We have been most fortunate to be briefed by two leading aircraft OEMs in the last two weeks. And what a different view of the world they show — one wonders if they’re in the same business.
The chart below shows how Airbus views the world – everyone is moving up to larger aircraft. They went on to show the same trend at Boeing. And since the presenter was John Leahy, this chart was also an opportunity to tweak Bombardier’s nose, which you can see on our video here. Somehow, in the process, Mr. Leahy simply ignored Embraer.
There are two ways to see this change of course – either the market is indeed shrinking at the bottom end. Or, that Airbus (and Boeing) are being pushed over 150 seats by newer aircraft that are substantially more efficient that their existing or re-engined models.
The second of these arguments is cogently made by Embraer. As their chart shows, the market may not be shrinking below 150 seats. In fact for flights under 2,000NM, that market looks robust. The conclusion is based on data from SABRE, and not Embraer, which asks the question of why one would put 180 seats into a market that can only support 80-150 passengers? Increasingly airlines are talking about “right sizing”.
These two distinct views on the 100-150 seat segments indicate that the debate may not be as clear cut as either party suggests. The market below 150 seats might actually be large enough for the smaller duopoly to thrive. It is almost certainly too small for the big duopoly – for them the market has moved over 150 seats. But that doesn’t mean the market is insufficient for others, particularly if their aircraft are more efficient.
The most unsettling thing for the big duopoly is the smaller duopoly’s penchant for stretching aircraft. Embraer has built the KC390 with its attendant IP of what it takes to make a big airplane. Bombardier, which, according to the Wall Street Journal, is offering customers a CS500 stretch, has yet to see a fuselage they can’t stretch to double its original size.
The competition in the 100-150 seat market will get even more interesting, as the two upstarts start replacing two legacy single aisle aircraft.
It is easy to get fixated on the single aisle market as it is so massive. But if you look at the wide body market, many airlines are downsizing from 747s to 777s. Higher cap utilzation and better profits. The same will happen in the single aisle market. The trip cost between 319 and 320 is insignificant, so you may as well gamble on more seats during peak times. But Cseries introduces a much lower trip cost, equal CASM, which will mean higher cap utilization and greater profits. Delta, AA and others are hanging on to their 717s, MDs CS300 will be a very enticing option for them.
Seems to me that the C-series has been the impetus for the re-engineering of both Airbus’s and Boeing’s narrow body fleets. It is I believe the logical prospect of stretching the C-series that is the foundation of their fears. While Mr Leahy may make light of the relevance of the C-series it is a perceived threat to Airbus and has been since the inception of the program. Its a technological step forward. It remains to be seen whether Bombardier has the resources to be able to stretch the C-series into their duopoly. This is the ultimate question that will take many years to answer.
Bombardier would be killed if they move into the 150+ seat segment, they cannot compete with Airbus and Boeing on price, and right now they are struggling to sell the CS100/CS300’s with a $5.3 billion investment already. Today it is about CASM, and that requires high density seating, and the CSeries will not have that big of a trip advantage over the B737Max and A320neo, all use new generation engines and they are massively discounting on price, Bombardier will have to as well to be competitive, but it cannot afford to as that is to be its bread and butter, now its damned if it does and damned if it does not.
There are commercial/service factors, often regarded as mundane, which have to be taken into account, before deciding on the requirement of single versus two-aisle seat types, duopolies and even trip/cost performance. These decisions are based on the type of airfield which a company will have to operate into. My experience, having once had to temporarily acquire a hi-loader and suitable passenger steps, at enormous expense from a distant airport, for a one-off visit from a B747, is that cognisance has to be taken of the overall ability of different airports to accommodate particular aircraft configuration types. It is here that the 100 to 150 seater aircraft will be needed, for years to come, to cater for the, small to mid-size, market and aircraft. The terminal capacity, ground-handling equipment, passenger through-flow, statutory state departmental facilities, parking and ramp capacity. It is the end customer, a.k.a., passenger, demand that really should count, at the end of the day.