecting the premise that the A350 is a solution for high density, long haul carriage.  The underlining of this conclusion would be Emirates’ large order for the 777-X.

The A350 clearly fits a need among airlines but as a product line, I continue to wonder if it hits the right mark.  When Airbus has to consider an A330NEO to slot underneath its A350, that isn’t good.  The A350 was originally supposed to be a kind of A330NEO.

The 787 has its product range in the 787-8, -787-9 and 787-10 and it joins that product range with the new 777-8 and -777-9 which sees Boeing providing a combined product family that spans 5 aircraft and a seat count ranging from 240 (3-class) to about 405 (3-class).  Pilots can transition between the two aircraft family in a single handful of days and that amounts to great flexibility for an airline.

Those 2 families also offer state of the art fuel efficiency and engines.  They are the advanced leap that airlines look for.

Airbus has the A330 (getting old no matter what Airbus thinks) and the A350 which will span a seat count from 270 (3 class) to 350 (3 class) and that’s pretty narrow and leaves a large gap for widebody long haul between 220 seats and 270 seats.  It also leaves a 60 seat gap at the upper end and Airbus’ only other answer is the mammoth A380 which already has at least one customer (Emirates) asking for a NEO.

It’s a black eye and the appropriate action on Airbus’ part is to better consider how it meets airlines needs for long and thin routes as well as long and thick at the upper end but below the A380.  Unfortunately, the A350 is already fixed in specifications and that leaves little maneuvering room.

Which leaves me thinking that the A350 was never well thought out from a strategic point of view.  First, it was going to be an A330NEO, then it was going to be an A350 and then it morphed into the A350XWB aimed at the 777 but without quite the revenue capabilities of a 777.

Hint:  Make sure you make money for your customers.  When the 777 is the darling of the party, give them a 777 or better, not a compromise.

It’s a black eye and one that other customers, particularly those in the Middle East who are voraciously ordering aircraft, will pay attention to.  It doesn’t “end” the A350 but it highlights Airbus’ diminished ability to serve its customers in the twin engine, widebody class.

And we need Airbus to do better than that.  Without Airbus, there really is no Boeing and vice versa.

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Airbus may be embracing the idea of creating an A330NEO offering for customers and it would appear to have some acceptance from some customers.  To date, Airbus’ official approach has been to discount the A330 and show it as a cost conscious solution for airlines when balanced against the Boeing 787 offerings.

While airlines such as Delta seem to embrace the idea, one wonders if the investment in an re-engined widebody really is wise at this point.   Airbus doesn’t have the answer to the 787 and it appears the A350-800 won’t be a future answer either.  A lower cost development of an A330NEO would appear to offering something that slots in between the A321 and the A350.

I honestly do not think so.

The 787 clearly was the right size in the -8 variant as many, many airlines adopted this aircraft right from the beginning.  The -9 variant is similarly widely accepted.  Those two, together, are what Airbus has to compete against with the A330 or an A330NEO.  In some missions, it may do OK but it won’t be the long term answer that an investment in a widebody asks for.

It would be foolish for Delta to drive a multi-billion dollar investment in an aircraft that Boeing has a better and just as tested answer for when such an airplane would be available.

It’s become clear that a certain generation of airliners are nearing their end now.  The 767/757 is clearly on a rapid decline with passenger airlines and the A330 will begin that decline shortly.  It’s not a new airliner and the A350 series should have been slotted to replace it better.

Instead, Airbus made the mistake of Bigger is Better.  It’s made that mistake twice now.  Upgauging its offerings made the -800 less attractive to airlines because of performance, not because it was the wrong size.  The truth is that Airbus needed an range that spanned probably 4 aircraft and that’s hard to do.

In the competitive lineup, Airbus needed:

• A350-700 | 787-8
• A350-800 | 787-9
• A350-900 | 787-10
• A350-1000 | 777-200ER
• A350-1100 | 777-300ER

There is no -700 or -1100 and the -800 is a bit heavy for the mission and no one wants it.  That leaves Airbus with (2) attractive medium sized widebody aircraft for customers and the A380.

That isn’t enough.  The A330 could be stop gap but it has to compete against a much more modern, efficient product lineup that Boeing will offer.  Look at Boeing’s potential now and over the next 10 years:

• 787-8
• 787-9
• 787-10 / 777-200ER/LR
• 777-300ER / 777-8
• 777-9

Boeing wins.  It’s got the right sized aircraft with the right efficiency for a 20+ year investment that ranges the entire sweet spot for widebody aircraft.  Even the “older” 777 models in that line-up purportedly “beat” the corresponding A350 models on the “total” package of performance.  At worst, they hold their own against the A350 and that’s still pretty good.

Airbus needed 2 widebody families.  It has one and I think cobbling together a stop-gap measure for one of those in a A330NEO model is unwise.  The widebody technologies are here and they are useful now.  To not use them in an airliner would be folly, in my opinion.  They are maturing every day in the 787-A350-777 developments being done and that means that airlines in general will want those technologies rather than designs that date back to the late 1980’s.

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Richard Aboulafia has written a scathing criticism of Boeing’s loss in his October newsletter which finds that Boeing’s management lost a contest which was entirely Boeing’s to lose and that’s not nothing.

Particularly when it comes from Aboulafia.

Aboulafia criticizes Boeing for much the same things I did just 2 days ago and the only notable part of that is that it is easy to make that criticism at this point.  The evidence has become obvious.

Next up is what will Boeing do to keep ANA in the Boeing fold?  If this were Boeing in even the early 2000’s, I would bet on them finding a way to keep ANA in the 777-X.  A deal would be made and a crisis averted.

I think the fight for ANA business will be epic and I think Airbus’ John Leahy will be smirking at Boeing in a very justified way.  Leahy and his team have spent 3 years taking a par product and a company that is simply executing in an acceptable manner and parlayed that into big wins.

There used to be one thing I would identify as the key to Southwest Airlines’ success.  They did exactly what they said they would do.  They didn’t promise sunshine and roses and the world’s greatest experience onboard their airplanes.  They simply promised to try hard to be nice to you, try hard to get you where you are going on time and to do it at a price that struck most as reasonable.

Southwest made no extraordinary achievements in winning its very loyal customer base.  It performed no superhuman tricks to beat its competitors.  It didn’t even promise a reserved seat and it still won.

That’s what Airbus is doing.  They’re winning with a management that is merely setting reasonable schedules, designing reasonable aircraft and doing it all with no great promise of huge advancement.  They doing what they say they are going to do and the airlines are noticing.

The question is . . . has Boeing noticed that?

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Airbus has managed to land an order from JAL for (18) A350-900s, (13) A350-1000s and another 25 options for the A350.

This from an airline which operates the 787-8 and 777 and which has a decades long relationship with Boeing.  This isn’t a shot across Boeing’s bow.  This is a cannonball going through the hull with water spilling into the engine compartment.

