Unlike this time last year, probably not much. There was some momentum for change last year that really doesn’t exist this year. Airlines will continue to fight to hold their own in the marketplace and with the reduction in capacities, even the worst of the lot will likely cling to life this year.
North America:
Major airlines of North America have made all the changes they can and all are managing their businesses and cash very closely right now. I don’t expect much, if any, change to develop in the next 12 months but let’s take a look anyway.
American Airlines has some labor issues to address but with the current economic climate, they have been getting away with their efforts to defer those issues. Labor unions would like to push a few issues with American but they’re smart enough to realize that now isn’t the time. Most likely they’ll continue their face saving efforts at making a point with their members but I don’t expect any real labor action at this airline this year. Perhaps, if things get better, we’ll see some movement in the 4th quarter.
United Airlines, my least favorite legacy airline, has similar issues that American has with labor but, again, those labor issues aren’t likely to see much movement either. I suspect that United will continue to move more of their flights over to regional airline partners because its worked (for now) and their customers will find themselves on more and more regional jets. Since price is the prime driver for customers right now, they’ll accept that move and hate the flights as much as they always have.
Delta/Northwest should see more of its operatioins combined and, possibly, a unified single operating certificate by the end of the year. That doesn’t mean much for their customers since Northwest aircraft are being painted into Delta colors at a furious rate. The service product is already being harmonized to a fair degree and it’s a good one already.
I don’t see any major aircraft purchases and I remain interested in whether or not they’ll keep their 787 orders. There has been rumour and innuendo that they won’t but I kind of think they will keep them. Their 767 fleet is old (except for the 767-400) and I can’t think of a reason why you wouldn’t want to have the 787 begin filling the role of those aircraft. I’ve wondered if their hints aren’t just an opportunity to get Boeing to get interested in offering a better deal for more aircraft.
US Airways needs two things in this next year. First, they need their pilots to get together and start operating as a single group. As dangerous as it is to try to interfere with a union group, I wonder if US Airways won’t wade into the problem in an attempt to have a final resolution. Certainly they could argue that they’ve been patient enough.
They also need to manage their cash very, very closely. Cash is blood to an airline and US Airways has a bit of risk in this department. Should cash holdings be depleted more, they’ll have to start seeking that merger partner again and no one appears interested in marrying with them. This is another reason it needs resolution for its labor problems. That said, I don’t see US Airways disappearing or filing for bankruptcy again.
Continental Airlines has felt the hurt this past year and its unlikely to feel much better this year. Their business model depended a bit more on business class travel and the economy hurt that demand the most. That said, I can’t imagine a better group of managers for keeping that airline on track through the rest of the downturn. Things will hurt and belts will be tightened a bit more but I don’t see the service product changing. When the economic downturn does really turn the corner, Continental will be better placed to succeed than many.
Despite their recent move to the Star Alliance, I do *not* see Continental getting any closer to United Airlines whatsoever.
Low Cost Carriers / Regionals:
Southwest Airlines continues to manage itself to the tune of its own drummer and the results of their long(er) term thinking are showing left and right. They’ve managed to make solid overtures to business clientele in areas that, I suspect, count more day in and day out.
I don’t see a merger partner in the future for them except, possibly, for Sun Country Airlines. For some reason, I see this as a real winner for Southwest in that it gives them space and routes in Minneapolis / St. Paul, a labor group that is accustomed to delivering Southwest style service and which can be harmonized into the Southwest labor groups relatively easy. There is no rumour of this purchase but Sun Country has its own problems and it’s a match that fits the Southwest acquisition model.
I think Southwest will remain persistent in its Denver expansion and will work hard to create a network in the upper midwest states of Wisconsin, Minnesota, Illinois and Missouri. The wild card, in my mind, is the Washington D.C. area and the NYC/Boston areas. Shuttle type service is what Southwest knows very well and I wonder if they won’t try very hard to organically grow their flights in these areas. If so, Southwest needs to find an “in” at Washington Reagan airport. To do this, they would need to buy a shuttle operation from US Airways and/or Delta. Perhaps US Airways will be interested in such a sale if their cash holdings erode more.
Frontier/Midwest/Republic: I don’t know what happens here. Midwest really isn’t an airline anymore. It really isn’t even a brand anymore. It’s a name for selling tickets. Frontier remains an airline and a brand and Republic seems to want to continue caring for both. Since Republic is managed by very smart people, I kind of think that they may look for a way to wind down the Midwest name over the next 12 to 18 months and make Frontier the primary airline. A tasty cookie isn’t a good reason to keep the Midwest name around.
Airtran deserves some applause. This airline has managed to grow itself some, find new markets and earn some money during one of the worst downturns in the airline industry.
Their move into Milwaukee has succeeded and promises to continue to succeed. Milwaukee is a loyal city, to be sure, but it is a city that appreciates value even more. Airtran has managed to offer great value, good service and appeal to a city that just a couple of years ago was kind of anti-Airtran. The one obstacle in their way is the arrival of Southwest, another airline very good at offering value and appealing to the Milwaukee kind of customer. I think Airtran has the upper hand but they are by no means the sure winner in this market. Southwest may be able to beat them with frequency.
Virgin America keeps showing up and usually right after I become convinced they’ll disappear. I still don’t know what this airline does best and I still don’t see them as being a scrappy enough operation to fight their way into the cities it needs to be in. Virgin continues to dance around Chicago (claiming they can’t get space but if they wanted it bad enough, they could). Their product would servce cities such as Dalllas, Denver, Houston, Chicago, Atlanta, Baltimore, Philadelphia, and, perhaps, Cleveland/Cincinatti very well.
Instead, they added flights from the west coast to Fort Lauderdale and talk about adding service to a Texas city such as Austin. This is too timid. The CEO, David Cush, seems afraid to compete against his old employer (AA) and that is a shame since they have a very competitive and attractive trans-continental product. I would speculate on VA being bought by another airline but . . . why? They just don’t have much there and seem to have little interest in exploiting real advantages that they do have. Maybe they’ll just run out of money and get shut down.
Alaska Airlines has felt the heat from Virgin America but they continue to do pretty well with their little airline and they continue to do it without being aligned with a major. I don’t see much changing for Alaska Airlines. They’ll continue to be a scrappy airline with good service to a limited number of destinations. And, somehow, that seems OK when it comes to Alaska.
The Boeing 787 and Airbus A350xwb are commonly compared to each other over the past few years but are they really similar aircraft?
In one sense, yes, they are. Both aircraft make substantial use of CFRP for instance. Boeing makes the fuselage of the 787 as a full “barrel” and Airbus plans to use CFRP panels using an more conventional structure underneath. Both will also use similar engine and engine technologies although Boeing is using a system that eliminates “bleed air” from its systems for the first time while Airbus retains it.
They are both aimed at the medium to long range market although Boeing’s 787-3 (if it ever comes to fruition) is aimed at domestic markets primarily in Japan with a planned range of about 3000 nautical miles maximum. When the introduction of this aircraft was delayed in favor of the 787-8 and 787-9, Japan Air Lines transferred its orders to the 787-8 and All Nippon Airlines reduced its order and transferred the remaining to the 787-8. Ultimately, I suspect this aircraft may be developed to offer trans-Atlantic, US transcontinental and Japanese domestic capability. That would mean a range increase of probably as much as 1000 nautical miles which would still be 1500 or more nautical miles less than other 787 models.
Both were initially introduced as 3 models. Boeing has firmly offered the 787-3/8/9 and Airbus has firmly offered the A350-800/900/1000. However, the variants of each manufacturer do not match up one for one.
The 787-3 and 787-8 will be a bit smaller than the first A350-800 model. Instead, Airbus targeted its A350-800 model to match up against the 787-9. The A350-900 and 1000 more accurately match up against the Boeing 777-200/300 aircraft.
What drove the development of each of these aircraft is more important and shows the difference. Boeing needed a replacement for both the 767 and the 757. Those models were more than 20 years old and had issues with continuing to be capable aircraft for airlines. The 767 was unable to carry cargo competitively with the A330 and A300 Airbus models and its engines were becoming fuel inefficient for many routes. The 757 had morphed to a medium haul / trans-Atlantic model but didn’t quite have the legs to reach Europe except from extreme East Coast destinations.
Boeing already had the 777-200 which filled a gap between its 747-200/400 models and it didn’t need to replace it since the 777/200ER was quite young and it had the 777-200LR coming online shortly. It needed an aircraft that was capable of carrying a passenger load from 230 to nearly 300 with a full cargo load on at least medium range routes of 5000 nautical miles or more.
In addition, airline trunk routes were fracturing so it needed its next aircraft to be capable of flying much longer routes so the new aircraft had to be capable of flying routes from 5000nm to 8000nm efficiently. Something that the 767 wasn’t capable of and the 777 wasn’t very suited to capacity wise for the shorter ranges. So Boeing defined the 787 to fill that gap.
