Fascinating Trends – Aircraft generation vs Fuel burn

Airlines and lessors clamor for new deliveries. This is the sharp point of commercial aviation, where the supply chain's efforts play out. New aircraft are far more fuel-efficient. They also come with maintenance holidays while under warranty. But it's fuel burn that is item #1. The chart below illustrates how much fuel burn impacts operating costs. The industry average is 41%. [caption id="attachment_89513" align="aligncenter" width="640"] US DoT; AirInsight[/caption] With that metric in mind, it is easy to understand airlines' need for state-of-the-art fuel-burn aircraft. Airline financials are a significant metric in fleet renewals. Airlines may need the aircraft but sometimes cannot afford the fleet renewal. This allows lessors to enter the breach, providing this industry with its crucial role as market makers. Look at selected US airlines and how their aging fleet impacts fuel burn. Alaska Airlines Alaska is financially strong and underwent a significant merger with Virgin America in 2016. [caption id="attachment_89514" align="aligncenter" width="688"] US DoT; AirInsight[/caption] The green curve showed a sharp improvement in fuel burn in 2016. The peak dropped but remained over 100 seat miles/gallon as Alaska focused on standardizing on 737 MAXs. Building the fleet around the MAX 9 Alaska sharply improved its overall fuel burn. The airline now has one of the best fleet fuel burn rates among US airlines. American Airlines American started its fleet renewal before its peers. Indeed, its interest in the A320neo program brought the 7373 MAX into being. [caption id="attachment_89515" align="aligncenter" width="748"] US DoT; AirInsight[/caption] The new aircraft burn substantially less fuel than the previous generation. American's single-aisle fleet renewal focused on the 737 MAX 8 and A321neo. The latter has become the most influential, generating about one-third of the airline's single-aisle ASMs. The A321neo has proved to be an excellent replacement for the 757, providing the airline with much better fuel burn. Southwest Airlines The pattern is readily apparent—the current aircraft generation orders substantially better fuel burn. [caption id="attachment_89517" align="aligncenter" width="797"] US Dot; AirInsight[/caption] Southwest wants MAX 7s and has had to take more MAX 9s than it likes. As noted, this misfortune played out positively, providing the airline extra capacity as air travel exploded after the pandemic. The MAX 7 is unlikely to offer the level of fuel burn as the MAX 8, but it should still be over 18% better than the 737-700 it will replace. Spirit Airlines The chart shows this airline has moved into a fleet renewal despite its financial challenges. [caption id="attachment_89519" align="aligncenter" width="800"] US DoT; AirInsight[/caption] The chart reinforces what we see among all the airlines: newer aircraft are inherently attractive. It might pay to acquire them even if you are under financial stress. The siren song of better fuel burn could fly you out of trouble. An airline can reduce its fuel from 41% to even 39% of flying costs, which generates millions of dollars in savings. Summary The attraction of lowering fuel burn is irresistible. Regardless of the airline's financial state, it must always tack towards reducing costs. Focusing on the most significant cost input is obvious. It's not about shiny new airplanes. It's about cutting that massive cost input quicker than your competition.

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