Archive For The “Airlines” Category

Hawaiian’s fleet choices

By |

At present, it is still a rumor. But the decision process dates back at least four months.  Hawaiian has been the “last man standing” on the A330-800 with six orders.  The airline has made it plain months ago they were uncomfortable with this situation.  Nobody wants to own an orphan aircraft.  Besides, no lessor or bank would do a sale and leaseback.

The current airline position on this story is: “It is well-known that Hawaiian Airlines has been negotiating with both Boeing and Airbus for the next addition to our fleet. We have not signed an agreement with either manufacturer. We look forward to announcing the conclusion of those negotiations when it is appropriate to do so.”

Airbus advises us the airline has made no announcement and they will not comment on any rumors.  Boeing also says it does not comment on “customer discussions”.

From our perspective, it makes sense that Boeing is trying to ensure the A330neo program does not gain any traction. If Hawaiian switches away from Airbus, the A330-800 has no orders.  We can understand why Boeing might be prepared to be aggressive with the Hawaiian order.

Airbus has, so far, made the most market gains in the single-aisle side of the middle of the market segment.  For example, Hawaiian recently introduced the A321neo in its fleet which has taken over some routes traditionally using 767s.

Boeing is at a critical juncture; it is paramount that the Airbus infiltration of Hawaiian is halted.  After all, the airline was an all-Boeing fleet once. It could be that the geographic position of the Honolulu hub also drives Boeing’s effort as it will ideally suit the 797 potential capabilities to serve Asian and North American routes.  In short, the Hawaiian deal could be more influential than it looks.

The crucial issue here is this:  If Boeing is prepared to aggressively move to win the airline, is this a strong hand or a weak hand?

The A330-800 is supposed to seat 257 and have a range of 7,500NM.  The 787-9 should seat 290 and have a range of 7,635NM.  Several years ago, in an interview with CEO Mark Dunkerley, he spoke of looking at markets from Hawaii as far as the UK.  Honolulu to Heathrow is 7,237NM.  Therefore, the range is of great interest but possibly not the primary driver.

But looking at the choice, if the airline goes with the 787-9 it is listed at $281.6m and seats 290.  The A330-800 lists at $259.9m, seating 257.  The A330-900 lists at $296.4m and seats 287.  If Hawaiian is really looking for a ~290 seater, the A330-900 was likely to be a better bet than the 787-9 because almost certainly it is cheaper, regardless of list prices.  Almost certainly Hawaiian looked at converting to the A330-900 but might have demurred because it is just too big.

If Hawaiian did not want to upgrade (like other A330-800 customers) it seems reasonable to assume they may want the range, but not the extra capacity.  Ergo, what might Boeing be doing by offering the 787-9 rather than a better-sized 787-8 with 242 seats?  The 787-8 has a range of 7,635NM after all.

What seems to be going on – if the “rumors” are true – is that Boeing could be fighting hard to win Hawaiian.  Boeing is unlikely to be concerned that the A330-800 program could potentially hurt the NMA business case. Bear in mind that the NMA would be optimized for the segment, while the A330-800 is a compromise. The Airbus may be cheaper, but that does not naturally make it a winner.

It is understood that the business case for the NMA is weaker than Boeing suggests.  At PNAA a week ago, Boeing’s Randy Tinseth noted that people who question the segment potential size are not thinking outside the box.  Boeing sees a potential market for 4,000 aircraft in the segment.

Bear in mind the 797/NMA will be a family of more than one size.  And its market size (4,000 or less, depending on where you stand) is squeezed by the increasingly capable A321neo from the bottom and the A330neo at the top.  Boeing faces two pressure points: segment size and pricing.

Boeing, we think, cannot afford a “kick the can” middle of the market strategy”:  it has a growth-constrained design in the MAX10. It must, therefore, develop a new aircraft with the associated costs.  Meanwhile, Airbus is tweaking existing designs at a fraction of the cost.

If Hawaiian is really moving to Boeing, there are two considerations.  What kind of deal must Boeing offer to win them back?  And even then, the airline might end up switching away from the 787 for the 797.