Airbus was faced with a different problem. The A330 was and is still a strong seller and an excellent competitor for the 777-200 on medium range routes. It had the A380 coming online as a competitor to the 747 which left a large gap between the A380 and A330 because airlines had never really bought into the A340 model line. The A340 was an inefficient competitor to the 777-200/300 line of aircraft because it used 4 engines (as opposed to 2 engines) and possessed a fuselage that was slightly too narrow to be stretched for more capacity without other problems cropping up.
What Airbus didn’t have was a real 777 competitor and that’s what it needed. After going through several definitions of the new aircraft, it arrived at the A350xwb. The A350xwb-900/1000 compete directly with the 777-200/300 models in capacity and range. However, where customers are already seeing a deficiency is in cargo capacity.
Although the A350 is not yet completely defined, it appears that while it may have lower costs per available seat mile, the 777 will continue to be able to lift and carry several tons more cargo in addition to its passengers. In real world operations, the two may be very even competitors unless and until Airbus is able to offer higher thrust engines (100K pounds of thrust or better), this deficiency will remain. Currently, Rolls-Royce has shown some willingness to build to that thrust capability (borrowing on their engine technology for the 777) but GE has shown no interest in developing a new engine using GEnx technology to meet the specifications of Airbus’ A350-1000 model leaving a large gap. GE sees such an engine cutting into its current customer base on the 777. Current 777-200LR and 777-300ER models have GE engines capable of 110K and 115K thrust respectively.
Both models promise to be excellent, successful aircraft because they fill needs for each manufacturer’s customers. Both brands needed those models to fill very important places in their lineups. Even airlines see these aircraft as more complimentary than competitors as evidenced by many large airlines ordering both models.
The Boeing 787 promises to be successful with US, European, Japanese and, possibly, Australian airlines. South American airlines will likely follow in 5 to 10 years. This aircraft will serve airlines whose routes are either long and thin or those that have high frequency.
The Airbus A350 will serve routes that are fat and long primarily and will likely be used by airlines based in the Middle East, South East Asia, India, Australia and by some in Europe. This aircraft is more a trunk route airliner that will serve routes with lots of density, low to medium frequency and of 5500nm distance (at the least).
It is notable that Airbus faces an issue that Boeing doesn’t have with the 787 and that is customer base. Nominally, both companies have a healthy order book for each respective aircraft. The 787 has well over 800 orders and the A350 has well in excess of 500 orders. Both have an average of 15 orders per customer even. However, the customer base for the A350 is really quite a bit more narrow than Boeing’s.
Airbus has roughly 505 orders for its A350 aircraft line up and of that, the only truly significant large quantity orders come from a few airlines based in the Middle East or South East Asia. More than half of those orders (284) are attributed to just 13 customers from Africa, the Middle East and South East Asia. Of those 13 customers, 7 customers should be considered as somewhat dubious in light of the present world wide economic climate in the airline industry. Of the remaining 6 customers, 3 airlines and one leasing company (Emirates, Etihad, Qatar and DAE Capital) account for 205 of those orders. The A350 will need to find a wider customer base for all its models to reduce the risk the order book currently has. Those three main airlines are each based in the UAE (United Arab Emirates) and while successful today, have dubious opportunities for their continued growth over time.
Boeing’s order book is stretched more evenly across airlines of the world and on most continents. While Boeing does have some dubious order holders, they are fewer overall and comprise a vastly smaller portion of the order book both percentage-wise and in total orders. Boeing has much less risk in its order book.
Boeing should begin deliveries to customers in the 4th quarter of 2010 or about 10 months from now. With a second production line expected to come online in 2 to 3 years, Boeing is well placed to fill its orders and have enough production slack to fill new orders from major airlines. Within the next 2 years, expect to see the 787-10 defined and design work begun. The 787-10 will likely be a 777-200 competitor in some respects but it also allows Boeing to define a new 777 or replacement model that reaches further upwards in capacity in the future.
Boeing’s next moves are likely to be, in order, the 787-9, the 787-10 and then either a refresh of the 777 model as a next generation enhancement with extensive use of composite materials, new engine technology and likely following a systems approach similar to the 787. If it isn’t a refresh of the 777, it will be a new model to replace the 777 with capacities just above the present 777-200 and finishing with capacities a bit past the current 777-300. A 737 replacement should follow once that 777 issue is nearing production.
Airbus currently has the A330 and plans to continue production for several more years. However, Airbus is due to be left with two serious gaps. First, the gap between the A321 and the A330 which nominally should be filled with a 787 competitor. This is likely where Airbus goes next but not before 2015 or later. Then, Airbus also has a bit of a gap between the A350-1000 and the A380. This gap really isn’t so important for the next 10 years but its one they’ll have to watch since Boeing will be positioned to offer a right-sized aircraft in that market in the form of a 777-refresh, 777 replacement and their about to be introduced 747-8i. After filling the A321/A330 gap, Airbus will likely go to work on their A320 series replacement which, I suspect, will be sized at slightly larger capacities than the current A318/319/320/321 lineup.
For more than 10 years, much has been made of the “launch aid” given to EADS/Airbus for producing new aircraft. A recent preliminary WTO (World Trade Organization) ruling has said that the aid given for launching and producing the A330 was illegal.
Europe/Airbus has prosecuted a counter-claim to Boeing stating that the tax incentives given by both states and the federal government as well as defense industry contracts illegally aids Boeing.
To a lot of people, it seems as if both sides have a point. To Louis Gallois, CEO of EADS/Airbus, it certainly seems that way. He’s actively pursued independent negotiations to settle the issues away from the WTO. Boeing, on the other hand, has remained steadfast.
Like a lot of conflicts such as these, there are valid points on both sides. I think the best way to look at the issue(s) is to test them according to a standard of transparency and economic competitiveness.
Airbus actively competes with Boeing around the world and does a fine job of it as well. There is no doubt that their aircraft are world class and quite capable of competing in the marketplace against Boeing’s products. An airline who buys Airbus isn’t putting itself at a disadvantage.
It’s how Airbus got there that rankles most. Originally a state financed consortium of aerospace manufacturers, Airbus received open funding from national governments to produce aircraft. Ordinarily, this tends to be a bad idea since the product produced is often not market competitive. That certainly wasn’t the case with Airbus’ products. They sell on features and capability. The A320 series can be considered the equal of the Boeing 737 series. The same is true across the line.
It was important to Europe to find a way to continue building airliners and there is a good argument that the rise of Airbus has kept Boeing (and, previously, McDonnell Douglas) honest. I would certainly agree with that. Indeed, one could say that the demise of McDonnell Douglas’ commercial aircraft business was due, in part, to the rise of Airbus since MD found it very difficult to compete against Airbus’ aggressive pricing strategies in markets where McDonnell Douglas was the legacy supplier (Europe and parts of Asia as well as the United States.)
The line was crossed when Airbus didn’t transition to a self financing entity as the A330/A340 aircraft were being developed. Airbus didn’t have to go to the market to borrow money, they went back to the respective European governments for more “aid”. And the biggest part of the problem is that the aid wasn’t exactly required to be paid back. The conditions were that *if* Airbus sold that line into profitability, the governments would start receiving a portion of those profits.
That’s a big if. Indeed, the current Airbus A380 program points to the problem with such a murky requirements. This is an aircraft that, at best, has an extremely limited market and continues to struggle even with low volume production. Deliveries are massively delayed and Airbus continues to depend on orders from a relatively few airlines to support the production. At the same time, there is no pressure from the financial markets and/or shareholders to justify the production with potential profits. Lacking that pressure, Airbus continues with a program that could never last in the United States.
The same was true for the A330/A340 program. While the A330 is an unqualified success, the A340 never was. The problem with this program is that the A330 succeeded not just on capability but price. Airbus didn’t have to pay the rent on the money it borrowed to develop and sell the aircraft and was able to offer a capable aircraft at a price competitive with the Boeing 767. It’s notable that, in many respects, it should have been competing on price with the Boeing 777 instead.
In the United States, it’s true that we do support our manufacturing base with certain tax incentives. However, it is notable that while Boeing might not have kept its production in Washington state, its laughable to believe it would have traveled outside of the United States. Those tax incentives merely kept production where it was inside the US and even those incentives no longer seem to be enough. Witness Boeing setting up a second production line for the 787 in South Carolina.
When Boeing needs to raise money to launch such a venture, it has to go to the international capital markets and borrow money. Boeing must pay market interest rates for that money and, most importantly, it must make a solid case for the product they want to produce and its potential profitability. I assure you that capital markets are an unforgiving place and without justification for their request for money, no one would loan it to them.
Boeing does receive research and development funds for defense work that does contribute to its body of knowledge for building commercial aircraft. Boeing’s capability in manufacturing CFRP (Carbon Fibre Reinforced Plastic) derives from such defense programs. However, there is a difference in how Boeing gets those funds.
