The WSJ story about a new Boeing single-aisle airplane has the industry all a-chatter this morning for good reason. This is something many have been watching for - knowing the NMA and other names for this project never really came to a halt. Boeing, like all OEMs, continually thinks about and considers their next program. For obvious reasons, information on this effort is kept as tightly controlled as possible. And it is the item people like us sniff for constantly! Missteps caused asynchronicity That Boeing was going to replace the MAX was never the question. The question has always been "when". Following the MAX's unfortunate debut, the prevailing thought was that it would be sooner rather than later. Typically, the timeline is 12 years from firming the idea to EIS. But the cost of the 787 and MAX programs limited Boeing's options. Program missteps caused the typical program refreshes to go out of sync. This is well known and has been observed over the past decade. The outcome was a "lost decade" for Boeing. Looking Forward As Boeing works through their single-aisle thinking, what do we know? We don't know what Boeing is thinking. What we do know is what the market is buying. And that is the start by which any OEM, including Boeing, will navigate. Here are key metrics that evidence how the market is evolving. Single-Aisle is crucial - Among Boeing's first-tier target customers are the US airlines. The fleet data for these airlines since 2000 shows that ~80% of their fleets are single-aisle. As single-ailses have become more capable, they have become more attractive. Upsizing - this trend is firmly established. The only segment that can't do this is the regional airlines. Every other segment is doing it. The improved capability of these aircraft has been driven by their size, with associated improvements in range/payload. The chart below illustrates the steady growth in the average number of seats per flight for US-based single-aisles. This used to be a 150-seater segment for a long time. This is changing before our eyes. [caption id="attachment_113700" align="aligncenter" width="1929"] US DOT T2; AirInsight[/caption] Breaking down this chart into each of the large US airlines, we see the following. The upsizing trend is unmistakable. The trend is driven by airlines that would not have been considered trendsetters in the past. A business driven by costs must upsize. Economies of scale drive the fleet decisions. [caption id="attachment_113701" align="aligncenter" width="1928"] US DOT T2; AirInsight[/caption] Fleet decisions are long-term choices. These bets can remain active for up to 20 years. You had better make them good bets. How do network planners ensure this? Risk management is key. They place bets that, even if not the best, limit risk and losses. It is this thinking that has come to Boeing's assistance through its recent turbulence. You may not be able to receive the maximum delivery as planned. However, you are aware that the MAX 8's fuel burn is better per seat than that of the A320neo. The upset here has been the market's upsizing into the ~200-seat segment, and the A321 is the optimal solution. The MAX 9 has superb fuel burn, but cannot match the payload/range capabilities of the A321neo. It could be that this particular point is the pivot driving Boeing's decision on a new program. The MAX 10 would be a serious help, but it's not available. Key Cost Drivers As operators consider their fleet options over the coming decades, what are the key drivers? MRO is always crucial. But the two primary costs are fuel and crew costs. The following chart for US airlines, on single-aisles, shows this clearly. [caption id="attachment_113702" align="aligncenter" width="1825"] USDOT Form 41; AirInsight[/caption] Notice how the recent decline in fuel costs helped US airlines offset rising crew costs. Fuel costs are the most significant exogenous cost. Fuel hedging was once popular when it was cheaper than it is now. Since you can't easily get a fuel hedge deal, what can you do? You acquire the newest aircraft with state-of-the-art engines, resulting in superb fuel efficiency. That is the driver behind the MAX and NEO deliveries. The chart above does offer a good perspective. Airlines will focus on reducing fuel burn because that is the variable they cannot manage, but can only offset as best they can. This, in our view, drives the trend of upsizing. Fleet History as a Guide The following chart shows the flying costs per seat hour for US-based single-aisles. The greener numbers are the best. [caption id="attachment_113704" align="aligncenter" width="387"] US DOT T2; AirInsight[/caption] You can see where we're going. Yes, the 757-300 is the right size, looking forward. In our view, this is the benchmark size that Boeing must use as it considers its next step. The 757 was, in the view of many, a superb solution. It was unfortunately not updated. Boeing has good reasons for this decision. However, that's because of the 757's production process. It was an expensive airplane to make. However, it was a superb step in the right direction - way ahead of its time. The Opportunity Here is what the US airline fleet's single-aisle fleet looks like by generation. Among these airlines alone, the opportunity is enormous. The fleet is growing at the bottom. However, the upper part is still twice the size. And that's just in the US. Adding other markets vastly expands the opportunity. [caption id="attachment_113705" align="aligncenter" width="1901"] USDOT T2; AirInsight[/caption] To make the trend even more straightforward, take a look at this chart. The new state-of-the-art aircraft in US service are larger. [caption id="attachment_113721" align="aligncenter" width="580"] US DOT T2; AirInsight[/caption] Rightsizing for 2040 As Boeing considers its next program, the US industry offers the same practical guidance it has always provided. It is interesting to note that India, now arguably the fastest-growing air travel market, is also experiencing an uptick in demand for larger aircraft. IndiGo is moving to A321s and Akasa to MAX 8-200s. Based on the data we have shared, it seems that the MOM airplane is the future. The next Boeing single-aisle aircraft is expected to have seating for 180 to 250 passengers and will likely come in three sizes. For more supporting data, please refer to our US fleet model, from which we sourced several of the charts featured in this post. There are only 21 757-300s in US service. However, that airplane size is the future. The 757 revenge is upon us.