Read more »

Norwegian’s 737 fleet growth

By |

Today the airline announced that it has taken delivery of its 100th 737-800.  This will be the final 737-800 delivery, as the airline is now taking delivery of 110 737 MAX8s. The airline’s fleet growth has been impressive.

The airline operates their 737s under several brands: Norwegian Air Argentina (1), Norwegian Air International (64 737-800 & 6 MAX8), Norwegian Air UK (1) and Norwegian Air Shuttle (52).  The company also operates several 787-8s and -9s.

As the airline proudly notes: “Norwegian is the world’s sixth largest low-cost airline and carried around 33 million passengers in 2017. The airline operates 500 routes to 150 destinations in Europe, North Africa, Middle East, Thailand, Caribbean, the U.S and South America. Norwegian has a fleet of 150 aircraft, with an average age of 3.6 years, making it one of the world’s youngest fleets.”

The rapid growth has its costs as we learned from the 2017 results which were recently announced.  The net loss was –299 million NOK in 2017, while EBITDA was 60 million NOK. Significant costs related to increased fuel prices, wet lease and passenger care affect the results. Going into 2018, Norwegian is far better positioned with stronger bookings and a better staffing situation.  The company’s 2017 revenue was ~31 billion NOK which was an increase of 19% compared to 2016. The fleet grew by 32 new aircraft which meant ASK growth of 25%. Load factor in 2017 was unchanged from 2016’s 88%.

CEO Bjørn Kjos sounds ebullient: “Norwegian is far better positioned for 2018, with stronger bookings, a growing network of intercontinental routes complimenting our vast European network and not least, a better staffing situation. Our major global expansion reaches its peak in the second half of 2018 when 32 of our 42 Dreamliners on order will have been put into service.”

Last year the airline suffered several 787 engine challenges.  But their 737 fleet has been robust.  Of course with a growing fleet, there are issues.  The biggest concern one hears about at the airline is its rapid growth.

Perhaps the operating challenges will be overcome and fleet reliability will improve.   It has to because there has been bad press. Also here.  Yet, the CEO is confident and why shouldn’t he be?  Load factors are high and are likely to remain that way because the airline’s fares are relatively low.  Norwegian has to keep its eye on the emerging LCC competition that is coming on stream.  Airlines like Primera Air for example.  Norwegian also to contend with the competition based in Iceland.  Even the established network airlines will not ignore Norwegian.

Rapid airline growth does not mean the market grows as quickly – in the short run, Norwegian is taking traffic from others.  We have seen this before with the ME3.  Unfortunately for Norwegian, older airline brands are aware of how the ME3 disrupted their revenue flow.  They will not let this happen again without a faster response.

For Norwegian to succeed it must improve its operational performance.  Low fares do not equal low expectations.   If people buy a ticket, they have a reasonable expectation of being transported from A to B with no fuss (and no frills).   Crucially as a service business, the airline seems aware of the challenges it has in terms of customer interface.  One hopes the “better staffing situation” addresses this.  Fixing flight ops and customer interface can help keep load factors high and also ensure Norwegian can sustain its disruptive ways.

Read more »

Delta, Bombardier and the CS100

By |

As the ITC reasoning behind its decision to deny Boeing’s claim is digested, the next dominos are falling.   Delta’s statement is “Delta is pleased by the U.S. International Trade Commission’s ruling rejecting Boeing’s anticompetitive attempt to deny U.S. airlines and the U.S. traveling public access to the state-of-the-art 110-seat CS100 aircraft when Boeing offers no viable alternative. The airline looks forward to introducing the innovative CS100 to its fleet for the benefit of Delta’s employees, customers and shareowners.”  It turns out that Delta’s testimony seemed to carry the most weight for the ITC.

An aspect of the ITC reasoning that is getting some attention is the airline is now able to take deliveries of the CS100 from Mirabel and not wait for years until the Mobile FAL is operating.  Delta and Bombardier, understandably, are not saying anything about this.

The ITC result was unexpected by Bombardier like it was for almost everyone following the industry.  There was a not very secret plan for any Mirabel built CS100s to go to AeroMexico.  Bombardier and Delta must have been busy for months working on contingency plans.   Then along came the unexpected ITC ruling and those plans, in place and well thought out, became moot.