JAL is burned by the 787 and is under the control of entrepreneurs who want operational success more than a good deal from Boeing.  Boeing has had years to take care of JAL as a customer.  Even looking in from the outside, JAL appears to not have been given any more consideration than the average Boeing customer.

And the 787 is a pain in the ass to its operators.  Yes, some operators are being overly dramatic but let’s not ignore the fact that not a single operator is publicly singing the praises of the 787 yet.  Not a one.

If there was such a thing as a safe Boeing customer, it was JAL.  This is the signal moment where everyone realizes that Boeing is not only vulnerable in the marketplace, it’s declining.

Boeing had a chance to kill Airbus with the 787 and lost that chance to a 4 year production delay.  Even if you consider all the old-time Boeing people cautioning that the airplane needed to be birthed in its own time, 4 years is one hell of a long delay for a company that, you know, is supposed to know how to build aircraft.

Boeing had a chance to throw Airbus onto the ropes of the ring by announcing an all new 737 replacement family that would cover from 737-700 to 757-200 seating options.  Instead, Airbus won the hearts and minds of airlines with a warmed over redesign of the A320 aircraft.  Boeing had to respond with an aircraft that doesn’t win many hearts and minds of any airline.

Boeing even had a chance to badly hurt the A350’s sales by announcing a 777 upgrade or replacement and, instead, dithered along until that was a bit late as well.

Boeing chose to build the 747-8i on the idea that Boeing had customers that would buy Boeing no matter what.   They built an aircraft that in the hearts and minds of customers was 40 years old.  That was refreshed some but which really didn’t fit a need.  They followed the idea that Boeing customers will buy Boeing and since the 747-8 is a Boeing product, it will work out OK.  Billions of dollars have been wasted on that aircraft as well as the time and energy of good engineers.  Imagine what would have happened to Airbus if Boeing had focused those resources on a full 737 replacement instead.

Boeing is losing this game.  It’s losing the game to Airbus and it is going to start losing its game to Bombardier.  Warmed over designs and delay in taking the next bold step is killing that company in ways that will be painful to watch.  This is the legacy of McDonnell Douglas and this is exactly how McD lost the game against Boeing and Airbus.  Exactly how it was lost.  There are no real differences here.

Apologize for Boeing if you want but before you do . . . name one strong decision that yielded immediate and positive results for Boeing in the last 8 years.  Just name one.

I’ll wait.

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I received a back channel question asking why all airliners are looking so alike now.

What the person was referring to was the fact that an A320 and B737 look, to the layman, almost exactly alike as do the medium and large widebody aircraft.  It’s true, the Airbus A330 is hard to distinguish from the Boeing 777/767 series aircraft too.

The only semi-distinguishable aircraft out there are the Airbus A340 (production has stopped), the Boeing 747 and the Airbus A380.

But the question is why.

The answer is aerodynamics.  As manufacturers strive to gain more and more efficiency out of their aircraft, their aircraft start to look more and more alike.

Simply put, it’s about function over form.  When you design one of these aircraft, you don’t “style” it with something that goes against the aerodynamics of the airframe because such a thing could literally cost the user millions in fuel costs over the life of the airplane.

So, today, we have the Embraer E170/190 which looks a lot like how the Bombardier CS100/CS300 will look  which looks a lot like the Airbus A320 series which in turn looks a lot like the Boeing 737 series.  Because that shape works, we have the Airbus A300 which looks a lot like the Boeing 757/767 which looks a lot like the Airbus A330/A340 which looks a lot like the Boeing 777 which looks a lot like the upcoming A350 which also looks like the Boeing 787.

They all basically look alike with some slight differences and that is completely driven by aerodynamic efficiency.

It’s notable that the “odd ball” aircraft do not really survive past a single generation and don’t show up anymore.  The 727 was out of the ordinary with Boeing and its T-tail configuration was only ever used once by them.  The DC-10/MD-11 3-engine weirdness didn’t really last that long either.  The DC-10 did but the MD-11 died a quick death.  In fact, it’s notable that the MD-11 mostly died in popularity because it didn’t meet efficiency promises.

Oddballs don’t survive very long and those that do survive are driven in their function by physics.

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I would argue that of the airliners introduced over the past 25 years, the 777 is probably by far the most influential airliner to become available.  In the fashion of the “old” Boeing, it was made in a variety of styles to meet a variety of needs and just has kept on selling and selling throughout the years.  Even today, Airbus doesn’t have the best competitor possible for this aircraft.

There are some people who’ve shunned this aircraft over the years and, in my opinion, paid the price for it.  It was noticeable that Lufthansa, amid its order for a large batch of A320 aircraft, ordered (6) 777-300ER aircraft for its SWISS subsidiary.  Lufthansa famously stuck with the Airbus A340 and 747 instead of incorporating the 777 into its fleet.

QANTAS has also studiously ignored the 777 despite market conditions changing so dramatically in favor of using the 777 that I now wonder if someone at Airbus has compromising photos of the entire Board of Directors for QANTAS.  The 777 is an airliner that would have served QANTAS extremely well domestically, regionally and in long haul guise.

The 777 could have served the high frequency, relatively short haul routes between Melbourne, Sydney and Brisbane as well as some routes across to Perth and New Zealand.  The original 777-200 “domestic” co8uld have served all these routes in a very able manner.

The 777-300ER was the answer to needs on the Kangaroo route as well as to northern Asian destinations in China and Japan.  Why an airline such as QANTAS would continue to use the 747-400 exclusively when it could have greatly benefited from the 777 is a bit baffling to me.  While oil prices weren’t sky high until quite recently, the fuel cost argument for the 777 was really made successfully right from the beginning.  Even when fuel was cheap(er) in the 1990s, those who bought the 777 knew they had made the right choice.

Now we hear that Boeing is about to give Authorization to Offer the next 777 series aircraft and this means, potentially, that the 777 may well have as long a history in commercial aviation as the 747 with far greater numbers sold.  Any airline who ignores the very real capability of this airliner does so at its own peril.  Long haul routes will be based more and more on frequency in most cases and more on “point to point” arguments going forward.  With just a few exceptions, they will not be based upon the traditional hub-and-spoke model and certainly not based on trunk routes using the largest aircraft possible.

Yes,  a few A380/747 routes will remain out there and that’s right and appropriate.  But the world will belong to airlines who have the ability to fly routes such as Dallas-Sydney or Houston-Johannesburg or Denver-Hong Kong with the lowest costs.  The lowest costs will come from the next generation of airliners such as the 787, A350 and 777-X.

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United Airlines is in discussions with Airbus about the A350-1000 as a replacement for aging 747 and 777 aircraft in the United fleet.  A significant portion of the United 777 fleet is comprised of very early build 777 aircraft (-200 series) and their 747s are particularly old as well.

United already has 787 aircraft on order (both on the Continental and United airlines sides of the house) as well as the A350-900.  While Continental executives are largely in charge of the airline today, I would suggest that Boeing pay attention.

It would be tempting to say that this is United rattling Boeing’s cage to get going on the 777-X.  I would agree that it has the secondary purpose of that but I also think United wants to know what it can get its hands on fairly quickly to replace a fleet of fuel inefficient aircraft that will begin to cripple profitability in a few years.