Boeing must compete with a number of aerospace companies for those funds and justify its ability to deliver. Those aerospace companies are largely US based but also include companies from Europe such as BAE, Airbus and others. In order to receive that funding, the companies must make a financial case for them being the best to receive funding and if those companies prove incapable of delivering results on a funded program, it usually is terminated by the government. The US Defense Department doesn’t just continue to fund a program for the sake of funding it.
The difference in these arguments about illegal funding between Boeing and Airbus is really about transparency and competitiveness. Boeing must be transparent and routinely demonstrate to the markets and the US government that it is not only doing what it said it would do but also succeeding in the world market place. Airbus, on the other hand, answers to governments whose prime interest is in supporting an aerospace industry and has yet to have to justify itself to the world marketplace.
I suspect that if the European governments involved in Airbus had adopted a hands off approach with the A380 program, the US government and Boeing would have declined to pursue a WTO case against Airbus. I think some sort of arrangement would have still been possible if Airbus had justified their new A350 program in the world marketplace but they once again gratuitously accepted launch aid from governments who brazenly offered it in spite of their pledge to be fair participants within the WTO.
Both France and Germany have been particularly bad in their behaviour on all things Airbus. National leaders of both governments have been known to fly to countries where Airbus is competing for a sale and nakedly pitch the Airbus product as a national interest priority and make the sale with inducements such as defense sales and other side trade agreements. The United States has been known to flirt with this but never has engaged in such open pimping of their own industries.
The KC-X tanker program is the next battlefield. Pitched against the DoD’s desire to have a real competition for the program (there are only two remaining manufacturers in the world capable of producing the aircraft: Boeing and Airbus) and the fact supported case that the Airbus A330 derived tanker was and continues to receive state sponsored support and aid.*
What happens? The United States has a decision to make in the next 2 to 3 years. It either aggressively stops the unfair trade practices of the European governments (primarily France and Germany) or it must decide to fight fire with fire. Wisely, the US government wants to avoid having to resort to the same tactics to support the US aerospace industry because they know the consequences are potentially very bad. Competitiveness in our aerospace industry is, quite literally, what has kept us on the top of the hill when its comes to our nation’s defense.
Those same European aerospace industries supporting Airbus, also participate in the US defense contracts and have become essential to the US defense. Companies such as BAE Systems are now prime contractors producing for the US and to ban them from competition is both bad for the US as well as the US industries. Such is the web a global marketplace produces.
My guess is that the US will seek to defend its ground by offering even more support to businesses and governments around the world in the form of low cost or no cost financing. US Trade Representatives will be empowered to offer better and better terms to facilitate those sales and its hard to compete with the financial might of the US government.
Until the US starts to aggressively combat EADS/Airbus and their supporting governments, the practices won’t stop. Those governments have always pursued such policies and have never stopped engaging them until it became unprofitable to do so. There is no historical precedent for them to play “fair” with, possibly, the exception of the UK.
* Nominally the KC-X tanker program is a competition between Boeing and Northrup Grumman. However, Northrup Grumman essentially is the “front” for Airbus where Airbus will produce the base airframe and Northrup Grumman will do the conversion modifications in Alabama. NG and Airbus have promised to ultimately produce the A330 in Alabama after the first 20 or so airframes are built. However, the A330 airframe isn’t that much younger than the 767 and the market for the aircraft is already quickly diminishing with the rise of the 787, A350 and even the 777. The idea that a single tanker program could justify setting up such an assembly line without commercial demand is far fetched at best. It’s a promise that is easily taken back after production started.
It’s been two days since the 787 took flight for the first time and it certainly was one of the most anticipated first flights of an aircraft. Anyone who has followed the development of the 787 program certainly knew that it would indeed be a special aircraft and no one would doubt that there is a lot of promise in it.
Although I’ve seen countless photographs of the first aircraft, ZA001, I was pretty surprised by a couple of things. First, the wing flex. All the promotional photos for the airplane showed it but , intellectually, I didn’t believe it would look like that. But it was, if anything, even more dramatic than renderings in my opinion.
Second, if you saw video of the take-off, how about how they time the chase planes? Those T-33 jets were just the right whipped cream for that take-off.
At some angles, the 787 reminds me more of the 757 than the 767. At others, it reminds me of the 777. Those huge Rolls-Royce engines throw me off because they are much larger in proportion to the airplane than any other common aircraft. They look larger than the 777 engines (but aren’t.)
Here are two the better videos I could find of the take-off:
I genuinely look forward to seeing that airplane land at DFW airport one day.
One note: My wife and a couple of friends commented on the fact that all photos of the plane show its landing gear extended. Typically the landing gear is left deployed on a first flight simply because it provides a little extra margin of safety. Most likely, the gear was left deployed the entire first flight or, at best, cycled once and then left deployed again. As the testing continues, the gear will be retracted and the normal “envelope” of handling for the aircraft will be found through more and more tests.
Edit #01: Depending on the weather, this flight may be cut short. Currently it is scheduled for 5 hours with the initial circuit being north of Everett, Washington. However, with weather closing in, the flight could be cut short at any time. The 787 will be landing at Boeing Field when it does return.
Edit #02: A few moments ago (It’s 1:18pm CST), Flightaware.com showed the 787 slowing to just 87 kts (100mph) and then speeding up again, slowly, to nearly 200kts. Ordinarily, I’d be inclined to think that speed reading a fluke. Today, I think they really did slow it down that much. I can only imagine what it must be like to be the test pilot that takes those chances with an aircraft that cost billions (with a “B”) to develop on its first flight.
Edit #03: The 787 is flying patterns that take it over I-5 over and over again at relatively low altitude. Anyone traveling on that highway may be getting quite a surprise now and then.
Edit #04: Boeing is now saying that the 787 may land in about 30 minutes. This would result in a 2.5 hours first flight and given the weather, a complete success.
Edit #05: The 787 has nosed towards the south and should make a long loop heading south to approach Boeing Field from the south and land.
Edit #06: Matt Cawby’s website has a photo of the 787 Dreamliner lifting off in the rain HERE.
Edit #07: The 787 Dreamliner has landed at Boeing Field now. There is a rumour that the second aircraft, ZA002, will fly on or about December 22.
Edit #08: You can watch a short video clip of the 787 taking off HERE. Notice the wing flex and the chase plane that flies right above/beside the 787 as it rotates.
The Associated Press is reporting that United has decided to order (25) Boeing 787-8 and (25) A350-900 aircraft with deliveries starting in 2016. Options for 50 additional aircraft (of each type) are also included.
The order isn’t a surprise in that it has been commonly known that United was considering a purchase. Even the split between types doesn’t really come as a surprise. United Airlines is already an Airbus customer and United Airlines is *not* a party to the gentleman’s agreement to buy only Boeing aircraft. American Airlines, Delta Airlines and Continental Airlines are parties to that agreement which gives them access to early positions on the production line(s) and preferential pricing. That is how AA managed to land early delivery slots when they made their order for the 787 earlier this year.
Some will be surprised that United didn’t buy more 777 aircraft but I’m not sure that would have made sense for them. They don’t necessarily need the cargo lift that a 777 offers and, frankly, this order wasn’t for 777 replacement aircraft. These aircraft will replace 747s (with more frequency) and 767s (one for one) as United retires those two types from its fleet.
I suspect United decided to not keep all their eggs in one basket and chose the A350 because it would be newer and more efficient for the type of routes United serves. Nothing more, nothing less.
Lack of a firm offering for the 787-10 is starting to become visible. This is the dawn of that omission and it will be a glaring one in another 12 to 18 months. Airlines would like to have some confidence that they can purchase a fleet that spans the three basic types for various missions and which doesn’t require a different pilot rating for each type. Confirming the 787-10 and preparing an offer to airlines wouldn’t be an unwise thing on Boeing’s part.
At the first of the year, I wrote 3 blog posts shown HERE, HERE and HERE. It was really just my random speculation on what to expect over the next 12 months. Well, now it’s December of 2009. Let’s see how I did.
Boeing 787: I guessed at an April 2009 first flight. It still hasn’t flown although speculation has it flying this month either by December 14th or December 22nd.
Airbus A380: I guessed they would make their goal of producing 21 aircraft this year. As of November 30th, 2009, Airbus says they have delivered 7 A380 aircraft this year. Ouch. This is a program that is in financial trouble. No, I don’t think it will be cancelled. Not yet but please don’t try to tell me this program will make a profit.
My deathwatch had Midwest Airlines going away most likely by a sale. That did happen and while the airline has essentially evaporated (from its original form), it does remain as a brand being run by Republic Airways.
I speculated that Frontier Airlines would be bought out of bankruptcy but I guessed that jetBlue would be the buyer. In fact, Southwest Airlines and Republic Airways were the suitors and Republic won.
