Replacing the 757

Delta Air Lines today announced its selection of the 737-900ER to replace its 757s.  Within the US 757 fleet there are a number at American, United Airlines, Continental Airlines and US Airways that also will need replacing before long.

In order to understand why airlines are evaluating this now we looked into the running costs of the 757 from US DoT data.  As the chart illustrates, these airplanes are becoming ever-more expensive to operate.  The industry average consists of all US-based 757 operators, including the packet freighters.  As the trend line indicates, costs of operations are rising at a scary pace.  The fluctuations are a reflection of the gyrations in fuel costs.

Taking the data a bit further, we see the following. As the next chart illustrates, fuel costs are driving 757 operator decision-making.  Within the decade 757 operational costs have seen fuel impact go from ~40% to over 80% in the case of Delta.  Given that virtually every analyst sees fuel prices remaining high, operating a 757 becomes less attractive quickly.  Fares are unable to make the airplane work economically, particularly when considering that the less expensive 737-900 can do virtually anything the 757 can do within the US mainland operations. In evaluating Delta’s decision on its 757 replacement, we compared Delta’s 757 costs with the industry and generated the following chart.  Clearly fuel costs are the biggest driver in the decision. Delta has a superb MRO operation in Atlanta that could have ensured these 757s operated at optimum performance, but fuel costs are driving the numbers here and the older 757s in particular, have reached a point where no MRO magic can overcome the fuel burn challenge.

The 757 was an airplane every operator loved – it is fast and has amazing range, especially with the addition of winglets. It was the first single-aisle airplane to fly across the North Atlantic in widespread use since the 707 and DC-8.  (There have been some niche uses of the Boeing 727, 737 and even the old Caravelle.) Being a “small twin” makes this remarkable.  It was relatively over powered, so pilots loved it – anyone flying one out of DCA knows what we mean.  The climb rate is spectacular.  But just as the economics of the 757 ensured the demise of the L1011 and DC-10 in US domestic service,  so has the 737NG eclipsed the 757.

Checking the relative costs for airplanes competing for the 757 “space” leads to the following chart.  As one can see the current A321 (no sharklets, non-neo) is outclassed by the 757 and the 737-900 in fuel burn terms.  The interesting feature here is how closely the 737-900 starts to match the 757 fuel burn numbers from 2008.  This underscores Boeing’s incessant tweaks to the 737 that ensure the 1965 design continues to compete effectively. The chart also shows why Airbus had little choice but to go for neo. The data suggests that Boeing’s assertions of the gap between its 737 and the A321 on fuel burn is significant – close to 10%. Of course the neo will change that.Delta, in its PR announcing their 737-900ER order said: “As a result of maintenance efficiencies and a 15 to 20 percent improvement in fuel consumption per seat, the Boeing 737-900ER will have lower unit costs than the older technology Boeing 757 and 767 and Airbus A320 aircraft that it will replace.” So as we asserted above, fuel burn is the key driver in the Delta decision.

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