We hear it all the time – fuel costs are the airlines’ biggest input cost.  When looking at the data, it certainly is the largest input on flight operations.  However, what does it look like for the aircraft airlines depend on most?  The workhorse aircraft seating from 125 to 200 passengers?  Airbus and Boeing dominate these segments and their aircraft set the tone.

In the chart below we use the US DoT Form 41 data to illustrate what fuel costs are on a per seat per flight hour basis for the past six years.

Of course, fuel prices and hedging contracts also influence these costs, and each airline has a different net cost per gallon over the period.  Another potential bias in the data is route length, which differs for each of these aircraft.  Shorter routes tend to have higher fuel costs because there is less time in cruise, the most efficient phase of flight, and the same amount of time in take-off, climb, descent and landing, the least efficient phases.  Without normalizing the data for stage length and fuel prices, the comparisons are at best, inaccurate. But it is the only data available, even if somewhat skewed.  So be forewarned that any conclusions you might draw from these data may be biased and inaccurate.  Nonetheless, it is interesting to examine, particularly when anomalies seem to emerge.

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  • The data show that older Boeing 757s remain competitive with the newer aircraft. On a fuel/seat/hr cost basis, both Boeing 757 models show fuel costs per seat per hour are in the middle of the pack. While MRO costs for maintaining these older aircraft may be higher, these aircraft appear to remain competitive on a fuel cost per seat basis.  But what’s really going on is that the 757 operates longer-hauls than any of its competitors, and stays in the most fuel efficient phase of flight – cruise – longer.  As a result, it appears to be more competitive than it might otherwise be.  If the 757 were truly as fuel efficient as the 737-800, we wouldn’t be seeing as many replacements.  As the old adage goes, figures never lie, but liars can figure.
  • The 737-700 and A319 are the most expensive aircraft among this group on a fuel/seat/hr cost basis.  But again, these aircraft fly the shortest routes, that are the most fuel-inefficient ups and downs. The largest user of the 737-700 is Southwest which shows that it has lowered its costs down substantially. But is that the result of the aircraft, or expiring fuel hedges at higher prices?  As these are the “shrink” models of larger aircraft types, we would expect these aircraft to be more expensive on a per seat basis, but without the volatility shown in the data.
  • The “heart of the market” is the A320 vs 737-800.  Both are shown as solid lines. The 737 appears to be running lower in fuel/seat/hr costs.  Whereas in 2009 the A320 had a $0.52 fuel/seat/hr cost advantage, by the end of 2014, the 737-800 was $2.03 ahead in fuel/seat/hr costs.  But when you did deeper, the average range for the 737 in 2014 is significantly longer than the A320 – about 3 hours per fight to 2.3 hours per flight.  That makes a huge difference in fuel burn. If we rely strictly on the data, for a typical 90-minute segment a 737-800 operator could see, all things being equal, substantially lower costs.  But all things underlying the data are not equal, and that number is artificially inflated.   Additionally, with continuous improvement, the age of the fleets also plays a role in this data.  The A320 fleet in the US tends to be older than the 737-800 fleet, and not as competitive as current models.
  • At the top end of this segment, comparing the 737-900 and A321s, we see the competition appears quite close.  A321 fuel/set/hr costs are coming down and are somewhat lower than the 737-900ER, which might be expected given the slightly larger capacity of the A321.

The Bottom Line:

Form 41 data can be interesting, but most of the time is comparing apples to oranges, as operational differences that impact performance cannot easily be normalized in the database.  As a result, it can be easy to draw the wrong conclusion.  But, on occasion, we’ve seen data from this source, despite its biases, touted as showing a difference between aircraft that may be unjustified.

What it does show is that clearly the narrow-body segment is competitive, and with the introduction of the neo and MAX, will become even more competitive. It also shows that airlines tend to utilize aircraft on routes for which they are most efficient.  That being said, it appears that there will be room for new entrants, including the Embraer E2 and Bombardier CSeries, based on economics.  Bombardier says the CS 300 should see 20% better fuel burn and Embraer says the E2-190 will be 16% better than the current model.  The new jets aimed at the smaller end of the narrow-body market will be competitive with mid-sized narrow-bodies on fuel burn, and should be able to achieve success against the A319neo and 737 MAX7.

We have suggested before that we wonder whether Airbus and Boeing will actually deliver the smallest neo and MAX.  Orders for these aircraft are rather light, and it would seem to us that upgauging their customers would make better economic sense for OEMs.

On the other hand, what do the airlines want?  The argument from Airbus and Boeing is to move to larger aircraft, with more profit potential and no spillage.  The argument from the smaller players is to right size the aircraft and achieve higher margins per passenger, making Wall Street happy.  As the four major players each introduce new and updated narrow-body aircraft in the remainder of this decade, it will be important to discern whether a new trend is emerging, or the market will remain competitive.  So far, Airbus and Boeing have a flood of orders much larger than Embraer and Bombardier.  The question is whether it will continue.

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