[UPDATE] Wouldn’t you know it? After this story was published the DOT updated its Form 41.  Here are the latest numbers through 2Q19. 

  • Fuel burn was 54.6% of US fleet operating costs overall
  • A319 fuel burn costs/seat/hour $13.60 – 55.5% of Op costs
  • A220-100 fuel burn costs/seat/hour $12.85 – 46% of Op costs
  • A319 direct maintenance costs/hour $602; American $561; United $736
  • A220-100 direct maintenance costs/hour $448

Two stories in the past week that are worthy of deeper consideration.  Ned Russell reported that “United Airlines currently has ‘no interest’ in 100-seat jets”.  Then came a story from Gary Leff at View from the Wing about American, where he reported: “American Airlines Has No Interest in 100 Seat Aircraft, Plans to Buy More Used A319s Instead”.

These views from American and United are odd.  Odd because this is an industry that typically matches moves made by competitors as one expects in an oligopoly.  Even game theory suggests that copycat behavior is rational if for no other reason that to lower risk for all players.  In this case American and United are the majority among network carriers – Delta has embraced the ~100-seaters by operating the 717 and now the A220-100.  Delta has an established history as the airline that does not follow its peers.  During the last oil spike, American and United bought new aircraft.  Delta kept its older aircraft and bought a refinery. Looking back Delta made the smarter choice.  Its financials are the envy of the industry.

If American and United are going for pre-owned A319s that are trading at bargain prices over new-build A220s or E195-E2s, is this a smart choice now? After all oil prices remain low as are interest rates.  Moreover, OEM order books are tight and there are no early delivery slots except perhaps for the E195-E2.  It looks like American and United may have been snookered by Delta again.  By buying a large block of A220s Delta pushed back delivery slots for all US competitors – not just American and United.  Which means American and United would have to select the E195-E2 and probably not get a deal anything like Delta did on the C Series (now A220).

Another interesting aspect of the American and United decision is selecting the A319.  Both these airlines have Airbus and Boeing fleets.  Why the A319? Why not used 737-700s?  (Southwest bought lots of these) Are these A319s trading at lower rates than the -700?  And if so, why?  Markets clear efficiently and prices reflect fair value – if the A319s are cheaper, there’s a reason for it.  Maybe these A319s are nearer their end of life. After all, Boeing’s have a second life as freighters.  The A319s most certainly do not. Remember United’s order for 737-700s over the C Series – only to switch the Boeing orders to larger models?  How is it that Delta can make the ~100-seater work and American and United cannot?

Fuel may be cheap at present but still accounted for 54.8% of operating costs through the 1Q19.  The A319 was running at $13.27 in fuel costs per seat mile in 1Q19 compared to Delta’s A220-100 at $12.70.  The A319 has 53.7% of its costs tied up in fuel burn compared to 43.8% for the A220. In 1Q19 the A319 averaged $607 in maintenance costs per flight hour – American was at $557 and United at $750.  Delta’s A220 ran at $514.  As the A220 operations settle in, costs are likely to decline whereas the A319 costs are likely to rise.  Old aircraft are like old people, they need more healthcare.

American and United must have acquired the A319s very cheaply to offset that operating cost differential.  Here is a guide to how tight the used market is.  The MAX grounding has firmed up used prices as airlines scramble for lift.

Moreover, business travelers prefer schedule options. American and United are likely to offer less frequency than Delta in markets where these aircraft compete.  The smaller A220 has lower costs and can better serve smaller markets, i.e. perhaps three times daily (109 seats x3) versus twice daily with an A319 (125 seats x2).  American and United’s views on the ~100-seater aircraft are odd.

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