I thought that United Airlines and US Airways would announce a new merger with Continental a dark horse candidate for buying United. In fact, Continental became a member of the Star Alliance and firmed its relationship up with United but wisely kept its distance otherwise.
I said that Southwest Airlines would maintain its status quo but that Gary Kelly would be under fire from both employees and outsiders and he was. However, that view is already being reversed again by Southwest’s resurgent strength in the business.
I thought that the Middle Eastern airlines such as Emirates, Etihad and Qatar wouldn’t see a bankruptcy or merger but would slow their growth and aircraft deliveries. That, in fact, has happened and now we see Emirates working hard to distance itself from Dubai World’s financial woes.
China: I said deferred orders. Pretty much what happened.
The Far East: I said airlines from that region would maintain their status quo, probably would not defer orders and might make new orders to replace existing equipment for greater effiency. Again, pretty much what happened.
Australia: I saw QANTAS slowing growth, deferring some orders and fighting hard against new entrants. Again, that’s pretty much what happened. I also saw two weak competitors on the US-Australia routes: United and V Australia. That is pretty much what is happening although V Australia has been pretty smart in working into a relationship with Delta where it appears the two airlines will cooperate with codeshares. United remains alone and with weakening demand.
South America: I said the Argentine government would take Aerolineas Argentinas back from Grupo Marsans and the airline itself would muddle along or contract rather severely in some areas. Bingo. Exactly what happened. I also predicted Azul would become the jetBlue of Brazil and its not hard to guess that that airline is pummeling its competitors. A future prediction was for the airline to fly internationally in 2014 with Airbus equipment. We’ll see.
Africa: I saw Delta continuing to pursue flights to major African cities (true) and SAA (South African Airways) issuing a small RFP for 777 aircraft to replace its rather inefficient A340 aircraft (didn’t happen.)
India: I thought Jet Airways and Kingfisher might merge with the name Jet Airways being retained. In fact, both airlines continue to exist but both are suffering severe financial problems, deferring aircraft deliveries and generally flailing about trying to find a way to continue. One of these airlines will still ultimately have to exit the market and I continue to think it will be Kingfisher. They have the wrong aircraft and the wrong aircraft on order. However, Jet Airways is suffering badly from labor actions among its employees.
United States: I picked United to fail. It hasn’t happened and while they continue to live, their cash holdings are being reduced, they still have severe labor issues, their service product continues to suffer and I still think they should be the ones to disappear. I also thought Glenn Tilton would be ousted and, possibly, replaced by Doug Steenland. That didn’t happen but John Tague has been groomed as Tilton’s replacement. I still think Tilton should go if United can’t fail.
Europe: I thought we would hear of a surprise from Lufthansa. I didn’t like their purchase of SWISS and I didn’t like their flying the A340 in competition against the 777 being flown by many of their direct competitors. They’re still here, still making money and they bought BMI. I still think we’ll here of misfortune from them but apparently it will take a while longer.
Random Speculations:
I thought Southwest might add another aircraft type. It didn’t happen but I think their interest got perked up when they looked at buying Frontier and saw the economics on the Q400.
I thought Delta might order more Airbus A330 aircraft. Instead, Delta is parking them in the desert for the winter season.
I speculated that both China and Japan would defer or drop their regional jet programs. That didn’t happen but the Chinese jet program appears to be a bad aircraft and unlikely to be used by anyone except Chinese airlines forced to buy it.
I thought Bombardier would see a major order (20+) for their Q400 series aircraft from a US customer. Horizon Airlines did up their orders for 10 more but there were no other significant orders.
Airtran to form a small midwestern hub. Yup, that happened. In Milwaukee where they’ve taken over from Midwest Airlines and now face Midwest (brand owned by Republic) and Southwest Airlines entry into the market. I think Airtran will hold on here and continue to develop business.
Last, I hoped that jetBlue or Virgin America would enter the DFW market. Virgin’s CEO, David Cush (formerly of American Airlines) did recently speculate about adding flights to either DFW or Austin. I suspect they’ll choose Austin and DFW will remain a fortress for AA.
That’ s it for my 2009 predictions. I’ll make more at the start of 2010. On the whole, I probably did as well as anyone in making predictions in this business.
That isn’t a big surprise to most readers of this blog and one very good reason why I’ve said little about the event. Despite the long program delays and disappointing news of certain developments about this aircraft, I remain extremely excited about this aircraft. Perhaps for different reasons than most, though.
Mainstream press continues to speak about the 787’s increased comfort potential for the passenger and sometimes mentions the efficiency the aircraft will offer airlines. All that is true but it excites me for different and more specific reasons.
First and foremost, it is the first truly new aircraft to come from Boeing since the 777 made it’s first flight in 1994. Since then, there have been improved variants of the 737, 767 and 777 introduced but this is the first “from scratch” aircraft to show up in 15 years from Boeing. That is exciting to me.
One of the most disappointing results from the Boeing / McDonnell Douglas merger is that, in many respects, Boeing was taken over by McDonnell Douglas managers rather than the other way around despite the fact that, for all intents and purposes, it was really a Boeing takeover of McDonnell Douglas. Since that merger, Boeing has been much more intently focused on developing its defense businesses almost at the expense of investing in Boeing Commercial Aircraft. That has been disappointing and a bit perplexing to me given Boeing’s ability to build fantastic aircraft for the commercial world.
So I hope that this aircraft, the 787, represents a return to innovation and development for Boeing Commercial Aircraft. I hope that a new, younger group of managers is being born from this program that will lead Boeing’s development of new aircraft such as a 737 replacement, a 757/767 replacement and, yes, a new 777/747 replacement too. But I remain concerned if for no other reason than Boeing seems to be ignoring new competition from Bombardier and EMBRAER who are now challenging the 100 to 130 seat domestic segment in the US and elsewhere. If Bombardier can build its new C-Series aircraft with union labor in Canada, Boeing should be more than capable of developing a new family of aircraft to compete against those two companies.
While the first flight is truly on track to happen in the next two weeks, the burning anticipation of that first flight has, if anything, died down in many respects. Those who have followed it tortuous path to first flight recognize that it isn’t the first flight that means anything now. The aircraft is so mature in its development that we know it will not only fly but fly very successfully. We know that the major teething problems are almost certainly over now. There isn’t any need to speculate on its performance on a first flight and really nothing to wonder about for its testing over the next 12 months.
The real anticipation comes from seeing it perform with an airline. We want to see it enter an airline’s fleet and see how it performs during real world use. We want to see if airline CEOs proclaim it the game changer we all ferverently hope it is. We even just want to see what the airlines’ liveries will really look like on it. The real next “moment of truth” for the 787 is when it enters a fleet in its new livery. The launch customer is All Nippon Airways (ANA) and we should see ANA put the 787 into service sometime in late 2010.
The 787 should see service with a US airline in late 2010 or early 2011 and it will be Delta Airlines who has the honor by virtue of inheriting Northwest Airlines’ orders. I suspect we’ll see Delta order more shortly after the 787 begins operating in its fleet. Continental Airlines will put the 787 into service a short while later.
This is the most anticipated large volume aircraft to be designed and built since the 1960’s. That’s exciting.
What’s also exciting is what this aircraft means to Boeing and its future development projects. Will these same technologies be used on a 737/757 replacement? Is it conceivable that they’ll be used for a Very Large Aircraft to replace the 777? Both are possibilities. Detractors say there isn’t as much “gain” to be had in using carbon fibre based fuselages for a 737 replacement with respect to efficiency and that is probably true.
However, these new techologies may mean that Boeing can produce the 737 replacement even faster. The composite carbon fibre fuselages may mean less maintenance and longer maintenance intervals for airlines like Southwest and Ryanair. The new engines coming into development will demand some changes too. Larger by-pass ratio engines or, if developed, open rotor engines means more clearance will be needed between the wing and the ground. The next aircraft will have to stand taller and that might mean a little more time spent on ground handling.
The next generation engines and Boeing decision to produce an “electric” airliner may see those approaches used in the 737 replacement. Have we reached a point in reliability that we can expect these new systems to survive the punishing schedules of a domestic airline? I think so but the 787 is the aircraft that must support that supposition.
The 787 won’t be exciting because of what it potentially offers the customer in comforts. Yes, no matter what we’ll have larger windows and a little bit more fresh air and pressurization in the cabin but if you think you’ll be getting more spacious seat pitch, you’ll be disappointed. This new aircraft will be as packed as any in service now. Overhead bins will still be crowded.
My birthday is December 12th. There is speculation that the 787 may fly as early as December 14th. That’s close enough that I find myself kind of hoping that Boeing might pull a fast one and send it up into the sky 2 days early. It would be exciting to have an airliner born on my birthdate.