We’re not talking about replacing already old aircraft today, we are talking about replacing them in the 2018 to 2022 time period.  By then, these aircraft will be extremely fuel inefficient compared to other US fleets and time is of the essence.

When your capital costs for such an airliner are greater than $200 million for a single aircraft in that class, you want to buy the very most efficient aircraft you can get.  You want the best technologies because 20 years later, that is what you’ll be stuck with.

Whether Boeing thinks the current 777 lineup is still competitive on a spreadsheet, it is ignoring that it isn’t competitive in perception.  I’ll put it simply:

A350-1000:  New, efficient, modern, new

777-300ER:  Older, somewhat efficient, somewhat modern, not new.

Boeing needs the 777-X and it needs it today and airlines are signaling to Boeing that if Boeing doesn’t build it, they’ll buy it from someone else.

Curiously, Boeing already got this message handed to them over the A320NEO.  You would think that they had learned their lesson (again) and would be paying attention to airlines over the jumbo issue.  US Airlines can’t afford to be just loyal to Boeing anymore.  They must buy the best of the best and Airbus is the equal of Boeing in all categories.

If Boeing wants to sell some aircraft, it’s time to get authorization to offer and build a new range of 777 aircraft for its customers.  Customers who’ve plainly said “If you build it, we’ll buy it.  If you don’t, we’ll buy it from someone else.”

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Aspire Aviation has revealed that Boeing has issued an RFP to GE and Rolls-Royce (with speculation that Pratt & Whitney got included) for a next generation engine for the 777-8X/9X development.  The target appears to be about 100,000lbs of thrust (and I’m sure Boeing would like to hear about a growth path to that as well.)

With the combination of new technologies for the fuselage, composite wings that are likely a bit larger and a lower fuel consumption, these new aircraft would definitely be A350 beaters in every category.  The current 777 lineup performs well against the performance definitions for the A350-900 and based on comments from A350-1000 customers, the 777-300ER probably isn’t equaled on long haul routes. 

A revised 777 that upgrades the -200LR with more seats and as much range, capacity and cargo capacity would clearly be of interest to many airlines.  A -300ER that also increases its capacity with equal or better range would also be of great interest to many.  Boeing has rightly identified that its the -300ER that is likely the sweet spot in size (or a little larger) for most airlines requiring a high capacity/long range airliners for routes.

The A380 will be around for a long time.  It won’t be a big seller over the next decade and will only ever be a success if there is enough growth on long haul trunk routes to require that aircraft.  The 747-8i remains an interim solution from Boeing and it still hasn’t garnered much interest from airines.  In fact, many airlines have downsized from the 747-400 in favor of the 777-300ER.

Trunk routes will remain but there will be fewer of real importance and requiring a VLA.  The 787, A350 and 777 all permit airlines to fly more point to point routes and earn profits.  Ultra long haul flights are likely to remain more in the style of “long and thin” than “long and fat”.  After all, just how many people are likely to fly from Houston to Auckland, New Zealand even with network feed?  Answer:  Not enough to require a 777 or 747 for quite some time.

I do think Boeing has the right idea in offering a revised 777 instead of an all new design in this category.  The 777 still incorporates some fairly cutting edge technology and with a revised composite wing alone could probably continue as a category winner.

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2011 wasn’t the worst year for airlines and 2012 won’t be either.  Instead, I think we’ll see more of the same in most respects.

Airlines will continue to constrain their capacity and that will show more discipine than I thought they had 3 years ago.  They’ve proven me wrong and I think the results are too good for them to not to continue over the next 12 months.

Fuel costs will continue to be a difficult thing for airlines to manage.  There will continue to be volatility but I don’t think we’ll see anything like 2008/2009.  The financial crisis in Europe will reduce some demand on oil but I see no real economic growth in any part of the world that will drive demand either.  The truth is that the emerging economies are largely dependent upon demand from both Europe and North America and neither of those economies will see high growth in 2012.

Airlines will continue to make large orders for more fuel efficient narrow body aircraft.  This only makes sense as the gains are more than enough to justify the purchases and now is the time to gain an advantage in bargaining with both Boeing and Airbus.  Furthermore, airlines need to hedge against their labor costs which will only grow over time.

Aircraft manufacturers have a much more sure path for the next 10 years now.  Boeing will be biding its time on improvements to the 777 until it sees more definition of the A350-1000 and it will throw its resources into ramping up 787 production, 787-9 development and 737MAX development.  It’s possible that we’ll see a real 787-10 announcement in 2012 but, if so, probably not until the latter part of the year.

Airbus has to get its act together on the A350 and try very, very hard to prevent too much schedule slip.  Despite its efforts, I think we’ll see more schedule slip and it won’t reveal the entire picture as that unfolds.  While I don’t expect quite the same delay as the 787 saw, it will be a significant delay and it will impact Airbus.  They’ll also try to flog the A380 as much as possible and may even succeed with small orders in parts of the world it hasn’t penetrated much to date.  I do not see any US based orders for the A380.  Furthermore, Airbus made some big promises for the A320NEO and it’s got to work hard to deliver on those.  They’ve made it out like the A320NEO is a no-brainer for development and while it is an incremental improvement, the engineering to deliver is non-trivial.

Bombardier will work its tail off to sell more of the CSeries and I think it may even succeed.  The sweet spot its lineup offers will become more attractive to airlines once they see Bombardier actually perform in the development and test of this aircraft.  The CS100 isn’t the attractive aircraft but its the one that will fly and deliver first.  Once the performance of that aircraft is established, I think we’ll see orders from US and European airlines come in large numbers.

Embraer has got a nice grip on the regional airliner business but it also has a problem in that, right now, there is no growth path into a larger plane for purchasers.  It has plans to work on re-engining the E-Series but I think they’ll concede the need to develop a larger airliner as well.  The Bombardier CSeries presents just a touch too much threat in the future. 

I don’t think we’ll see much from the other regional airliners being developed.  The Mitsubishi MRJ doesn’t feel quite right for airlines to me and doesn’t offer a growth path into a larger airliner.  The orders its racked up so far are fairly paltry and at risk, in my opinion.

The Sukhoi SuperJet, on the other hand, has a real chance, I think.  It’s Westernized, it’s flying and it does feel like its the right size.  The real challenge in this aircraft is ensuring support and with Boeing as a consultant, it may well have some help in that arena.  If it does succeed, that success will begin in Europe as well as for airlines of lesser developed areas such as the Middle East, India and the Far East.   If any orders come from the US, it will be years in the making.

If anything stirs in the US airline industry, I think it will be in the LCC arena and I think it will be small(ish) if anything.  I do not think we’ll see any legacy consolidation despite wishful thinkers for a US Airways / AA merger.  Something like that becomes much more likely in 2013.

