With its huge order in 2011, American not only secured 460 new fuel-efficient aircraft, but it also forced Boeing to launch the MAX. At the time, the win for Airbus at American was big news. Airbus had not sold an aircraft to American in twenty years.
The reason American decided to both companies was because neither OEM had to production capacity to supply all the aircraft in the timeframe. But, crucially, American also ensured that both OEMs would offer the sharpest pricing. Both the Airbus and Boeing aircraft would be powered by the same engine OEM, CFM.
At the time of this order, American was paying $3.12 per gallon of fuel and with an aging fleet, the airline was drawn to the fuel savings of these new aircraft. By doing the deal at the time, American also made the first move to ensure it had the best delivery slots. Certainly before its fierce competitors in the US.
So, looking back we can see this was a very good move. The focus on replacing gas-guzzling MD-80s that were generating rising MRO costs; getting a new fleet that was 15% more fuel efficient with a maintenance holiday. And then being able to get its hands on them before the competition. Great move, right?
Then the wheels started to loosen. In 2015, fuel prices had softened. So American decided to delay deliveries. As the article notes: “American said in a filing on Monday that instead of taking 35 A320neo planes in 2017 and 2018 as planned, it agreed with Airbus to push back deliveries to 2021-2023.” American kept the MAX order in place.
What would make the airline’s management go from risk-averse in 2011 to adding risk in 2015? The most important change was the merger with US Airways. The merger made American the world’s largest Airbus operator. Speaking with American, there appeared to nothing else that was significant in pushing back Airbus neo deliveries and keeping the MAX deliveries on track. The decision was not to add risk at all – at least not consciously.
This is what the airline’s fleet looked at year end for the past few years. It is clear the MD80 is being run down in favor of MAX8 and -800s. But also note the run down in 757s has been more than compensated for by a run up in A321s. American is not averse to Airbus products.
In 2019 the wheels finally came off with the grounding of the MAX. American has 24 MAX8s. The grounding of these aircraft has had an impact: “Although these aircraft represent a small portion of the company’s total fleet, its financial impact is disproportionate as most of the revenue from the cancellations is lost while the vast majority of the costs remain in place,” noted CFO Derek Kerr. Estimates to date are $350m in costs. The grounding means 115 daily flights are cut.
Had American decided not to push back the A320neo deliveries, the MAX impact might have been halved. The 2011 fleet decision was smart. If only that thinking had stayed in place to ensure that both OEMs delivered on time.
There is a lesson here for any big airline. Is it is a lesson being considered by Southwest Airlines? How about Ryanair? While there is an argument in favor of keeping the fleet simple with one aircraft type, beyond a certain size there is also a risk with all the eggs in one basket.
Co-Founder AirInsight. My previous life includes stints at Shell South Africa, CIC Research, and PA Consulting. Got bitten by the aviation bug and ended up an Avgeek. Then the data bug got me, making me a curious Avgeek seeking data-driven logic. Also, I appreciate conversations with smart people from whom I learn so much. Summary: I am very fortunate to work with and converse with great people.