Michael O’Leary, CEO of Ryanair in Europe has been demanding a new deal for up to 200 Boeing 737 aircraft between 2013 and 2016 according to Reuters. Keep in mind that up to 200 aircraft likely means a firm order for between 50 and 100 aircraft with options for more. Boeing, on the other hand, has so far refused to negotiate what is by all accounts a rock bottom deal on their 737. More amusing is that Airbus has so far refused to offer a better deal on their aircraft since they’re already familiar with Mr. O’Leary’s tactics when it comes to negotiating. He likes to play one manufacturer off another.
There are likely several things at play here. First, Ryanair has often made a profit by “turning” their aircraft rapidly and selling them for a profit to other, smaller players. A situation that has no doubt irritated Boeing as they are looking to sell to users, not distributors. The original pricing for Ryanair was negotiated at a time when commercial aircraft sales for the industry and Boeing in particular were pretty flat and there is no doubt that Ryanair offered a serious opportunity for cash flow at a time when Boeing was in need of filling slots in its delivery schedule.
Not so much anymore. Boeing has a health backlog of orders and many of them for airlines who will pay more per aircraft and be happy to receive their 737s early. American Airlines has continued to up its orders for the 737 in light of the fact that no new next generation 737 replacement is due anytime soon from either Airbus or Boeing. Other airlines are likely to do the same over the next year or two. There is no incentive for Boeing to make an even better price to Ryanair.
And I think Mr. O’Leary knows it. But by making his threats and going public with them, he has begun to set an argument for why Ryanair will likely do a couple of things in the next few years. One will be slowing their growth. The truth is, growth opportunities for them in their market(s) are becoming few and far between. Second, they really can’t continue to “flip” aircraft in the next few years as there are plenty of other sources developing for second hand NG 737 aircraft. Slowing their purchases will give them a public rationale for slowing growth and reduced profits from sales of the 737.
I also doubt that Mr. O’Leary will distribute money to either his executives (in the form of bonuses) or to his shareholders. If there is one thing he knows, it is that an airline lives and dies by its cash holdings. It’s a weapon that I don’t believe he would give up. Instead, they may choose to invest it.
Mr. O’Leary has publicly spoken about creating a new trans-Atlantic airline in the future. Whether or not it is just talk, we’ll never know unless he does it. However, he does need the right kind of aircraft for developing his self-described premium/economy airline for the markets he thinks he can access. Part of his plan includes flying to secondary airports again in the US to save money. A plan that, I think, he’ll learn isn’t nearly as feasible as it might be on the European continent. There are no secondary airports with good transportation to their major market centers. You can take passengers to Hartford, Connecticut, for instance, but there isn’t a cost effective way to get from there to Boston or NYC.
However, that doesn’t mean Mr. O’Leary can’t access a number of markets and do so profitably. He is a master negotiator and there are plenty of US airports that would potentially welcome such an airline. With lots of cash, reduced capital requirements for the Ryanair fleet and good timing, they can establish such an airline if they can find the right equipment to use.
And that leads us back to Boeing. I think Mr. O’Leary recognizes that the 787 might be just the right equipment for such an airline. Both the 787-8 and 787-9 offer the right kind of efficiency, size and economics for make such a venture a success. There is no way that he’ll buy second hand aircraft such as the 767 or the A330 for such routes. Its difficult to find new(ish) aircraft on the used market that are worth purchasing and the A-330 probably is just too big for the routes. But the 787 potentially offers the right package. And I wonder if the current bluster about a deal isn’t about getting Boeing “prepped” to do a deal on the 787 with earlier delivery slots at great prices.
Time will tell. One thing I’m entirely certain of is that Michael O’Leary doesn’t have nearly as much contempt for Boeing as his bluster indicates. Both companies have done very well with each other and both understand that its in their interests to find a way to continue to do business.
USA Today’s Today in the Sky blog is reporting that Vietnam Airlines is ordering 4 A-380 and 2 A-350XWB aircraft from Airbus and this strikes me as a bit odd. The airline says it will use the aircraft for possible long haul routes to the United States and Europe but a little background into the airline tells me this might either be a vanity order or a political order.
First, while Vietnam Airlines does own and operate Airbus aircraft already (A-320 series and A-330 series), it’s chosen high capacity, long haul aircraft is the 777-200 at present (it owns 12) and has orders for the 787-800 and 787-900 (16 total with an original entry into service of 2010). The 777-200 is an excellent aircraft for the airline for long haul, high capacity routes it might fly to both Europe and the United States already and if additional range or capacity is needed, they could add the 777-200LR or 777-300ER to the fleet and keep commonality in their fleet. In addition, their soon to be arriving 787 aircraft are also already capable of the distances needed and engine type selections (not yet indicated) could already permit them to experience savings from similar (although not exactly the same) types being operated between the two aircraft (GE or RR).
In addition, the current economy has reduced leisure travel to Vietnam from both Europe and North America so much that one really does wonder how Vietnam Airlines expects to keep those A-380 aircraft full year round. It is an aircraft that best serves high density, long haul routes that see lots of traffic all year. In addition, the A350-900XWB doesn’t really offer them more in capacity over the 777 and offers less lift for cargo on similar long haul routes. The kinds of routes that Vietnam Airlines is most likely to fly are already best served with a fleet in place (777) and a fleet about to arrive (787).
I have an odd feeling that this order is political. Airbus hasn’t seen a new order for the A-380 since 2006 and its been a very dry season for the A-350 as well. With the political ties that exist between France and Vietnam and the report that Vietnam will also see Airbus contract to have certain parts made in Vietnam, this feels like France once again bolstering Airbus and a much smaller state with economic ties to France giving in to pressure. I suspect the likelihood of an Airbus A-380 ever showing up in Vietnam Airlines blue livery is very small if at all.
France is one of Vietnam’s largest trade partners at present and it’s notable that this order came after France’s Prime Minister made a personal visit to Vietnam to promote trade between the two countries. It has been quite common for French Prime Minister and French President to make visits to seal deals on behalf of Airbus in the past.
The Cranky Flier had a post today discussing Continental’s new moves in LAX which include new flights to Hawaii. Continental will have an all 737 base in the Los Angeles area with two 737’s serving new flights from Orange County to Hawaii. It made me think.
Back in the pre-regulatory days, flights from the mainland US to Hawaii were served by large aircraft such as the 707, DC-8 and, later, the 747, DC-10, L-1011 and even the 767. The routes allowed airlines to serve huge numbers of customers with large aircraft and make money. Braniff International had the franchise for Dallas to Honolulu in the 1970’s and served it with a 747 and an amazing 16 hours per day utilization.
Then deregulation came and airlines slowly began to develop new routes. It was no longer necessary to fly to a “gateway” city to catch a flight to Hawaii. More and more cities found themselves being served with those routes to Hawaii. Again, Braniff International, at one time, had a 747 flight from Portland, OR to Hawaii. (It carried little traffic, however.)
There was some consolidation after airlines learned that not everyone in a particular city was dying to fly to Hawaii. But the big change for Hawaii has been ETOPS or twin engine flights overseas. This allowed airlines to serve smaller markets with aircraft both capable of the loads as well as the distance. The truth is, when the airlines don’t have to feed 150 passengers a day to a gateway city but can fly them directly, they make more money. 20 years ago, I would have chuckled if someone told me that 737-700 aircraft would fly to Hawaii from the mainland.
Boeing and Airbus have different views for the roles of widebody, large capacity aircraft. 10 years ago, Boeing forecast that the market would continue to fracture with more and more direct routes being employed as opposed to large capacity hub to hub flying. Airbus, however, believed that the crowded skies would force more large capacity hub to hub flying onto the airlines. It turns out that Boeing was more right.
The markets drive these changes and when an airlines can make more pure profit using right sized aircraft flying direct, they will. Yes, the legacy airlines of the US (and other parts of the world) continue to follow a hub and spoke model primarily but they’re all learning that more direct flying where the loads fully justify it is a good and profitable thing.
Accordingly, this is where I think Boeing continues to have a winning strategy with its 787/777 product line. Yes, there are a few airlines capable of filling an A-380 and those airlines will make money from using that aircraft. But as more and more nations open up their skies to more competition, that is going to change. Having the right aircraft for the right route will be key to a manufacturer’s success and Boeing seems to have a better feel for the world market whereas Airbus seems more plugged into the Euro/Middle East markets they already do so well in.
I’m no longer sure there is a real place for the new 747-8 aircraft. Boeing’s 777-300 is just as capable in almost every case and carries a massive number of passengers without being so big that it adds risk during seasonal low periods. The same is true for the 777-200.
And what happens when aircraft such as the 787 family begin flying? This family is roughly 767-sized in capacity but its range is far greater and that means even more markets can be accessed via long haul direct flying. An international airline can probably make more money (through passengers *and* cargo) using the 787 and 777 families for more direct flying with aircraft that are “right sized” for the markets than they can using much of the Airbus family.