I think American Airlines will plod through its bankruptcy in 2012 with a bit of scandal here and there.  I think its labor force is about to take a beating on wages and benefits and I think the resulting bitterness will last for years.   I also think that United and Delta will be growing a bit more concerned about AA late in 2012 once they have a picture of what AA’s cost structures are likely to be.

2011 was largely a “rebuilding” year for the airline industry.  2012 will be largely so as well.  Until the world economies recover, the best the industry can hope to do is manage its problems and earn a bit of money.  That’s eminently possible for them to do.

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World Alliances

I’m not sure we’ll see much in this territory for SkyTeam or Star Alliance.  They’ll continue to succeed and be smart in their attempts to gain more dominance in more parts of the world.  I think Oneworld is going to be smarting through this next year as a function of health problems at founding members American Airlines and QANTAS.  I also think that gaining the LATAM membership is not nearly as “sure” as they think it is. 

The Middle East

After ordering an insane amount of widebodies in 2011, Emirates will order another insane amount of widebody aircraft and beat up on Boeing about its 747-8i.  This has begun to feel like an addiction problem.

India

The airline industry in India has imploded and we’re just watching the mushroom cloud of debris settle.  For 2012, more explosions and more governmental heads will push even deeper into the sand.   Air India has already become the new Alitalia.

The Far East

Chinese airlines will order more aircraft and I expect we’ll see orders from them for 777s and A380s and possibly some A350s.  Not unlike 2011.  I don’t think we’ll hear about any stunning orders from that part of the world, however. 

China will tout its COMAC C919 even harder and most of us will try desperately to keep from laughing even harder.  Ryanair will back away from this aircraft quietly, I think. 

Japan will find ANA deploying more and more 787s on more and more routes with more and more success with that aircraft.  JAL will take delivery of its 787s and find that they not only work well for JALs needs but actually exceed expectations.  I think we’ll see an order for some more Boeing aircraft from JAL this year and I think it will be the 737MAX and 777-300ER.  No huge numbers but large enough to make a splash.

South America

LATAM got its approval from Brazilian and Chilean authorities (barely) and LATAM will begin consolidating its operations to make more money.  I think we’ll see a largish order from LATAM and it will be for an airliner to replace aircraft on both the Brazilian and Chilean side of the airline.   The aircraft of choice will be, I think, the Airbus A320NEO and I think they’ll bump up orders for the 787 and 777 as well.   TAM has 27 A350-900s ordered and I think that order *might* be at risk.  The strategy of using Airbus for narrow bodies and Boeing for wide bodies seems to be a smart one for airlines in that region.

I don’t think we’ll see more consolidation in South America but I do see South America becoming a bit of a battle ground between airline alliances.  Most see LATAM going with Oneworld and while I can’t disagree with the arguments, I think that SkyTeam and/or Star Alliance might just swoop in with one hell of a package that may be too hard to resist.  If this happens, Oneworld and American Airlines gets kicked in the groin in South America.

Aerolineas Argentinas?  The Alitalia of South America in 2011 and the same in 2012.  Enough said.

Europe:

British Airways managed to get through 2011 without any huge problems and saw Willie Walsh move up to the CEO position of International Airlines Group which means Willie’s still in charge.  Iberia, British Airways’ sister airline, saw Willie stirring things up with plans for a LCC subsidiary.  Iberia pilots decided to strike because shooting onself in the foot can’t be just an Indian thing.   IAG also managed to get a tentative deal to buy BMI from Lufthansa and become the Emperor of slots at London Heathrow . . . maybe.

Virgin Atlantic didn’t die, didn’t find new partners and didn’t extricate itself from the chokehold that Singapore Airlines has on it.  Richard Branson actually didn’t make the news very often except to shout, stamp his feet and act insulted that Virgin Atlantic wasn’t able to do a deal to win BMI.  Expect Virgin Atlantic aircraft to start carrying some message against the IAG deal for BMI.  I actually think that Virgin Atlantic will have to find an airline alliance to join and if I’m right, I would lay very heavy odds on it being the Star Alliance. 

Lufthansa did itself a favor and got rid of BMI and I expect they’ll continue their very conservative mangement of the airline and the subsidiary airlines.  I do wonder how much longer Lufthansa can rely upon its A340 aircraft and somewhat expect Lufthansa to bite the bullet and buy the 777.

KLM/Air France:  I see nothing here at all.  Not in 2012.  I don’t expect a large widebody order nor a narrowbody order. 

I do expect Ryanair to make an order and I do think it will be the 737MAX.  In fact, I think it may well end up being the 737MAX-9 instead of the 737MAX-8.  Instead of repudiating the C919, Michael O’Leary will just quit talking about it.  Instead, he’ll suggest stripper poles could be installed on Ryanair aircraft. 

All in all, I think it will be a tough year for European airlines.  The financial crisis on that continent will make it very hard to earn an honest profit and Middle Eastern airlines will continue to erode the long haul traffic that European airlines have enjoyed for decades.

Tomorrow, a summary of what I see for 2012 and the world airline industry.

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(Flickr)

I got asked what I thought of the A340 last week by a reader of FlyingColors and decided to give some thought to that subject and write a post.

The truth is, the A340 was probably the first Airbus aircraft that I really liked visually.   I liked the slender appearance of the widebody fuselage and I liked the four engines and how they were hung on the wing in a proportion that just seemed a bit sexier than other 4 engine aircraft. 

I liked Airbus’ approach to the A340/A330, too.  I’ve always been fond of the parts bin approach to creating value for a customer and the A330/A340 development was certainly that. 

A fuselage that got borrowed from its first twin-aisle aircraft and CFM engines that were derived from the A320 aircraft.  Need a medium range hauler?  Use our A330.   Need a long range widebody?  Try our A340.   Going trans-Atlantic?  Use our A330 and if you’ve got trans-Pacific routes, we have this lovely 4 engine aircraft for you. 

And you got to have pilots that could fly both. 

It was a beautiful approach and a real answer to what was needed at the time.   It was way better than McDonnell Douglas’s offering in the MD-11 and Boeing really didn’t have an aircraft that even fit the needs at all. 

ETOPS was changing the game at the same time, however.  So was engine development.

The MD-11 was a bit flawed in that it really needed a truly new wing and better engines to achieve its mission.  But the ever frugal derivative player, McDonnell Douglas, played things just a bit too frugal.

The 747 was simply a different class of aircraft.  The 767 was too small and too short ranged to fit the gap.

Airbus did a great job with those aircraft in offering a sweet spot solution for both capacity and range and then made a strong business case for both of them by making them as common as possible.  You cannot blame any airline who went that route.  It was, in the context of the times, the perfect solution.

What we didn’t really count on was engine manufacturers being willing to truly make game changer engines and ETOPS going far past anything anyone could envision.  The 777 was born and it was an even bigger game changer.  First an aircraft that solved the A330 problem just a little bit better.  Not fantastically better but it offered just a touch more capacity and bit more cargo capacity and it did it with engines that were more revolution than evolution.

The A330 has survived because of its improved derivatives and any airline using them makes great money.