Now Delta and Bombardier have to go back and essentially undo the plans they put in place.  Delta had already planned to extend the use of their MD fleet in the event they had to wait for the Mobile FAL.  Bombardier had to figure out where to put the Delta deliveries in their production slots because the expected ITC ruling was going to mess up any delivery plans.  Details of how any aircraft were going to end up in Mexico are still secret.  As one can see several moving parts had to be stopped once the ITC made its ruling.

We expect to see a CS100 is Delta colors soon.  Both the airline and Bombardier want this.  Delta believes the CS100 is going to disrupt its competitors and they have good reason to believe this.   If passengers are given the choice of a regional jet or the more spacious CS cabin, the choice is easy.  We expect Delta to make a big fuss of this feature in every market they take the CS100.  Since most passengers have no idea which aircraft they are flying, Delta will need to undertake an education strategy.

Winning over customers to their CS100 at the start of a trip means Delta should be able to keep more traffic in its network.  This means they can use the CS100 to increase market share and in the oligopoly without touching fares.  Travelers who are price driven, rather than mileage loyalty driven, are likely to swing to the Delta product.  Finding a spacious cabin with bigger seats will be something of a revelation for US air travelers.  Once captured, these travelers might develop a liking for Delta’s product and service.

This outcome has been seen at CS300 launch customer airBaltic.   “With the introduction of brand new Bombardier CS300 aircraft, this year airBaltic has increased the number of passengers served by 21 percent. Thanks to the improved efficiency of the aircraft, this summer was the strongest in the history of airBaltic. For several months in a row, airBaltic, which turned 22 this autumn, reached record high passenger flows as well as revenue,” the airline reported.

If Delta can their first CS100s in service quickly, we expect to see American and United react by either also acquiring CS100s or E190-E2s.  Southwest may not be immune from this impact either.  Delta’s deployment of the CS100 is likely to be good for Bombardier and also for Embraer.

Read more »

United Airlines and Viasat Sign Contract to Bring High-Speed Connectivity to 737 MAX

By |

Viasat announced a new contract with United Airlines to bring it’s latest generation in-flight entertainment and connectivity system to more than 70 aircraft, including at least 58 of United’s new Boeing 737MAX aircraft.  This means Viasat will now be the direct in-flight internet service provider, deploying its most advanced IFEC system to provide United customers access to fast, reliable internet connections in-flight.

Viasat will serve as the direct in-flight ISP to United, deploying its most advanced IFEC system, in order to provide United customers access to fast, reliable internet connections from the air—for accessing websites to connecting with business applications such as a corporate VPN and secure email. Viasat’s IFEC system will also power United’s Private Screening entertainment option, which offers customers access to hundreds of entertainment titles from its onboard library direct to their own devices.

United will tap into Viasat’s advanced high-capacity Ka-band satellite system, which includes the ViaSat-1, ViaSat-2, and ViaSat-3 satellite platforms. These capacity-rich satellite platforms enable Viasat to deliver fast, high-quality in-flight internet service to each connected device on the aircraft. This technology allows United to deliver dependable internet connections gate-to-gate and perform over-the-air content uploads to its onboard entertainment system, ensuring its library has the most current content available.

Viasat is on something of a tear here. They won an order from American Airlines for its 737 MAX fleet. This may develop into something even bigger if the airline decides to switch away from Gogo‘s service. Then JetBlue also confirmed that it is upgrading its aircraft to utilize the ViaSat-2 satellite.

Read more »

UPS and the Boeing 747-8F order

By |

UPS has now exercised their options and will have 32 747-8F in service by 2022.   “Our intra-U.S. next-day and deferred air shipments are expanding to record levels, and UPS’s International segment has produced four consecutive quarters of double-digit export shipment growth,” said David Abney, UPS chairman, and CEO. “To support this strong customer demand, we continue to invest in additional air capacity, providing the critical link our customers need to markets around the world.”