Airbus has one aircraft model suitable for this right now. The A-330. the A-340 is essentially dead since it under performs against the 777 in virtually any mission. The A-330 is right sized for a number of the current markets and many more of the future markets. The A-380 is suitable for only a few markets and those are already dwindling for some airlines. For instance, QANTAS has introduced the A-380 on their routes to the US. However, with a new Open Skies treaty between the two countries, there are also new entrants to the market like V Australia and Delta who are vying for customers with United and QANTAS very competively. Those airlines understand that it will take a while to develop their routes and build relationships with airlines in both countries to feed traffic but it will happen. As that traffic shifts from what was originally two airlines (QANTAS and United) to four airlines (QANTAS, United plus V Australia and Delta), what happens to each airlines’ loads?
It’s notable that QANTAS flies the 747 and A380 to the US and United flies the 747 exclusively. The new entrants are using the 777-300 and 777-200 for their flights. The 787 and it’s longer range capabilities will quite possibly fracture that market even more by making it possible to fly from the interior of the US to Australia instead of having to use a west coast gateway city. At that point, I don’t know that QANTAS has a use for very many A380s or 747s and, additionally, they don’t have any right sized aircraft for the route(s) until they start receiving their 787s which are late and somewhat deferred.
The Airbus A350 is capable of competing on many 777 routes and while it does have slightly lower trip costs vs the 777, it also has less revenue capabilty because it can’t haul as much cargo on the same missions.
The world’s airline routes are going to continue to expand internationally and at a far greater rate than traffic grows between any two nations. Having the right equipment for the right moment is going to be key for any international airlines survival. Those who don’t plan for it now and have it arriving in the next 5 to 10 years are going to wither to a slow death.
In keeping with the theme set with yesterday’s post, let’s continue on with some predictions.
The MIddle East
Emirates, Qatar and Etihad: All airlines that have aggressive growth plans (both in fleet size and the capacity of their aircraft) that don’t seem to be based in reality. While each of those airlines has successfully developed themselves into eastern hemisphere global airlines, what’s next? There are few opportunities to grow to the United States or the Far East (both range and regional prejudices apply there) and that leaves Europe (somewhat saturated already) and Africa (not a real place to grow due to low demand). But they have to fill an amazing number of widebody aircraft they’ve ordered. We won’t see a merger or a bankruptcy here but I do believe we’ll see these airlines start to reconsider the orders they have on the books and they will slow their growth by deferring these orders.
China
China’s airlines have been on a buying binge as well but, again, with a weakening domestic economy as well as a weakening international economy, they have no place to go. Like the Middle East contenders, they are likely going to start deferring orders as well.
The Far East
Airlines based in Taiwan, Korea, Japan, Thailand, Indonesia and Singapore will all maintain their status quo more or less. There is some possibility that some orders may be deferred but I will bet that some airlines will actually make new orders for new aircraft although not for growth but for greater operating efficiency.
Australia
QANTAS and its affiliate Jetstar have made major investments in new aircraft and major plans in new market development. However, development of new routes in the Far East and Southeast Asia will slow or even contract as reduced demand continues. What’s worse is the new competition they’ll experience on their routes to both Europe and the United States. I expect some order deferrals (probably for the 787) and growth plans will be slowed or deferred altogether as they retrench in the face of competition.
Virgin Blue / V Australia will be challenged in several ways. They’ll likely continue to do well in the Australian domestic market but now they face competition in the Australia / United States market not only from QANTAS, Air New Zealand and United Airlines but also from Delta. There will be too many airlines chasing too few seats in this market and the two most vulnerable airlines, in my opinion, are United and V Australia. United because its service product pales in comparison to any of the other airlines and V Australia because their business model is based more on economy travel than business and first class.
South America
We’ll not see any real growth (with one exception) and we’ll likely not see any real failures here either. The governments of South American countries tend to jump in and save their national airlines when doom is near.
Aerolineas Argentinas should be Argentina’s Alitalia but I suspect a takeover of this airline from Grupo Marsans (a Spanish conglomerate) by the Argentine government will happen sometime this year. Aerlineas Argentinas will continue to muddle through with a incoherent fleet of Airbus aircraft funded by the government and Argentina will see no growth and possibly some severe contraction in their markets because of a failed air traffic system and a very weak economy.
Brazil will continue to be stable more or less but existing Brazilian airlines will have to now contend with David Neeleman’s new airline, Azul. Neeleman (who holds dual citizenship in Brazil and the United States) understands Brazil and will be offering a highly competitive, high service airline founded with Embraer E-190 aircraft that are very well suited to the Brazilian market. It will be jetBlue all over again in Brazil for the next 5 years. However, I expect this new Neeleman airline will one day become an international airline flying both in South America as well as to Europe and the United States. I’ll go ahead and predict this development for 2014 and they will use Airbus equipment.
Africa
Not much to say here. African airlines come and go with stunning frequency and usually without much notice. Delta will continue to develop routes to Africa but this will be aimed towards the very few, relatively stable, major cities Africa has. South African Airways will find someway to continue to exist but I expect a switch from Airbus aircraft in their long haul services (A340 aircraft currently) to a Boeing fleet using the 777-200LR and 777-300ER and GE engines. This switch alone could make them profitable. My prediction is that we’ll hear about a Request For Information (RFI) or a Request For Proposal (RFP) by the end of the year but more likely at this year’s summer airshow in Paris. It will be a small order, at first, and quite possibly contingent upon Boeing finding new owners for the A340 aircraft they already own.
India
With their new, highly competitive market, India has become a rather intense version of the US market. With a weakening economy here as well, I look for consolidation and liquidation as the answer. Look for Kingfisher to merge with someone else such as Jet Airways with Jet Airways being the name retained by the end of 2009. Another possibility will be forced mergers and/or liquidations by the Indian government particularly if the current party loses power. The rather laissez faire experiment in airline deregulation in India has left a bad taste in many people’s mouths, most particularly in the opposition parties not currently in power. India’s current Prime Minister Singh holds degrees in economics and is widely credited with economic reforms in India but the fractured and unsuccessful airline industry is something for the opposition to make a point of.
It’s always fun to make predictions about the coming year, right? Of course, I may well review my predictions in December of 2009 and decide against doing it again.
Boeing 787:
This aircraft will finally experience its first flight and I believe it will occur on or about its new scheduled time (early April). For Boeing, credibility is now at stake and they really do have to begin meeting deadlines. Financial analysts are becoming too skeptical of the company for comfort and airlines want their airliners. Boeing does have a reputation for being able to pull itself together and get something done in a crisis and that should serve them here.
I also believe we’ll see both static airframes begin their tests and new build airframes begin to flow from Boeing in about 6 months. My prediction? The 787 will prove to be a very capable aircraft and will meet or exceed its performance promises.
Airbus A380:
Airbus met its revised schedule of delivering 12 A380 airliners in 2008 . . . barely. Originally it was scheduled to deliver 13 in 2008 and 25 in 2009. Now Airbus says it will deliver 21 in 2009. However, it is becoming clear that Airbus is now quickly learning how to build these aircraft and turn them out. I predict they’ll exceed their 21 goal in 2009 by at least one aircraft.
Boeing and Airbus:
Both aircraft makers will begin to speak about the future of short to medium haul aircraft again. With milestones for the 787 and A380 being met, I suspect they’ll become more comfortable in speaking of the future of their aircraft lines. Look for discussions on both the 737 and A320 aircraft families and what interim technologies might be employed to improve their performance. I suspect we’ll hear about both weight saving materials being adopted as well as the potential of new incremental improvements on existing engines. Particularly the CFM-56 engines used by both makers.
US Airlines:
First, let’s take a look at my deathwatch candidates. The sudden and precipitous drop of oil prices allowed each of them to take a breather. Midwest Airlines, however, continues to speak little, fly only a little and its investors have got to be running out of patience. I still believe that they’ll ultimately go away. How they do it is the question. Rather than bankruptcy, I believe it will either be a sale or as a subsidiary airline of Delta/Northwest with the latter being most unlikely. Who will they be sold to? Good question. Perhaps Airtran will get what they wished for and develop indigestion.
Frontier continues to muddle along but faces rather intense labor strife still. I think their situation improved not only because oil prices dropped but because United continues to offer some of the worst product in the industry and because Southwest slowed its growth and took a breather. While I firmly believe United will do nothing to improve its product, I do think Southwest will return to its goal of killing Frontier as a Denver competitor some time in the late spring. I suspect Frontier will emerge from bankruptcy this year but I also firmly expect them to be out of business or acquired by December of 2009. Who buys them? I’ll bet on Jet Blue. The aircraft fleets are compatible and Jet Blue has to start building a hub somewhere else in order to continue to experience strong growth. Frontier gives them that chance. The long shot? American Airlines. Why? Because Frontier is working with AMR’s Sabre Reservations system now.