The A340 got hampered by a few things.  It needed a bit better wing  and better engines (and finally got both in the A340-500/600).  The CFM engines were a great choice going in but the Rolls Royce Trents were the answer to a question that got asked a bit too late.

Airbus bet on 4 engines being preferred for long haul, trans-oceanic routes and given the dominance of the 747 in that market, it wasn’t a bad bet.   Their mistake was in underestimating Boeing’s ability to look forward.  Boeing saw the possibilities in ETOPS and extra high by-pass engines that were more reliable than anyone could have conceived of a generation earlier.  And it should have given its customer base at the time.

Airbus was hampered by a bit of McD disease and by multi-government ownership at the time.  It didn’t have enough capital to go “all in” on designs and knew it had to make its business case on flexibility which meant derivatives.  In fact, it often only got capital for new investment if that investment benefitted its owners in the form of jobs programs for their citizens.

While thinking about this post, it occured to me that Airbus even produced a 747-SP.  The A340-500 derivative.  It could fly fantastic distances but without enough passengers to make it cost effective.   Then the 777-200LR came along and was capable of doing *that* mission better and cheaper.

The 777-200ER and 777-300ER killed the A340 in all forms (And EADS CFO just admitted it in the press).  It could haul more passengers and cargo for the same or longer distances for less money.  It was that simple.  Boeing made the business case on trip costs and won. 

Even if hindsight is 20/20, you can’t say that Airbus made a mistake with the A340.  The A340 killed the MD-11 and exposed the weaknesses of owning 747s.  It did its job very well but it arrived just a little bit too late to enjoy its success for very long.  Timing is everything.

I would criticize Airbus for the A380.  Yes, it has made a few airlines some good money.  It also ignores the model(s) for long haul travel over the broad spectrum in favor of trunk routes.  It will never enjoy the numbers or prevalence of the 747.  On the other hand, neither will the 747-8i. 

I’m not sure the A350 is the answer either.  I don’t think it fits long, thin routes as well as the 787 and its planned derivatives.  I don’t think it fits the long, large capacity routes quite as well as the 777 either.  Its smallest derivative is an A330 replacement at best and I question whether or not it will ever get built.  Its largest derivative so far doesn’t respond to the 777-300 as a game changer either.  They are free to prove me wrong.

It’s not that I think the A350 won’t sell.  It will.  But I think it’s destined to be a player among a fairly small core group of airlines.  Much as the A380 is and will be.  Boeing took a page from the Airbus playbook and built the 787 to fit a nice, broad piece of medium and long haul routes and positioned itself to answer the largest A350 with a next gen 777 or next gen new build large capacity, widebody aircraft.

Boeing one ups Airbus over the next 20 years with its product line up and does it in a way that has the gaps covered in distance, capacity and service. 

With all of that said, I still think the A340 is one hell of an elegant and pretty airliner.  It lends itself to the great airliner liveries of the world.  Just look at these:

(All images from Flickr under their Creative Commons License)

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Now that Boeing is on the home stretch in defining what it will do to provide the 737 MAX line, we should expect to see some movement towards improving the existing 777 line.  This will start to take place at Boeing outside our view but let’s take a look at the drivers.

First, engines are going to be a factor.  The GE90 is relatively new but let’s not forget that it fits in between 1st generation high bypass engines and the latest high bypass engines.  There is already talk that Boeing wants the GENx engine uprated from 100K to 110K thrust.  That’s a smart sweet spot and it will gain a percentage point or two in fuel efficiency but that only works if other things are done.

Weight reduction while maintaining seat and load capacity will be a driver.  I think we’ll see all parts of the aircraft examined for weight savings and through use of carbon fibre technologies.  One of the obvious places, in my opinion, is in creating a new wing.  A new wing capable of carrying more load more efficienty and made from newer, lighter technologies helps a lot here. 

The fuselage will likely remain the same in construction.  However, I think we may well see stretches occur.  I think we’ll see a slight stretch to the 777-300ER and a marginally bigger stretch to the 777-200LR.  The gap between the two will narrow slightly but both will carry more passengers.  I think the -300 will be limited in some respects by the fact that it is already a very long aircraft and they won’t want to make it much longer for fear that it will won’t fit within airline operations at many airports. 

Whatever Airbus does to define the A350-1000 will be the driver for what Boeing chooses to do with the 777.  However, Boeing has to time their upgrades to be available at roughly the same time that the A350-1000 will enter into service.  There could be an entry into service as much as 1.5 years later but not much past that.  That will limit, in some respects, the kinds of re-engineering Boeing can afford to do on the 777. 

When do we hear about it?  Not before fall 2012, I think.  Perhaps even later than that.  Right now, Boeing will likely conduct internal trade studies in all areas of the aircraft and try to be ready to pick a direction on or about the time we really know the definition of the A350-1000.

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Airbus has announced its plans for the A350-1000 and airlines have responded with yawns or, in the case of one airline, a bit of outrage.  Airbus can still change their minds about the final definition of this airliner but not without more delay or a commitment from an engine maker that would be pretty unrealistic.  So we know what the A350-1000 will look like, more or less.

And what is Boeing’s best response?  I’m not sure the timing is right for an all new widebody large capacity airliners to sit just above the 777-200ER to just below the 747-8i.  But I do think the timing is right to greatly improve the 777.   Imagine the pain Airbus feels with a 777 update that provides a better wing constructed of composites, a fuselage that is slightly lighter due to some composite use and engines that are bit more fuel efficient as a function of incorporating GEnx engine technology.   What if Boeing can offer a 777-250/777-350 that offers more seats, 500 to 1000nm range improvement and/or a slight upgrade in payload capacity?

That little squeak you heard is Airbus salesmen contemplating that scenario.  I can see a strong business case for such aircraft and I think you would hear a lot of airlines bark out loud “sold!” if it was announced.   Does it get announced this year? No. Boeing has got to figure out the 737 replacement family, finalize the 787-9 production, get the 787-10 kicked off and then contemplate the 777’s future.  I wouldn’t expect anything developing on the 777 until 2014.

But it’s fun to think about the possibilities.

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French parliamentarians went a bit crazy and became furious with Air France’s decision to accept bids from both Boeing and Airbus for 100 mid-sized widebody jets.

Boeing’s 787 and Airbus’ A350 are in the running and Air France officials have said that it is likely to be a split purchase.

France continues to own a stake in Air France and is also one of two major stakeholders in Airbus.

I find this ironic since Air France has found it very economical to use Boeing’s 777-200/300 aircraft and owns 60 at present.  The 787 fits nicely into their plans since the transition from a 777 to a 787 is short and easily accomplished.  The transition from an A340/330 aircraft to the A350 is sure to be similarly easy. 

Politics in the airline world inside France is always nationalistic but this move is just a bit too overt for our taste.

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Airbus has committed itself to the A320NEO series recently and Boeing continues to decide to not decide on what it will do with the 737.  All the while hinting at a new aircraft development for a 737 replacement to enter into service around 2019/2020.   Except that Boeing has also hinted from time to time that a re-engine might be in order while also saying that customers don’t want a re-engine. 

