Airline traffic has continued to grow over the last decade, despite 9-11, SARS, a financial and prolonged recession.  At current growth rates, traffic will double every 15 years.  That requires twice the number of seats to accommodate passengers into an that has various constraints.

Airports in many areas remain constrained today, and new airports are needed.  In some regions, including the Middle East and China, new airports are being built to accommodate additional traffic.  However, in some areas, including North America and even the growing market of India, airport construction may not grow fast enough to accommodate the number of takeoffs and landings required.

At the same time, competitive elements have continued to bring down the cost of air travel in real terms, as one would expect for a perishable commodity industry with little differentiation between providers and a fully transparent electronic pricing system. The resulting fare pressures have resulted in a market dislocation for certain aircraft types as fuel prices and underlying economics change.

Combining the economic changes with constraints in air traffic control and airport capacities, the relative preference for aircraft of different sizes has changed dramatically.  Perhaps the best evidence of this is that Embraer has been forced to announce a redesign of its popular series to obtain economic improvements only nine years after entry into service.

Deliveries of jet aircraft by size category have changed dramatically over the last decade. Deliveries of jets under 90 seats in size virtually beginning to disappear.

Deliveries of 90-149 seat aircraft have also fallen, with a dramatic increase in deliveries of larger narrow-bodies with more than 150 seats.

Because orders are a prelude of future deliveries, this trend appears poised to continue for the next few years, as record orders for the Airbus neo and Boeing Max families have had a similarly disproportionate impact on aircraft size.

There has been a clear trend away from smaller aircraft towards larger aircraft to accommodate future growth, largely because of seat-mile economics.   But we believe that trend will begin to moderate as new technology smaller aircraft enter the market.  The rush of 1,500 plus orders for  Airbus A320 and A321 neo, and 1,000 737-8 and -9 Max are somewhat an aberration to secure initial delivery positions, but nonetheless impressive.

However, there has been a dearth of orders in the smaller sizes of these aircraft, as shown in the table below:

Aircraft Model Orders
26
737-7 Max 0
A320 and A321 neo 1,852
737-8 and -9 Max 1,164

While the neo and Max families have been phenomenally successful, the smallest have been a market failure, with only 0.85% of total orders.
But what happens to all of those markets currently served by 737-700s and A319s?  There have been 1,086 737-700s and 1,357 A319s delivered since these were introduced, flying to a number of markets for airlines believe they are well suited.  Will all of these markets be able to fill larger A320 or 737-8Max aircraft?  We don’t think so, and there will be a second wave of orders in the 100-149 seat segment.

Matching aircraft to routes to maximize is always a goal of fleet planners, and low seat mile costs are one way to do that.  But for the large number of markets that can’t accommodate 150 or 162 seat aircraft, alternative are now entering the market.

The Bombardier CSeries will be the first of the new technology airplanes with the economic efficiency to potentially begin to change the dynamics and allow airlines to maintain service on routes currently served by 100-149 seat aircraft that otherwise would need to be abandoned.  The CSeries will offer economics comparable to the seat-mile costs of the larger neo and Max models, with the lower aircraft mile costs that would be expected for a smaller aircraft.  This will enable airlines to profitably serve smaller markets that otherwise would be abandoned given the economics of existing A319ceo and 737-700NG operations.

And following the CSeries, the slightly smaller re-engined EJets from Embraer will also join the market, with better economics than the smallest from Boeing and Airbus.  Is the market segment into which 2,500 airliners have been sold over the last two decades going away?  Hardly.   But many airlines like to wait and see that new airliners fly, and meet their economic targets before jumping on the bandwagon.  Later this year, as the CSeries starts to fly, we’ll find out whether that adage remains true, and if the forgotten segment of the order book begins to fill up once again.

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