United Airlines, my favorite airline to hate. The Cranky Flier loves to rag on Alitalia and I love to rag on United. United has lost a tremendous amount of value over the last year and continues to have some of the highest hourly costs of any US airline. They’ve done nothing to improve labor relations, their service product or their fleet efficiency. Glenn Tilton is hated by airline pilots but I predict he is goint to be hated by investors before the end of summer. What happens? I’m really not sure. The best thing that could happen is for them to liquidate. However, I think some airline will see some value there and attempt to buy United and make use of its assets. Who? The logical choice is Continental but I believe they’ll hold on to their independent streak. So my next guess is a US Air / United V 2.0 merger will come about. Could it work? I doubt it but Doug Parker (CEO of US Air) wants another merger and United offers hubs he doesn’t have and some aircraft fleet compatibility. I’ll go “all in” and bet that we see a US Air / United Airlines merger announcement by December of 2009.
Moving on from the death watch, let’s look at other US Airlines for a few minutes.
American Airlines will maintain its status quo but will begin to feel pressure to conclude some union contract negotiations this year as financial analysts begin to view their lack of progress less and less favorably. CEO Gerard Arpey will begin to feel the heat but barring a large mistake on his part, will retain his position as CEO. One possibility, however, will be bringing on a potential successor as President of the airline.
Southwest Airlines will also mostly maintain its status quo but I will predict that by late summer its new CEO Gary Kelly will be under fire from both employees and investors for his shotgun approach to growth. It is beginning to look like it is unplanned and what people most value in Southwest is its ability to form and execute a coherent plan. There will be no mergers, no real growth and a sinking stock price by December but I think Mr. Kelly will hold onto his position until 2010 barring a major unforeseen development.
Continental, the best kept secret. Continental will maintain its status quo with, perhaps, very moderate growth in the international sector while it waits to see what happens domestically. They’ll enter the Star Alliance (exiting from SkyTeam) but discover it offers little value to them as well. I don’t think they’ll seek to merge with anyone in the next year but if they did, I’d pick them for going after someone like Alaska Airlines rather than United or US Air.
USA Today’s Today in the Sky Blog is reporting that Australian news outlets are now writing about an imminent announcement that Delta will begin flying from Los Angeles to destinations in Australia. Such destinations likely begin with Sydney and add Melbourne and/or Brisbane.
If true, this will mean that Delta will be the first airline to fly regular scheduled routes to all 6 inhabited continents in the world since Pan American Airlines. More important, it means competition for QANTAS, V Australia and United Airlines.
Currently, QANTAS is by far the main leader in that market flying Boeing 747-400 and Airbus A-380 aircraft. It has been said that about 1/5 of their net profit comes from such routes. V Australia, an international arm of Australia’s Virgin Blue, was originally scheduled to begin flying Boeing 777-300ER’s in December but had to slip the start to February 2009 due to Boeing’s labor strike this past fall. United Airlines flies the same routes regularly with 747-400 aircraft that by many accounts are worn and tired and certainly not offering the service options the other two do.
It seems that Delta, if it does fly the route, is planning to use 777-200LR aircraft that are very capable of flying the distances as well as carrying a full load of cargo while doing it. Ironically, the 777 was originally designed with QANTAS in mind although they never ordered any of the aircraft. Indeed, with optional fuel tanks and a light cargo load, it is said that the 777-200LR might be capable of flying from Atlanta to Sydney regularly although it is highly unlikely that this will happen. A more likely choice might be a late build 787-800 which Delta will be receiving as a function of purchasing Northwest Airlines.
This kind of competition is not want any legacy carriers on this route want. Delta is operating with relatively low labor costs, new aircraft that are the most efficient available for long haul routes and they have a new network (from their merger with Northwest Airlines) that will feed the aircraft to capacity loads. If Delta does launch this service, look for United Airlines to withdraw from the market. They are the airline that lacks both the service product and fresh aircraft to compete.
Southwest Airlines has just announced a new codeshare with Mexican airline Volaris (partially owned by billionaire Carlos Slim.) Like Southwest’s codeshare agreement with WestJet, this allows Southwest to gain access to international markets. With these agreements with WestJet and Volaris, Southwest gets access to all of North America and gets to work with two airlines that have similar (not the same) operating environments.
I’m quite certain that these new codeshare routes will, in fact, boost Southwest’s revenues (as well as the revenues of these other participants) and I’m sure both relationships will prove to be rewarding in many ways other than just money. If one airline could operate throughout North America, it really would look very similar to this codeshare arrangement.
These two new arrangements for Southwest found me pondering how it could be done better than just a simple codeshare. One way to further integrate without attempting a merger (something all three airline’s governments are very unlikely to allow) would be operating an interchange.
An interchange was a fairly common tool in previous decades within the United States. The idea is that two (or more) airlines operate the same equipment on a route that is shared. One of the most famous interchanges was when Braniff operated the Concorde from Dallas to Washington D.C. where an Air France or British Airways crew would take over and fly the aircraft across the Atlantic to either London or Paris. At the time, each time the Concorde arrived in Washington, the aircraft would be “sold” to Braniff who would then hang new ownership papers in the cabin and change the registration temporarily for operation in the United States. Obviously that kind of inconvenience would not be tolerated today between airlines but there really isn’t a reason for it either.
Wouldn’t it be interesting to see Southwest operate such an interchange with each of their partners. A Southwest aircraft could be used to fly an international interchange between Canada, Mexico and the United States with only crews changing between focus cities for each airline. For instance, imagine a B737 flown from Toronto to Chicago by a WestJet crew where a Southwest Airlines crew would take over and fly it from Chicago to Houston. In Houston, a Volaris crew could take over and fly that same aircraft to Mexico City (Toluca) and then turn it around for a return trip.
The advantage is that customers never have to leave the aircraft and it would therefore permit a more seemless network for transitioning from one country to another. The only problem with that scenario is that Volaris has an Airbus A320/A319 fleet and while WestJet flies the 737, they are partial to the 737-800 type instead of the 737-700 aircraft preferred by Southwest. Nonetheless, it does cause one to think about the possibilities that might exist between the three airlines.
It also points to other opportunities for other airlines. Codeshares are good and convenient for airlines but they still require a passenger to travel from one hub to another hub and when it comes to international connections, it does force the passenger to often de-plane, clear customs and transition to another part of an airport to continue on to a destination. Sometimes that isn’t all that painful but more frequently it is a great inconvenience to the passenger and a barrier that many avoid.
With airline alliances relatively stable now, many could choose to adopt similar (if not the same) types of aircraft and offer trans-global interchanges for both companies and their passengers. It also would allow them to further standardize their service and even possibly take advantage of fleet flexibility between partners. For instance, what if QANTAS and American Airlines shared a portion of their 787 fleet and allowed it to “flex” between North America and Australia according to seasonal demands?
I suspect there are many more opportunities to be had from both codeshares and, possibly, a new version of interchanges between airlines.
The Seattle Post Intelligencer aviation reporter, James Wallace, is now reporting the possibility that Boeing’s new 787 may not make its first flight until February or March of 2009. Citing the 57 day long strike just settled by Boeing, the program is now supposed to be under review. At the beginning of the strike, Boeing’s 787 program manager had stated that it would be a day for day slip until first flight.
However, late February or early March is not a day for day slip and I think this news begins to reveal that there are indeed other problems on finalizing the 787 for its first flight. The 787 is now more than a year past its original forecast for first flight and had been definitively scheduled for a 4th quarter first flight this year. Prior to the strike, that was expected to be some time in the middle of November, 2008.
The delays to the program really should come as no surprise since this aircraft involves far more innovative engineering than probably any other commercial aircraft designed in the past 40 years including the 747 and A380. Still, another schedule slip after re-defining the program schedule and including plenty of time for more unanticipated problems begins to reveal that this is in fact a program in trouble. At this point, it is safe to say that Boeing is likely to experience a great deal of trouble getting the production ramped up to meet demand.
Delta / Northwest is not only big with respect to the number and type of airplanes they have, they are also big for the number of hubs they are currently operating. Conventional wisdom continues to bet that some of those hubs will be closed or rationalized just as it bets that the airline fleet will be reduced.
My guess is that there really won’t be a reduction in hubs of any real significance with the exception of two. This new airline has two hubs in close proximity, Memphis and Covington/Cincinatti, and each serves similar markets. However, rather than being combined into one, I suspect that Memphis will likely be de-emphasized into a “focus” city with more connecting traffic routed through Covington/Cincinatti. The yields in each city are very good but Covington/Cincinatti is by far the city with the best yields. Memphis is likely to remain as a focus city because it is a good gateway to the central midwest section of the US.
All other hubs in the US such as Atlanta, Minneapolis / St. Paul, Detroit, and Salt Lake City have the airline as a dominant carrier and there is no reason to combine any of them with respect to the routes they serve.