In addition, Airbus will be releasing its configuration for the A350-1000 aka 777 killer in the next few weeks.  Boeing doesn’t believe it quite meets the mark without a new wing and Airbus has said nothing about a new wing.  Right now, on paper, the 777-300ER still beats the A350-1000.  Unless Airbus releases a configuration that causes people to pause and gasp, Boeing will most likely not feel too threatened by Airbus for the time being.

And that’s why I say watch Airbus to see what Boeing does.   Boeing knows it can probably win against Airbus with a 737 replacement in the time frame it is talking about while managing to keep customers interested in the current 737 through incremental improvements that should keep the two aircraft competitive.  I’ve felt that Boeing wants to know what Airbus’ move is on the A350-1000 so it knows where to commit its resources.  If the configuration and definition for the A350-1000 moves it into competitive territory with the 777, Boeing knows it needs to get to work on improving the 777 (an exceptional moneymaker for Boeing presently) in order to not lose those customers for the next 2 decades. 

Boeing likely believes it can cover the 777-200ER territory with a 787-10 (and perhaps an incremental improvement to the -10 as an ER model later).  This leaves it free to preserve the 777-300 in its current configuration or find improvements to the existing design or even design a new aircraft family to fit above 787-10 and finish alongside the 747-8i. 

But what Boeing doesn’t want to do is commit to launching 2 new airplane programs simultaneously.  Boeing already knows what will likely happen if it does that.   

With all of that into consideration, I think that once we know the firm definition for the A350-1000, Boeing will know how to sequence its next airplane programs.  It will be either a 737RS first with a 777 replacement kicked off 3 to 4 years later or a 777 replacement first with a 737 re-engine done simulataneously and a 737 replacement coming 10 to 12 years after the re-engine. 

I strongly believe that Boeing wants to do the former sequence (737 replacement / 777 replacement) because it puts Airbus into a corner.  With this strategy, Boeing probably has an all new line of aircraft using the latest technology spanning from 150 seats to 450 seats while Airbus has the A320NEO and A350 series but with a gap between the A320NEO and A350 being filled by what will be quite the aging aircraft:  the A330.   In fact, there already is a gap, although minor, between the A320 series and the A330 series.  And make no mistake:  The A330 will begin to die in another 2 years or so as a result of the A350 and 787 developments. 

My prediction?  I think Airbus will announce nothing that threatens Boeing’s competitiveness in the 777 models.  Sometime late in the fall or early in the winter while riding on an uptick with the deliveries of the 787 and 747-8i to customers, Boeing will announce a 737 replacement program with a big airline order.  Sometime around 2017 or 2018, we’ll see Boeing announce a replacement for the 777 sized  above the 787-10 and right up alongside the 747-8i.

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Last week, Delta announced that it had agreed to buy 9 Boeing (McDonnell Douglas) MD-90 aircraft from JAL.   After these aircraft are refurbished, they’ll start entering Delta’s fleet next January.  Delta’s President, Ed Bastian, refers to these aircraft as “capital efficient” for Delta and it does simply add to Delta’s existing fleet of 19 aircraft.  In fact, Delta now plans to add a total of 39 MD-90 aircraft going forward.  These will primarily replace aging and inefficient DC-9-50 aircraft.

Capital efficient means that the cost to acquire these aircraft combined with the remaining lifecycle costs including fuel makes them worth operating for Delta.  In addition, these aren’t your grandfather’s DC-9s.  These aircraft have current generation IAE V2500 engines that are fairly fuel efficient compared to brand new aircraft presently.  They also replace fuel guzzlers and represent a net gain going forward as long as fuel prices remain somewhat stable (and by stable I mean out of the $4/gallon territory.)

Delta has so far pursued a strategy of making do with what it has and employing older aircraft longer and this is somewhat in conflict with most other airlines’ strategies.  As fuel has climbed in price over the past 4 years, airlines have, if anything, accelerated their purchases of newer, more efficient aircraft.

Is this the right strategy for Delta?  Well, as an interim strategy, it works.  These aircraft are good for a variety of routes that can largely transit 3 timezones out of 4 in the continental United States.  There are a finite number of them available (only a bit over 100 were ever built) and in the near future I suspect that many won’t be worth buying when considered against a new Boeing or Airbus aircraft.  From a financial standpoint, these are good buys for Delta and should work for them well over the next 4 to 8 years.

Delta’s fleet is pretty varied since its merger with Northwest Airlines a few years ago and while they have made an excellent show of managing this fleet, there are a number of types that could be pared down over time.  Reducing the number of fleet types would allow Delta to be even more flexible with its crew resources and more cost efficient when it comes to maintenance needs.  Remember that every fleet type requires an inventory of parts and employees trained to service that fleet type.

This doesn’t mean that I advocate that Delta buy Boeing only or any other manufacturer exclusively either.  With its fleet size, it could quite rationally settle on both the Airbus A320 and Boeing 737 aircraft and operate them simultaneously.  The same is true for long haul aircraft.   It could probably employ both Embraer and Bombardier regional jets as well.   However, for each category (regional jets / single aisle / medium to long haul aircraft), there should be at most two basic fleet types. 

In fact, by working with multiple manufacturers, it can speed deliveries, fit the most perfect aircraft to a variety of routes and maintain efficiencies in maintenance and repair at the same time.  What I don’t see happening is Delta operating Boeing and Bombardier CSeries as mainline aircraft.  I think Delta will play it smart and use the manufacturers that have proven products in each category. 

I think that over time, we’ll see Delta order Airbus A320NEO aircraft to replace existing aging Airbus A320s.  I think we’ll see an order for Boeing 737 replacement when and if Boeing offers a replacement officially.  I think we’ll see Bombardier CRJ900/1000 aircraft come online to replace older CRJ700/900 aircraft and I think we may well see Embraer E170/190 jets for other areas of the country such as shuttle-like operations.  In the long haul category, it’s not inconceivable to see 787 orders pulled forward again but for a mix of both 787-8 and -9 aircraft.  I think we’ll see them pick either Airbus A350s or 777s for their larger trunk and long haul routes.  I might give the 777 an advantage here to become a single type for that category as Delta could very efficiently operate both 777-200LRs and 777-300ERs in a nice mix.  They’ve already got very new 777-200LRs (and ERs) that are using the same GE engines the -300ER would use.  I’m not sure the Airbus A350 quite fits in as well as one would like it to when it comes to the trunk route / long haul category.   I do believe firmly that the 747s will ultimately go away and not be replaced.

Look for Delta to be making more and more announcements about its fleet over the next 2 years.  I believe its strategy will be incremental rather than huge orders for a particular family of aircraft and it will be done with strong emphasis on preserving its capital going forward into the next few years.

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It has been reported loudly that Delta is poised to issue an RFP (request for proposal) for as many as 200 jets and this is an order no manufacturer wants to lose.   The rumour comes just days after a record breaking Airbus order from IndiGo of India.

