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June 17, 2024
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The 100-149 aircraft sector will be turbulent over the next few years, as the confluence of two trends combine to fundamentally change the competitive dynamics.  Growth in demand for larger narrow body aircraft, combined with new and more efficient smaller models, will significantly impact the demand curve for, and values of, the A319 and 737-700.

The trend towards larger aircraft, with existing customers of A319 and 737-700 moving to A320 and A321 and 737-800 and 900 for better seat-mile economics has changed the demand curve for aircraft in this segment.  Major carriers, struggling with high fuel costs, have seen growth slow as fares have risen.  To lower seat-mile costs and offer competitive fares, they are moving from smaller to larger aircraft in many markets.  Just as 50 seat regional jets are being replaced by 70, 90, and now 100 seat aircraft, the 125-140 seat models are being replaced by 160-180 seat models.

The result is that an excess of used models has emerged in the market, reducing aircraft values and lease rates.  The recent decision be Allegiant to replace aging MD-80 aircraft with used A319 aircraft is based largely on favorable pricing in the used market.  With more than 300 of these aircraft expected to be available in the market in the short term, a number larger than the existing order backlog for new versions of the same model, a buyer’s market has emerged.

Combine that with the fact that new models in the 100-149 seat class from six different manufacturers will enter the market over the next five years, with better economics than existing models, and the outlook for residual values for the A319 and 737-700 appear bleak.  With not only new re-engined models of those types to compete with, but also a new technology model from Bombardier, Sukhoi and Mitsubishi and a re-engined variant of a successful model from Embraer, the market will be flooded by aircraft with better economics.

A new report from AirInsight, Market Analysis of the 100-149 Seat Segment, examines the new competing aircraft and their economics in detail, and confirms that the new models will have a substantial advantage over existing aircraft in this sector.

Aircraft markets have a way of adjusting for differences in operating costs through adjustment in capital costs, and residual values for the A319 and 737-700 will soon reach a tipping point.  At today’s lower prices, some leasing companies are already under water with late model aircraft that can no longer generate the high monthly rentals required to support their capital costs.  A market adjustment is taking place, and a glut of aircraft in this sector will need to find homes before significant growth occurs, and sales of the new technology aircraft reach their full potential.

2 thoughts on “Overload: Why The 100-149 seat sector will be turbulent over the next five years

  1. The trend towards larger aircraft is driven mainly by consolidation, which should be fairly obvious, in addition to slot constrained airports. If you had just looked at load factors you would have gotten a hint.

    That you equate the shift from 50-seat RJs to 70- and 90-seat RJs to the shift from A319/73Gs to A320/738s is incredible. RJs have been artificially controlled and limited by Scope… there is no parallel in mainline flying.

    With consolidation still not yet finished, with over 2,000 A319/73Gs in service, and with oil prices going sharply down after 2015 (http://blogs.reuters.com/chrystia-freeland/2012/08/09/the-coming-glut-in-oil-%E2%80%93-and-its-impact/), the 100-149 seat segment is indeed destined to remain a “Bermuda Triangle.”

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