Delta_A330Should Airbus produce an A330neo?  This question is on the minds of many, and is a topic that we have considered for some time.  As of this writing there have been more than 800 downloads of our 2012 paper on the potential for an A330neo.  Interest in this topic has been rekindled by the recent news that American Airlines converted its previous US Airways A350-800 order to the larger A350-900.

Boeing makes a compelling argument that its 787 and 777 brackets the A350, but ignores the A330 in its marketing presentations. But it seems airlines are not ignoring the A330.  Airbus keeps selling the airplane because it is, frankly, very good at what it does.  Indeed, it has become so good that it has enabled Airbus to utilize all the A340 production resources for additional A330s.  This increased A330 production, which allowed for more aggressive sales, came at a perfect time as the 787 program stumbled.

Should there be an A330neo?  We decided to go directly to Airbus with this question.  This morning, we had an extensive conversation with Crawford Hamilton, who is the Head of Twin Aisle Marketing at Airbus about the A330 and A350-800, to find out what Airbus is thinking.

First, he pointed out that Airbus has been tweaking the A330 from the start, and that the airplane is continuing to be updated.  The program began with a base model that was tweaked to include a growth model, after which came an enhanced (2004) version of each, and now there is second major updated version in the works.  This model  – let’s call that the “enhanced plus”, will have higher takeoff weights, and will be delivered to Delta Air Lines in 2015.

Airbus has continuously improved the A330,  much like Boeing has done to the 737 — never stop tweaking. As sales of the 737 demonstrate, it is a very effective industrial policy that can pay off in spades for the right aircraft.  The A330 has proven to be the best twin aisle aircraft in Airbus arsenal.  Using lessons learned from the A330 program itself, plus the A340-500/600, Airbus has created a new “enhanced-plus” model.  He pointed out Airbus spends $180m per year doing these tweaks on A330, and that in fact, Airbus spent as much on the A330 over the past ten years doing tweaks as they spent on the initial development of the aircraft.   He pointed out that even lessons learned from the A350 program are being fed back into the enhanced A330.

The net result is that the A330 has remained a highly competitive aircraft.  In preliminary calculations, we estimate the in service A330 compared to the 787 sees the latter with a 6.3% operating cost advantage, based on operational results reported by US carriers.  Given that Airbus is way down the development curve on the A330, it is able to price the A330 to readily compete with the 787, making up the operating cost disadvantage through lower capital costs. Moreover, the A330 is a well known program (meaning it is highly predictable) and that provides airlines with levels of operational  certainty that, at present, the 787 cannot.  Given that airlines are risk averse, many continue to buy the A330.

Consider how competitive the A330 is; Airbus can readily discount ownership costs to cover an 787 operational advantage.  Mr Hamilton pointed out that lower ownership costs are only part of the A330’s strength.  He noted that early 787 campaigns spoke of comfort but more recently 787 sales campaigns have stressed economics.  The early 787s was proposed as eight abreast in economy, but since has grown to nine abreast.  The A330 has a wider seat, currently configured at eight abreast. The A330 could go to a  tighter nine abreast regional configuration (for 2-4 hour segments) which would enable it, according to Mr Hamilton, to achieve parity on operational costs with the 787, and figuring in ownership costs, beat the 787 by “double digits” at equal seat count.  Perhaps this is why Tony Fernandes and AirAsiaX ordered more A330s.

Which brings us to the ongoing debate about A330neo and A350-800.  It appears interest in the A330neo is mostly external interest.  As Mr Hamilton pointed out Airbus tried the neo before as the A350 “Mark 1”, and “we got stung badly on that”.    Airbus does not seem compelled to do anymore than its ongoing tweaks because customers keep buying what they build.  Airbus has over 100 A330 operators and there many 767s they can replace.  Airbus, simply put,  feels the A330 still has sufficient momentum in the marketplace and should continue to be successful for the next few years.  Mr Hamilton stated that “the horrible problem is that the guys got the A330 right”, which reduces pressure for a neo solution.  He further pointed out that the 787 has not been able to open up a sufficient advantage over the A330, “so why should we do a new airplane”?

The A350-800 looks increasingly exposed to the A330’s continuing success.  When pressed about this, Mr Hamilton responded “it depends what we can do with the A350-800”.  There is considerable speculation in the industry that A350-800 will be scrapped in favor of a larger model, but he provided no guidance as to whether program cancellation was even a possibility during our discussion.

The A330 and perhaps A380 could be candidates for alternative engines, for example, a potential 70K GTF engine.  But Mr Hamilton pointed out that the new engines come at a price – better fuel burn costs a lot more weight, and larger fans cause more drag. The current A330 engines are relatively light and are “very proven and very reliable”.  A 70K GTF would be examined at by Airbus, but timing of demand and development need to come together. Or as Mr Hamilton stated,  “for us to do an A330neo would require an alignment of stars.”

Airbus feels that the market is currently satisfied by the continuing improvements to the A330.  Citing the additional 25 ordered by Air Asia last month, he indicated that market demand for the new 242t model remains strong, and that Airbus is able to price to the point of economic indifference against the 787.  As a result, while there is no current need for an A330neo, Airbus will continue to monitor opportunities to further improve aircraft as a part of its continuing improvement programs.

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