At this point, it’s still rumour but this one strikes me as pretty much dead on.   Delta has a huge fleet (720 aircraft with about 40 orders in place which include the deferred NWA order for the 787) and quite a few of those aircraft need to be replaced now or in the immediate future. 

Delta has the Northwest fleet comprised of the very old DC-9-5o, MD-88, MD-90, 757, 747 and some older Airbus equipment.  The Boeing fleet from Delta’s legacy side isn’t quite as old but there are some 757s and 767s in need of replacement as well.  Considering the widely varying fleet, it would come as no surprise that an replacement order is due.

Oil prices and future fuel prices will also drive the need for this order sooner than later if Delta’s goal of a consistent operating profit is to be realized. 

Pundits think this is Boeing’s to lose and I disagree.  Richard Anderson, CEO of Delta, has much more history with Northwest and he is no Airbus hater.  This will be an extremely heated competition and I will say that if Boeing were to lose this order or a significant portion of it, that will sting Boeing and its product line for years to come.

The prime driver for selection is going to be based on a number of items.  First and foremost, trip costs for aircraft to serve a particular grouping of routes.  We’ll see orders for single aisle aircraft to serve what I would call non-transcontinental routes.  In today’s world, that would be the Airbus A319 and Boeing 737-700.   Having trans-continental capability in the aircraft would be a plus but these aircraft are going to serve the focus cities of the airline with routes stretching out from the cities but not across the country.   The mission that the MD-88s, MD-90s, Airbus A319s and Boeing 737-700/800s are serving today.

The A319s are brand new and so are the Boeing 737-700s/800s.  This is going to be about replacing the McDonnell Douglas fleet.

Then there is a need for the larger trans-continental capable aircraft that remain single aisle serving longer trunk routes that won’t justify a widebody.  Currently, the Airbus A320 and Boeing 757 are serving those routes.  The A320’s arrived in early 1990’s and the 757s date from the early 1980s to the late 1980s.  The options for replacement here are the Airbus A320/321 and the Boeing 737-800 and 737-900ER.    Neither aircraft actually “replaces” a 757 which has great range and great payload.  I don’t think the A320s are going anywhere yet so this will probably involve a 757 replacement and they (Delta) may or may not want it to harmonize with their existing A320s.

Then there are the 767s.  Some are getting old and some are quite new still.  Delta needs an aircraft stretching between what a 757-300 offers and an A330-300 offers.  The 787 fits this and the fact that Delta has deferred its legacy NWA order for these makes me think that these aircraft won’t be candidates for replacement.

The 747s are pretty old and frankly I don’t think these we very well cared for either.  They need to be replaced and I do think we’ll see orders to do this on these aircraft.  None really serve routes that demand 4 engines so I think we’ll see a replacement oriented around 2 engines.

I think it’s anyone’s guess on the single aisle orders.  Airbus will fight like crazy to win this order with their A320NEO options and Boeing may well have to announce a 737 replacement at a great price to win it back.   Boeing should actually have great incentive to get going on the 737 replacement if Delta is truly interested.  With Delta, Southwest and, potentially, Ryanair all wanting a better 737, there is an exceptionally strong business case to get going on this.

If Boeing doesn’t offer a better 737 in this, I think the order goes to Airbus.

As for the 757/767 replacements . . . well, I’d give the edge to Boeing.  I think the 787 *is* a good answer for these aircraft.  They offer the right amount of extra capacity for growth, long haul capability, extremely high efficiency and flexibility.  I do think it possible that an order might be mixed between the A330 and 787 unless Boeing gets off its duff and gets that 787-9 into production.  The 787-9 is the A330 killer.

Since I don’t think the A330s are going anywhere, I don’t see much opp0rtunity for Airbus’ A350 in this mix.  It’s deliveries are too far off and the A330s just don’t need to be replaced for a long time.

I think Delta’s large widebody strategy is likely going to be a mix of 777-200s and the 777-300ER to replace the 747s.  They already have a fleet of 777-200LR with GE engines so I think they’ll order 777-300ERs with GE engines to replace those 747s.  It will do everything the 747 will do only more efficiently.  I do *not* think the 747-8i will enter into this order.  Delta doesn’t need the capacity and the 777-300ER will serve all the routes the 747 is currently serving with no problem.  The A350-1000 is far too far off and its ability to perform is simply way too unknown for this to be serious contender at Delta.

I do not think that Bombardier or Embraer will enter into this order at all.  They just don’t have a product that meets the needs of an airline like Delta very well at all.

Don’t expect an order announcement for about a year.  Delta will let the manufacturers fight it out with best and final offers for quite some time and it will take time itself to do a detailed analysis.   But I can’t wait to hear their decision.

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Next up:  World Alliances

There is never that much revolutionary change in alliances.  Last year, there was a fight over JAL between Oneworld and SkyTeam and Oneworld won but they really were destined to.  It made sense for JAL.  The alliances worked a bit to get better access to areas they were deficient in and to a large degree, they were successful.  I don’t expect much change, if any at all, this year.

The Middle East:

Emirates did what Emirates does:  it ordered more aircraft.  I did what I do:  failed to see how they’ll use all those A380s and 777s.  The financial scene in the Middle East and, in particular, the UAE continues to be weakish and while I suspect it will recover somewhat this year, I think the area no longer carries that gleam it once did.  I don’t see any failures in the near future but I don’t see any airlines really blooming either.  Success there is, as is true for most businesses there, fairly dependent upon oil prices.

India:

Nothing astonishing happened there but it was already pretty mucked up.  It remains mucked up and will likely stay mucked up this year.

The Far East:

China did kind of force their airlines into agreeing to buy Chinese aircraft as I predicted.  In fact, Chinese aviation is suddenly acting very Chinese in that it is being required to toe a more obedient line.  Face is everything there and I don’t like it when airline businesses are operating on the basis of “face” rather than good decisions.  It’s notable that in the launch orders for the COMAC C919 aircraft, each airline took up just 5 aircraft orders each.  They don’t want that airliner any more than anyone else.

JAL has done OK for the year.  They’ve made progress with their finances and they did make some hard choices.   They did have to file for bankruptcy protection and no one should have been surprised about that.  The new CEO, Kazuo Inamori, and President, Masaru Onishi, are succeeding and making hard choices.  Frankly, more so than is characteristic of a Japanese company and they deserve credit and support.  This airline isn’t fixed yet but it is on its way.

Oceania:

QANTAS got hit pretty bad by the Rolls Royce failure on its A380.  United Airlines is still on the US-Australia routes but badly needs to upgrade its product and it doesn’t appear positioned very well to do so.  Perhaps Jeff Smisek & Company will address that better this year.  Delta and V Australia didn’t get to form an alliance and they’re trying again.  Someone has to give in this area and it will be either in the form of a codeshare alliance between Delta and V Australia or in the form of an airline withdrawing from the market (United or V Australia).

