The 100-149 Seat Segment is viable, if now a niche

Many industry analysts and consultants believe the 100-149 seat segment is the “Bermuda Triangle” for airplane manufacturers.  We disagree, and here’s why. It has been the wrong market for some OEMs and for some airplanes.  When OEMs tried to meet market demand with shrinks, usually it doesn’t work, or work efficiently. (The A319 was an exception) When weak and dying OEMs tried to fill this market segment with solutions, it did not work (see BAe, Fokker, Dornier, Fairchild, and McDonnell Douglas).  It is better described as an unforgiving market segment.

As our first piece of evidence we offer this chart from Embraer.  They have shown themselves to understand this market very well and offered the right plane, the E-190/195 designed specifically for the market, and the market responded well.  This success demonstrates that there is a market. And once the E-Jets met EIS, orders accelerated. The chart below reflects all E-Jets, but 64% of the orders are for the E-190/195.

The following chart shows how this market segment fits in the overall market for single-aisle aircraft.  There are 10 new aircraft types from six manufacturers that will enter this market segment over the next six years – a segment that Airbus and Boeing had to themselves early in the previous decade.

There are new firms like Superjet and Mitsubishi who are bringing new “right sized” airplanes and these are being ordered by airlines who like the numbers.

At the same time established segment suppliers like Bombardier and Embraer are seeing most interest is focused on the larger of their offerings.   A slow rate of orders for Airbus A318, A319ceo and A319neo is matched by a recent slow rate of orders for Boeing 737-600, 737-700 and even 737-7 MAX, which as yet hasn’t landed a single order.

The demise of the Boeing 717 is not a failure of the segment.  It was a failure of its designer, McDonnell Douglas, which was already dying.  Despite being a credible airplane (AirTran wanted a longer range version) Boeing wanted to protect its 737 line over enhancing the 717.

The airplanes that are shrinks are simply too heavy.  The 737-700 was the baseline but in MAX terms the baseline has grown to the -8 MAX.  The 320 family and 737 family are much more successful as they get bigger.

Historically, the mid-size programs sold best, followed by smaller and then larger variants.  Today, the order has reversed, with the larger aircraft gaining more orders than the smaller.  Airlines are up-sizing to capture better seat mile economics in a high fuel cost environment.

Look at the section with a violet background. The chart shows that there are new players coming at the bottom and the existing players are moving up in seat size.  The seat mile economics are the driving factor as airlines try to maintain competitive fares.  The cost of adding some seats is much lower than adding another airplane for increased frequency.

Note that Airbus and Boeing are keeping their offerings of core programs going, despite a distinct lack of sales momentum for these products.  The reason for doing this is that this a signal to the new players – consider it a tripwire.  Bombardier crossed that tripwire and the reaction from Airbus and Boeing is there for all to see. The CS300 caused the neo program at Airbus which begat the MAX at Boeing.   Embraer sent a clear signal that it was not going to cross the tripwire – for now.  We suspect they will have to because the market is shifting under their feet.

If the segment were a Bermuda Triangle why would Airbus and Boeing lay down the tripwire and defend it?  We believe the segment is not only attractive in its own right; it also acts as a superb training ground to build bigger airplanes.  Once an airline likes your small airplane it is quite likely to want your bigger airplane. Bombardier has shown that, growing its 50-seat RJ to 100 seats.  Airbus and Boeing are going do whatever they can to derail Bombardier’s momentum. They have to because a duopoly is much easier to work with than something bigger.

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