Archive For The “Hawaiian” Category

Hawaiian’s fleet choices

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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.

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Pondering the US DoC tariff on Bombardier

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If one limits the active airline passenger fleet In the United States to between 100-150 seats, then as of 2Q17 there were 1,671 aircraft.  Of these, 699 were Airbus, 794 were Boeing and 178 were Douglas.  Please bear in mind that even as we are in the 3Q17, the data is for the previous quarter.

Breaking this down further, the top eight airlines account for 93% of the fleet. The table lists the top ten, and the yellow highlights are airlines that have publicly opposed Boeing’s complaints to the DoC.  We should highlight at least one more, but cannot since this was not made public.

Looking at the market by model, we see the following.

Of the fleet, the Douglas aircraft are oldest.  Boeing is next.  Airbus has the youngest fleet.  Boeing’s tension about the sub-150 seat market is understandable.

Now take a look at this. This was Delta’s fleet at the end of 2Q17.  Is there any surprise they are moving on the CS100 and have an interest in the CS300?  Delta is clearly not enamored with the 737-700 or the A319.  Even its A320s are aging (ex-Northwest) and Delta has shown interest in the A321 and the 737-900ER which are outside this segment.  But there are 115 Douglas aircraft that are quickly approaching their appointment with the desert. Neither Airbus or Boeing offer what Delta wanted.

As Delta’s CEO said this morning on their earnings call:  “I think my words were very clear – we will not pay the tariff that are being discussed or debated. First of all, those tariffs are preliminary, as I mentioned. In our opinion, it is very difficult for Boeing or any other US manufacturer to claim harm with a product we purchased that they did not offer and that they don’t produce. In fact, they ended the production of the 717, which would be the closest, ten years ago. When we went through the RFP to select the C Series, Boeing competed very hard for the order. Except they were competing with not their own product but a Brazilian product, an Embraer product, that wasn’t even new, it was used E190’s, ironically from all places, from Canada. So, as you look through this and try to see how exactly a harm case is going to be developed, particularly to justify the type of tariffs that are being discussed, to us it’s unrealistic, a bit nonsensical. We’re working closely with our partners at Bombardier.”

In summary, we can understand Boeing’s concern about the sub-150 seat segment.  They have lost their traditional leadership role. Airbus has won business and its fleet is younger so less likely to be replaced for a while.  The Douglas fleet, a natural for Boeing to win, is not attracting Boeing orders.  Bombardier is a threat to Boeing and Airbus in the sub-150 seat segment.  So is Embraer, which will be coming into the 100-150 seat segment within 18 months.

The MAX7 (and A319neo) have not attracted a lot of interest. But the C Series and E2 have and will continue to do so.  In the US market, suing Bombardier does not look like winning Boeing any MAX7 orders. Southwest’s MAX deliveries will be MAX8s for a while still.  We wonder if they will ever take a MAX7.  American does not look like a MAX7 buyer, nor does United which changed its last 737-700 order.  Delta, we are quite certain, will not buy the MAX7.  In short, Ray Conners’ concern is a reality already.

In the US market, suing Bombardier does not look like winning Boeing any MAX7 orders. Southwest’s MAX deliveries will be MAX8s for a while still.  Southwest has 30 MAX7s on order compared to 170 MAX8s. We wonder if they will ever take a MAX7.  American does not look like a MAX7 buyer, nor does United which changed its last 737-700 order.  Delta, we are quite certain, will not order the MAX7.  In short, Ray Conners’ concern is the reality already.  The US market does not look like MAX7 friendly territory.

All the noise at the DoC claiming damage and a threat from Bombardier is too late.  Boeing lost the sub-150 seat battle before the Delta order for C Series.

Airbus has a strong portfolio over 150 seats and does not seem worried about Bombardier or Embraer.  Boeing also has a strong portfolio over 150 seats.  So what, exactly, is all the fuss about?  Boeing’s concern about the sub-150 seat segment is understandable (they are losing some business there) but seemingly irrational (they are winning big above 150 seats).

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The Single Aisle Segment – some perspective

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Premium #303 – Old aircraft and the example of Delta Air Lines

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Cancellation fees

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Airlines have embraced ancillary fees as a way to make up for low fares. One of those fees was the “Reservation Cancellation/Change Fee”.  Air travel is an activity that comes with many disruptive factors, as anyone can testify.  The US airlines embraced a series of fees. Take a look at how popular this fee has become. (more…)

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Premium #237 – Hawaiian and the A380

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