Boeing and Airbus have different assumptions on the future of air travel, which impacts their product lines.  Airbus assumes that growth in aircraft size will continue, and that with increasing congestion at airports, larger aircraft will be needed.  Boeing views route dispersion and the use of smaller cities for point-to-point service, avoiding hubs, as a strong element of the future air travel system.  Both are right, to some degree, but their focus is impacted market positioning.

Boeing has analyzed the market potential of the 787-8 as 1,200 aircraft, a large market for twin-aisle aircraft (the 767 has sold somewhat more than 1,000 airplanes compared with multiples of that for the 737).  In this process, it appears to be moving upward in its estimates of seat size, at least in its comparative economics numbers in recent years.  Boeing charts used to have the 787-8 at 210 seats, but have grown their three class estimates to 241 for the same model, despite ANA having 157 seats and JAL 186 seats on their aircraft (largely because early models are grossly overweight, and they could be payload constrained).  Why the sudden growth?  The A350-800 is the reason, as it will be economically competitive with both the 787-8 and -9, and Boeing is increasing the number of seats on the 787-8 to put its “best foot forward” in comparative economic analyses. We are referring to the seat size on the chart going from 210 to 241 below.  Boeing needs to show better 787-8 economics with respect to the A350-800, and the easiest way is to change assumptions on seating to show better comparative economics. Seating of 210 for 3 class appears to be the right number, given how current operators have configured the airplane.

Airbus largely ignored the under 250 seat market segment when designing the A350XWB. The A350-800 competes with the 787-9, leaving the smaller 787-8 to itself. Airbus claims the market is up-sizing and the extra capacity of the larger airplane is needed. Boeing believes the smaller airplane is needed for long-thin routes to replace 757 and 767 models.

The chart below, from a presentation by Brad Till, Boeing’s Managing Director Aircraft Programs and Valuations, shows the 787-8 and the A350-800 to be larger-capacity airplanes than current offerings. The salient question is whether this is indicative of the need for an airplane that is smaller than the A350-800, or whether the market has moved upwards.

We know that up-sizing is occurring in the narrow-body market as the proportion of orders for larger models in both the 737 and A320 families is increasing, and activities in the smaller models is moribund.  Is the same happening in the wide body market?

Airbus likes to compare the 787-8 and the A350-800 (and by extension the A350-900 with the slightly smaller 777-200ER) with the 767 and A330 experience. The A330 is larger than the 767 and pretty much drove the 767 out of the passenger business when it comes to new orders. But there is a large segment of 210-250 seat aircraft for which new technology aircraft are required to replace aging 767s and, factually, the 787-8 is the only such aircraft in this segment. The question is whether these aircraft need to be in the 210-250 seat range, or if 250-300 seats will provide the capacity for growth and superior competitive economics.

Some Boeing customers are beginning to convert -8 orders to the -9, including JAL, which changed 10 of its 35 orders.  This and others who converted might be indicative that the 250 seat market is the “sweet spot”- and the 787-9 and A350-800 may hit the mark better. Furthermore, Boeing has been encouraging a switch to the large, more expensive (list price) and more profitable (from Boeing’s perspective) -9. Airbus likewise has encouraged customers to switch from the -800 to the large, more expensive and more profitable -900.

We agree with Airbus that, beginning with the 250 seat market, more capacity of the -800 may give it an advantage (a conclusion Boeing will disagree with, of course), but we think that there are separate segments: the 210-250 for the 787-8 and the 250-300 seat for the 787-9 and A350-800. The 777 series and A350-900/1000 encompass the 300-365 seat segment. The proposed 777-9X, at 407 seats, slips into the very low end of the Very Large Aircraft segment that begins at 400 seats (thus replacing the 747-400 and coming in beneath the 747-8 and A380).

Boeing, today, has a monopoly in the 210-250 seat segment for next generation airplanes. Airbus’ A330 still sells well in the segment. The question is whether this segment is disappearing or is it a sweet spot, or is the sweet spot moving to the 250-300 segment in which the -9 and -800 play.

The 787-9 still has yet to pass final design freeze, but certainly promises to be a highly efficient airplane that will be more economical than the -8. The A350-800 has been rescheduled two years farther down the road, so we don’t truly know what this airplane will ultimately look like. Airbus promises better economics than the -9-but there’s a lot we don’t yet know about the airplane.

We believe there are two segments between 200 and 300 seats splitting at 250. The 787-8 has moved up 41 seats from the 215 seats on the 767-300ER.  Airbus’ A350-800 has grown from the A330-200’s 253 seats to 270. Both airplanes are moving to the middle of the category each OEM focuses on.

What we do know is that competition is good. How Boeing and Airbus ultimately come out is still speculation, but both airplane programs are better for the fight.

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