Now, both airlines operate significant flights from gateway cities such as Los Angeles and New York and it is quite likely that the airline will work hard to combine some flights going to the same cities. For instance, flights from the New York area going to the same destinations in Europe will be combined to raise the load factors on the equipment being used. However, Europe presents an interesting problem because Northwest has been in a close relationship with KLM and has used Amsterdam as a “hub” to connect to other cities in Europe. Delta, on the other hand, is used to flying direct flights to a variety of cities in Europe without a hub or close partner. I suspect the relationship with KLM will be reduced so that Delta can raise the loads on its own flights to smaller European cities.
Northwest comes to the table with a hub in Tokyo, Japan and they have 5th Freedom Rights to pickup and carry traffic from Tokyo to other cities in Asia. On the surface, that would appear to be a very valuable asset. However, the value of that arrangement was far greater when the political climate in Asia was much different and the range of aircraft made it more convenient to fly to a central hub. Today, it can be much more profitable to fly direct to a variety of Asian cities using newer, long range aircraft such as the Boeing 777 and the about to be introduced 787. I have no doubt that the Tokyo hub will be retained in some form because the yields from traffic originating in Tokyo to other Asian cities is still well worth the effort but I suspect that there will be a renewed emphasis on point to point flying as things evolve in the new airline.
The thing most likely to change at Delta’s hubs will be the aircraft equipment. With a wide variety of equipment to choose from, it would be unsurprising to see a shift of long haul aircraft between the hubs in order to improve yields, load factors and even to explore new routes. That will be done slowly and carefully so that Delta doesn’t have to service too many different types of aircraft at each hub. Once again, aircraft being used at various hubs to service various areas will probably be rationalized. It would be unsurprising to see A330s shifted to longer South American and African routes with B767-400’s moved to trans-atlantic routes originating in MSP and DTW.
Los Angeles will probably see a greater concentration of 747 aircraft being used on trans-Pacific flights. New York and Atlanta will probably see 777 aircraft moved in for long range, point to point flying to destinations in India, South America and even Asia.
At present, Delta has 4 different types of long range aircraft in the 747, 777, A330 and 767 with another on the the way (787). Since Delta already operates GE powered 777-200ER/LR aircraft, they’ll likely place an order for some 777-300ER aircraft and use those to replace the aging 747 aircraft. That will reduce flying by one type. The A330 aircraft will be retained until a fleet of 787-9/10 aircraft can be purchased and then the A330 will likely be let go. Delta’s 767-400 aircraft is fairly new but it will probably suffer the same fate as the A330 in being replaced by 787 aircraft in the future. Suddenly, two basic types with 2 sub-types between them can service all the long haul routes and, at the same time, offer some harmony at each hub.
I do wonder if Northwest’s 787 orders will be switched from Rolls Royce engines to GE GEnx engines. That would permit Delta to operate two basic aircraft types that would use the same brand of engine and engines that share some basic design philosophy as well.
The tricky part of managing all of these hubs for Delta will be the domestic fleet which is comprised of Airbus A320 series, Boeing 737 series, DC-9 series and MD80/90 series aircraft. Because it is more efficient to perform maintenance on a domestic fleet that keeps the aircraft close to a maintenance center, I do wonder which hubs will get which aircraft. Both Airbus and Boeing offer good choices for domestic fleets in the A320 and 737 series. The DC-9 fleet is old and will be retired over the next couple of years so it isn’t a factor. The MD-80/90 aircraft isn’t exactly old but it does become somewhat of an orphan and they don’t offer the fuel effiency that the A320 and 737 offer. It’s quite possible that Delta will retain both the A320 and 737 series and simply order more of both until they can choose a next generation domestic fleet type from Boeing or Airbus. I do believe that the MD80/90 fleet will be selected for retirement in the next 2 years.
The exciting part of this merger will be watching the decisions that Delta makes about its new future.
The US Justice Department approved the merger between Delta Airlines and Northwest Airlines today. The two companies will now begin to work on executing the combination as quickly as possible and it should culminate with a combined operating certificate in 1 to 2 years.
In the meantime, Delta and Northwest have already made a great deal of progress towards completing the merger. The executive team has been selected, agreements with pilots have been obtained and each company has been working pretty hard towards merging the culture of each airline together. While no doubt there are bumps in the road still to be encountered, this particular merger shows great signs of being accomplished with relatively little strife.
Flight Attendants are targeted for being a trouble area. Delta’s flight attendants are non-union and while there have been a few votes over the years to unionize, all have failed pretty soundly. Northwest’s flight attendants are unionized and have been characterized as even miitant. Delta’s CEO, Richard Anderson, has urged that everyone work together and while his stated preference is for no further unionization (and he has backed that up by being very willing to negotiate differences), he also has said that he and the rest of the executive team will abide by whatever vote there is. It is likely that the flight attendants will have a vote after the merger is officially executed and it is likely that it will be in favor of unionization since a combination of Northwest’s flight attendants with the minority of Delta flight attendants in favor of a union would win any vote.
While both CEOs of each airline have professed that such a diverse fleet of aircraft will permit them to “right size” aircraft to a particular route, it is highly likely that the fleet will be pared down over time. Northwest’s youngest aircraft are manufactured by Airbus and Delta’s fleet is comprised entirely of Boeing products. Certainly both major aircraft manufacturers will see an opportunity with this merger and both will be pitching their mainstay aircraft lines, the Airbus A320 series and the Boeing 737 series. With an gentleman’s agreement in place between Delta and Boeing that gives Delta preferential delivery slots, this is Boeing’s opportunity to lose.
A good guess is that, initially, the Douglas DC-9 fleet will continue to be eliminated and bases for the Airbus A320 and Boeing 737 fleets will be established at selected hubs. It is possible that the Airbus A330 fleet will be phased out in favor of more Boeing products such as the new 787 of which Northwest already has a significant order on. The 747 fleet will most likely be phased out over time in favor of the 777-300 and which Delta already owns in the 200ER/LR version.
The combination of these two airlines will form the world’s largest airline both by revenue and traffic. This will even dwarf American Airlines by a significant degree. However, because of industry contraction and the obvious economies and advantages to be gained by constraining capacity in markets that the new Delta will be dominant in, it is likely that the airline will actually contract both its fleet and, to some degree, its employees. However, major layoffs of any significant numbers are very unlikely and most contraction is likely to be done through natural attrition.
The Fort Worth Star Telegram Sky Talk Blog has written about the APA pilots union representing American Eagle Pilots now has a new contract and there are a few things of interest to me. First, this contract got negotiated in almost absolute silence. There was no real posturing in public and neither side managed to say inflammatory things to the press.
Second, the instructions to the APA (Allied Pilots Association) negotiating team was to obtain real life improvements to the pilots quality of life and work. Increased flexiblity (for pilots) and other tangible but not necessarily measurable changes were obtained but no salary concessions were given. American Eagle got a contract amendment that apparently satisfied both sides needs.
Now, American Eagle pilots are not overpaid to begin with but they are well paid and they do have a pathway to upgrade into American Airlines’ mainline system which is a bit unusual for a regional airline. American probably did not need to obtain wage concessions but I suspect that they wouldn’t ever mind paying less too.
The really striking thing about this development is that American Eagle pilots apparently realized that there were no wage gains to be made but they *could* obtain a better quality of work life. Such concessions from American Eagle may have cost them little or nothing to give. Both sides won.
This is in direct contrast to the Allied Pilots Association representing American Airline mainline pilots. These guys have decided that there need to be “givebacks” and that their world is severely impacted by executives who won bonuses. Personally, I do agree that awarding bonuses to executives when the company has *not* financially performed nor rewarded its lower level employees is wrong. Very wrong.
However, if AA pilots think that there is room to give back $3 Billion (yes, that Billion with a “B”) in wages, they are kidding themselves. If they think there is room give back $1 Billion, they are kidding themselves. I suspect they could gain quite a bit of work life improvements themselves if they were willing to offer some concessions on productivity.
And they face yet another problem. In This Blog Entry, I describe the history of how pilot compensatioin began and why it is a problem today. American Airline pilots realized that with the announcement that AA is buying new Boeing 787 aircraft, the old model might not fit for compensation. You see, the 787 is considerably lighter (as a function of its high carbon fibre reinforced plastic construction) than it would ordinarily be. Much lighter. A very dim light has come on over their heads and they have begun to realize that, perhaps, pilot pay should be based on criteria having to do with something other than weight and distance.
You see, the new 787-9 aircraft are capable of carrying almost as many people just as far as a 777-200 but with a lot less weight. The pilots will want compensation equal to or at least close to a 777 pilot and they’ll begin to look for justifications for that. Those justifications will inevitably lead to a discussion on all pilot pay because future aircraft such as the 737-RS will also likely be constructed in such a way as to offer the same capacity at less weight as current generation 737 models.
For once there will need to be a rational agreement on how to pay pilots that involve new measurements instead of the ones in use for 80 years. This is an opportunity for AA to obtain some sort of deregulation on the cost side of the equation and set new negotiating precedents for other union relationships in the future.
