This year’s Farnborough Airshow was a little light on massive aircraft orders but two Airbus deals in particular give us insight into the future of the market. Norwegian’s parent indicated it would convert 30 of its 100 A320neo orders to the larger, longer-range A321neoLR aircraft while AirAsia is set to take delivery of the first of 100 A321neos starting at the end of the decade. The two airlines have different motivations and ultimately will use the A321neo in different ways, but the message from both is clear: in the “middle-of-market” space, essentially replacing the 757s operating today, Boeing does not have a viable solution for airlines.
Congestion and Capacity
For AirAsia the A321neo order is all about congested airports, with Group CEO Tony Fernandes suggesting that airport infrastructure is not keeping pace with the booming passenger traffic growth in Southeast Asia, leaving his company little choice but to upgauge to larger aircraft as it continues to grow.
The addition of the aircraft type to AirAsia’s fleet presents challenges, such as how to move 236 passengers per flight without sacrificing the carrier’s quick 25-minute turns (Fernandes wants to use three sets of stairs, not the typical two, to help on that front) and how to manage catering and other ancillary revenue sales on board the new planes. But they will also deliver a nice drop in cost per available seat mile (CASM) for AirAsia and the ability to continue growth rates, particularly in the larger Asian markets suffering from gate and slot limitations today.
For its part, Norwegian has not been shy about its plans to grow its low-cost carrier (LCC) model in intercontinental markets. The airline’s Boeing 787 fleet has allowed it to open new markets and strategically compete at new hubs such as London Gatwick, Barcelona and Rome. But there are other, smaller markets that the company hopes to operate in as well. Boeing 737 flights between the US Northeast and Ireland, for example, have been discussed. And while the Cork-Boston flights have not yet launched (Norwegian blames US regulators for not yet issuing final approval for the Irish subsidiary’s operating license), these are the types of routes the A321neoLR can open up even more. While Norwegian does typically fly at higher densities to lower CASM, the company will not be as aggressive as AirAsia in the A321neo fitting, aiming instead for a 220-seat layout.
Norwegian in a statement says the A321neoLR planes will allow it to fly more between the “US East Coast and Europe, between Scandinavia and parts of Asia, as well as South America and Europe”. It is not clear exactly which South America or Asia markets will work with the LR – the Indian sub-continent or western China could be possible from Scandinavia while only the northeastern Brazilian coast would work from the Iberian peninsula – but the US and Canadian east coast is significantly more in play, as is most of Africa.
It should be noted that Hawaiian Airlines has also committed to the A321neoLR for similar reasons, looking for the ability to “surgically” add capacity from the Hawaiian Islands to the US mainland, something possible with the 737 line but more efficient (and readily available) with the A321neoLR. Air Astana chose the type for similar reasons based on its hub at Almaty.
Faced with mounting pressure to define its position in the MOM aircraft race, Boeing VP marketing Randy Tinseth appeared calm during a wrap-up briefing with a handful of reporters at Farnborough. The company has projected that the next 20 years will see just over 28,000 narrowbody mainline aircraft delivered. “When you take a look up at the very top of the [Boeing 737] MAX 9 or A321 market we’re looking at somewhere between 20-25% of [the total single-aisle] market,” he said.
That equates to 5,500-7,000 aircraft, and only about 1,200 A321neos have been ordered so far. But that’s still triple the 400ish MAX 9 commitments to date. Certainly there is still plenty of room for Boeing to grow in to that market demand, but it is being outpaced significantly at this time.
— Seth Miller (@WandrMe) May 31, 2016
Boeing is comfortable delivering roughly half the overall ordered aircraft in the industry any given year, even if the portfolio does not include a MOM replacement in the next five years. Tinseth suggested that any new MOM design is “an airplane that we would bring to the market after the 777X so you’re talking middle of the next decade”. That is either plenty of time to make a decision or to be left behind.
Then again, Tinseth also believes that Boeing “would be in a fine position with a potential MOM because no one addresses that space today”, a bold claim given the A321neoLR order volume and interest. The LR may not fully replicate the 757-200’s range and capacity, but it comes close in many edge-case markets where the MAX 9 cannot.
Tinseth may be doing his best Alfred E. Newman impression with the media these days and maybe he is correct in not worrying. But the overall market numbers – even the ones Boeing presents – do not seem to line up 100% with the company’s position on the (middle of the) market.