The 747-8F carries 46 containers, 34 on its main deck and 12 in its lower compartments.  Its cargo capacity is 140 tonnes, or approximately 30,000 packages and a range of 4,200 nautical miles.   The deal with Boeing included four 767F as well.

The backdrop to this order is other cargo news.  IATA announced that it showed a 9% rise in airfreight in 2017.  This, IATA noted, was more than double the 3.6% annual growth recorded in 2016.

Air cargo had its strongest performance since the rebound from the global financial crisis in 2010. Demand grew by 9.0%. That outpaced the industry-wide growth in both cargo capacity and in passenger demand. We saw improvements in load factors, yields, and revenues. Air cargo is still a very tough and competitive business, but the developments in 2017 were the most positive that we have seen in a very long time,” said Alexandre de Juniac, IATA’s Director General and CEO.

The outlook for air freight in 2018 is optimistic. Consumer confidence is buoyant. And we see growing strength in international e-commerce and the transport of time- and temperature-sensitive goods such as pharmaceuticals. Overall the pace of growth is expected to slow from the exceptional 9.0% of this year. But we still expect a very healthy 4.5% expansion of demand in 2018. Challenges remain, including the need for industry-wide evolution to more efficient processes. That will help improve customer satisfaction and capture market share as the expectations of shippers and consumers grow ever more demanding,” said de Juniac.

Looking at the chart for e-commerce growth, we can see why Amazon’s Prime Air is on a growth spurt.  Now we see UPS also making a growth move since these new aircraft are not replacing anything the airline has in service.   Perhaps Boeing is going to see even more interest in the 747-8F.

Read more »

Aeroflot places $5bn order for 50 MC-21s

By |

Aeroflot ordered 50 MC-21s today from IRKUT.  Aeroflot will receive the first jet in the first quarter of 2020, with the full delivery to be completed by 2026.  Under the terms of the order, Rostec, the leasing subsidiary of Aviacapital-Service, will supply the 50 MC-21-300s. These aircraft are to be leased for a term of 12 years, with the option of two-year extensions on the lease no more than three times.

RT reports that the first 25 MC-21s delivered to Aeroflot will have Pratt & Whitney PW1400G engines.  At this stage, we do not know if the remaining aircraft will be equipped with the PD-14 engines, due to be certified later this year.

Aeroflot plans to use the MC-21s to replace its remaining Soviet-era Yakovlev Yak-42, Tupolev Tu-134, Tupolev Tu-154, and Tupolev Tu-204/214 aircraft.  Aeroflot configurations are to carry 169 passengers, with 16 business-class and 153 economy-class seats.  The airline will be using the aircraft on domestic and international routes.

From discussions with IRKUT, we expect to see the MC-21 to offer operating costs around 6-7% lower than its competitors.  Which is a very interesting and exciting data point, numbers which we are in the process of verifying.  Every OEM that has deployed the GTF has seen fuel burn lower than expected and a consequent increase in range.  We expect the same to happen with MC-21.

Vitaly Saveliev, Aeroflot CEO, said: “The signing of a firm order for 50 MC-21 aircraft is a landmark event not just for our two companies, but for our country. Russian manufacturers have created the first next-generation passenger aircraft, marking Russia’s return as a global leader in the aviation industry.  In today’s geopolitical context we believe it is essential that there is competitive Russian-made technology, and that it is of the highest quality and competitively priced.  For this reason, our partnership with Rostec, our largest partner and a shareholder of Aeroflot, is of critical importance.”

Sergey Chemezov, Rostec CEO, said: “This agreement underscores that Russia’s civil aviation industry is making a comeback and taking its place among leading global manufacturers. The MC-21 represents a genuine breakthrough achievement for the aviation industry.  The aircraft uses cutting-edge materials and the latest generation of systems, created by leading Russian companies. Elements of the MC-21 that Rostec produces include titanium and composite parts, onboard electronics, chassis components, other systems, and the ‘heart’ of the aircraft – the PD-14 engine.  We believe that this engine will be selected by Aeroflot as the primary power plant for the MC-21.”

This is a program to watch.  Hopefully, we will see the flight test aircraft Farnborough this year.

Read more »