South America:

LAN, in fact, did continue to succeed in South America.  So much so, they bought TAM to create LATAM and then bought AIRES (a Colombian airline)covering both the east and west coasts of South America.  LAN is, in my opinion, now a SuperLegacy of South America and that’s a bit dangerous for them.  South American governments are more protective of their countries airlines that is the custom in other parts of the world.  

Curiously, LATAM is now operating airlines in two different alliances:  Oneworld and Star Alliance.  While there is speculation that they’ll continue this with LAN brands in Oneworld and TAM brands in Star, I think they’ll have to pick one and this may well mean a big battle among all three alliances.   This is an area where SkyTeam could do well for itself by gearing up for battle now.

Aerolineas Argentinas:  Well, what can I say?   Well, I’ll say exactly the same I did last year. 

This disaster is much like the country itself.  It won’t go away but it won’t perform either.  No outside airline will consider taking it over after what happened with Grupo Marsans’ ownership.   They lack an appropriate fleet for their flying, a strategic plan for stabilizing their revenues and no clear plan for future growth.  But the Argentinian government also won’t let them go away.  It is a matter of national pride.

LAN Argentina is growing in Argentina but somehow I remain skeptical that it will be allowed to succeed too well.  Why?  For one reason, the government of Argentina owns Aerolineas Argentinas and it has a vested interest in that airline earning money.  For another reason, LAN Argentina is owned by the LAN Group of Chile.  Look up how Chileans and Argentinians feel about each other.

Colombia / Central America: 

Avianca TACA is doing fine and I look forward to seeing how they’ll compete against LAN. 

Venezuela:  Bah!

Europe:

British Airways accomplished a few things.  They got into a royal battle with their flight crew that remains unresolved today in part by being petty.  Their flight crew union, Unite, furthered that argument by being petty.  BA did get their merger with Iberia accomplished and after many, many years they have their anti-trust agreement for trans-Atlantic flights between its European Oneworld partners.

Look for the BA/IB union to do OK in its first year and they may even start looking for another partner as soon as possible.  The anti-trust agreement between Oneworld partners should also add to the bottom line.  However, it’s time to settle this fight with Unite and it’s time for Unite to get real.

Lufthansa is moving along and did do something with their BMI purchase.  I don’t think it did them any good when its CEO, Wolfgang Mayrhuber, started complaining about its ability to compete with the likes of Emirates.  Whether or not he had a real point (and he probably did), it also did signal just how hard a job they’re having with the task of competing with the Middle Eastern airlines.

They also still have their A340s and their plans to add the 747-8i.  They got their first A380 and all I see is fat, fuel consuming airplanes.  This is going to be a problem for them if oil prices rise much more and when you consider that much of their competition is flying fuel efficient A330s and 777s, it makes you wonder about their long term strategy.

KLM/Air France:  More of the same.  I think this airline will need to make an order for new widebody aircraft soon.  Because it remains, essentially, a French airline, I see a large order for A350s and a small order for 777s.  I do not see the 787 in Air France’s future.

Airlines will earn profits and even earn great profits throughout the world.  Many will be “record breaking” but as much from inflation as a recovery.  Those profits will soon start to burn a hole in someone pocket and that is when I think we see capacity growth.  I think that capacity growth will start with the Middle East airlines pursuing more revenue lucrative traffic from Europe and North America.  But we’ll see it happen in the United States, too. 

I would dearly like to see the 787 enter into service with someone and I think we will see it do so.  But Boeing has got to get a rein on itself.  The failures in the 787 program are as much about poor management as they are about stretching technology.  There is too much accountancy going on there and not enough visionary leading.  It’s time for them to start winning and they could do so by winning the KC-X tanker program once and for all.  But it is also time to start talking about what’s next. 

The demands of the 787 program *will* decrease as will the demands from the 747-8 program.  Will it be talk of a 737 replacement or an improvement to the 777?  I think the airlines would like to talk about the 737 replacement and that seems sensible.  Rather than play cautiously, reach again, I say.  Push engine manufacturers to come up with something to raise the game and push technologies again.   It’s also time to talk about the 787-10 and I think there are more than a few airlines who would like to be a part of those discussions.

Airbus is going to muddle along denying any real problems with the A350 until the end of this year.  Then we’ll hear about something delaying the entry into service date by a considerable amount.  John Leahy will insult Boeing and claim the A350 will put the 787 to death but it won’t.   Airbus might well buy the KC-X tanker program but I question the wisdom of this in light of their ongoing A380/A400/A350 problems as well as their announcement development of a new engine option for the A320 series.  When do they earn money the proper business way?

It would be nice to see Embraer make a move into the 130 seat market and I think those guys could do it very well.  Bombardier gets bashed by everyone but I still think they have something with their CS series and I think it will be taken up by another airline soon.

I think we’re going to see another round of fees.  Just as soon as airlines can identify what other parts of their service they can de-couple from the basic flight.  I think we’re going to see airlines put a price on early boarding and we’ll probably see fuel surcharges amounting to tens of dollars.

But let’s hope we see an interesting and prosperous year in the airline industry.

Filed under: Airline News, Airlines Alliances by ajax
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United Airlines CEO Jeff Smisek says that there are too many seats chasing passengers on routes between the United States and Australia presently.  United has had a presence for over 25 years on those routes and its staying power comes from its corporate contracts and loyalty program but it is being challenged presently by lower fares from new entrants on those routes (Delta and V Australia) as well by the fact that its 747 aircraft have a less attractive IFE solution than others.

One of the great ironies for long haul routes such as these is that they have, for the last 40 years, been largely dominated by large widebody aircraft.  Most commonly, the 747.  Filling those aircraft day in and day out is a challenge and one reason why really only two airlines have traditionally succeeded on those routes.  New entrants or weak players usually leave the market because there really are too many seats chasing too few passengers, particularly in hard times.

Right now, QANTAS and United have 747s and A380s on that route.  Delta is using a 777-200LR and V Australia has 777-300s working the route.  Delta is probably right sized but they’ll have to remain committed to the market as a long term investment in order to succeed.  I understand why they want to cooperate with V Australia and I’m not sure that’s a bad thing for either airline but it appears that is going to take some time to work out.

United and QANTAS both are the dominant players but I wonder if they’ll remain so over the long term if Delta and V Australia hold their ground.  It’s anybody’s guess.  It does occur to me that we are about to see aircraft that would allow new entrants to make money on that route and, at the same time, be right sized for the route.  That would be the 787 and A350 aircraft. 

If those two aircraft permit the same profit margins that the larger aircraft offer, not only will those new entrants stick around but we might see more.  Delta isn’t going to have the 787 for 10 years or more.  United will have some and QANTAS should receive some too. 

Right now, the most practical approach is for airlines to depart the west coast of the United States using large widebody long haul aircraft.  What if United was able to start flying from the interior of the United States using 787s (which they are due to receive relatively soon)?  It’s doable and it might be practical. 

This is another great example of why larger and bigger isn’t always better.  The 787 and A350 are going to offer possibilities for long, thinner routes that will ultimately fracture those large capacity trunk routes flown by the 747 and A380 right now.

Filed under: Airline Fleets by ajax
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