Archive For The “Southwest” Category

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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Southwest Airlines MAX Oct 1st

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Southwest is proud of its new MAX fleet.  It put out this PR on October 1st.  So how did one go? A busy day, except for one awkward moment.

The fleet went across the nation, building many hours – one aircraft spent over ten hours aloft.  Two worked hard doing six turns. N8712L had a scrubbed flight. N8707P also had a disrupted flight.

Looking at scheduled departures, every aircraft ran into delays (in minutes). N8709Q had a rough go of it.

Looking at arrival times compared to schedules (in minutes) we have the following.

Again we see that N87209Q had a rough day, but managed to arrive early by its fourth flight.  N8712L had that false start but improved steadily as the day progressed.  The schedules may have been padded, as we can see some high early arrivals.

Finally, if we look at the average hours per leg we can see that the fleet had varying legs – N8706W did transcons while the others did more typical two hour or shorter legs.

It’s only one day and we will watch the fleet to see if there are trends.  With so many new aircraft going into service in one day, hiccups had to be expected.  Southwest is exceptionally experienced with the 737 and will no doubt work out the kinks faster than any other airline.

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The Single Aisle Segment – some perspective

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The correlation between airline ground time and profits

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Airlines know that fast turnarounds mean profits – Southwest advertised ten-minute turns back in 1982. While there have been various claims about turnaround times, there has been a shortage of data to help determine just how important this factor is to airlines’ overall performance.

This has left some big questions. For example, are faster turnarounds just about utilization, or is there a large business impact? Do, or can, shorter turnaround times offer an airline a strategic advantage?  This is tough to demonstrate. The airline industry is highly complex – there are many variables and many of these are exogenous. Moreover, airlines do not share their turnaround data and we have previously tried to pull this out of the US DoT On-Time data.

Another source of operational data is from FlightRadar24. In previous posts, we have used this data to track the A320neo and C Series fleet performance.  A recent download of over two million flights from Flightradar24 has shown us that there may be a correlation between airline turnaround time and airline profitability.

  • First, despite lots of variables, there appears to be a correlation between ground time and airline financial performance.  This is especially true for narrowbody short- and medium-haul scheduled flights, which do many turns per day. Reducing ground time could indeed make an airline more competitive.
  • Second, this benefit may be strategic. The correlation is evident when comparing airlines that compete within markets. In our earlier and ongoing research using the US DoT data, we focused on the US market.  For the Flighradar24 analysis, we focused on Europe.
  • Third, the benefits go beyond fleet utilization. Cutting a minute from average ground time may have more impact on an airline’s profitability than utilization alone. It appears that for every minute an airline saves; operating margins increase 0.43% in Europe.

The critical question for an airline is: What can you do about it? Airlines routinely work on reducing turnaround time. There are new initiatives focused on cutting ground time across the board. Some simply involve positioning. American Airlines once selected JFK gates nearest to the runways. The point was to cut taxi fuel, but it also cut taxi-time. Some involve small operational changes, ensuring all stakeholders (ground handlers, ATC, airlines, and airports) cooperate on turnaround procedures. But it seems collaboration usually looks better on paper than on the ramp.  There are also other choices, focusing on smaller airports like Ryanair, for example. There are also new technologies like e-taxi systems which could speed up pushback at the gate.  E-taxi also offers lower noise and lower fuel burn, but the focus is really on time savings.

AirInsight is continuing to examine the implications of this data, but the initial results show a strong connection between reducing the ground time and increasing profits.

In analyzing the data, we used the following rules:

  • Ground times over three 3 hours were ignored.
  • In order to measure performance fairly, only narrowbody turnaround times were measured. Regionals and widebodies were excluded.
  • Publicly reporting airlines included the fleets of their subsidiaries.
  • Only clean data showing clear touchdown and take-off times were included in the analysis.

The following chart shows a selection of these airlines.  It seems that a plausible case exists that supports the notion that shorter ground times are not only an indication of greater efficiency but also point to more profitable operations.  Ergo, anything that reduces ground time must be chased with a vengeance.

Clearly more research into this matter is warranted.  There is a strong case for a connection between ground efficiencies and profits.

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Oil and backlogs – A rejoinder

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Recently we posted a premium article on single aisle backlogs that elicited some debate.  This is welcomed because the subject is important and views will vary.

The essence of our view is that we find the OEM target of a rate of 60 single aisles each per month difficult to comprehend.  The view is primarily based on oil prices. The next chart illustrates the influence oil prices have played on single aisle fleet decisions.  The oil price spikes clearly impacted decisions.  It is during this period that we saw the arrival of the CSeries (initially pitched as a fuel saver) and then came the fuel saving A320neo and 737 MAX.  High oil made airlines and lessors jump at fuel saving aircraft. (more…)

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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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