The middle of the narrow-body market is changing, as it has been for many years. We define the narrow-body as single aisle aircraft over 100 seats, relegating those under 100 seats to the regional jet market. While the middle of the single aisle market ranges between 150 and 160 today, there is a trend towards larger aircraft, and the next generation of narrow-bodies will likely be optimized for between 180 to 200 seats.

Today, with many Boeing 757s approaching retirement, Airbus and Boeing are positioning their A321LR and 737-9MAX models as potential replacements, although neither has the capacity or range of the 757.

How has the middle of the market changed? It has grown steadily since wide-bodies replaced intercontinental narrow-bodies, and has continued to steadily climb over the last decade. The following chart shows the average number of seats for the US-based Airbus and Boeing single aisle fleet from 2000-2014.

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The 2014 year end US in-service single aisle fleet had 1,819 aircraft. While the heart of the market remains the A320 and 737-800, the upper end is seeing a lot interest.

The current order backlog, as of 31 March 2015, is shown next. We expect new slimline seating for neo and MAX models, adding up to 12 seats depending on model, which would raise average seating capacity to 169 seats on average. This indicates that the current trend to larger capacity will continue in the near term.

2015-04-14_11-51-22Of course, not all airlines will configure an aircraft in the same manner, and some are adding premium economy seating, with increased pitch, while utilizing slim-line seats in the economy section to maintain existing seating levels with additional revenue potential. However, many carriers, such as Lufthansa, have moved from 150 to 162 seats in Airbus A320 aircraft, reflective of the global trend towards higher density and improved seat-mile economics.

The following charts show the narrow-body fleets by manufacturer in the US market for their most poplar models. This illustrates how the proportion of larger aircraft within the A320 and 737 families is growing at the expense of the smaller models.

2015-04-14_11-53-59The next chart provides additional clues on how the high end of the narrow-body segment is evolving.  As pointed out earlier, US carriers are moving their fleet capacities higher, to the annoyance of passengers, but the delight of Wall Street.  Passengers do not like being squeezed into ever-tighter seats while Wall Street loves high load factors combined with higher fares for more seats per aircraft to improve economic performance. The chart illustrates operating economics data per flight hour per seat based on DOT Form 41 data.

2015-04-14_11-55-55A few thoughts from this chart:

The Boeing 757 fleet is aging fast and by the end of 2013, was about $10 per flight hour/seat more expensive to operate than the A321 or 737-900.  Even with the finest MRO support, there is not much one can do to drive down its operating costs. But the 757 is unique in its range capabilities, and has higher capacity than either the A321 or 737-900.

Aircraft age is an important factor in operating costs. The aging Boeing 757s have reached the point that costs are accelerating faster than their competitors. In addition, because of the older age of the A321 fleet operating in the US, versus primarily newly delivered 737-900ERs with maintenance holidays, the cost advantage the A321 held over the 737-900ER appears to be eroding due to fleet age. As of the end of 2013, the DOT data show that a newer 737-900, on a per seat basis, was marginally cheaper to operate than an older A321. The A321s in US service are older models acquired by US Airways while the 737-900s are much newer aircraft at Alaska, Delta and United. We note that new A321s compare well against new 737-900s, and the A321neo retains a slight advantage in operating costs, as well as in range and runway performance.

There is a step-change in economics between a 757 and the latest models of larger narrow-bodies. Yet neither aircraft can duplicate the 757s performance and versatility on transatlantic routes, not match its range. Airbus has introduced an A321LR model, based on the A321neo, which will come closer than the 737-MAX9 in matching 757 performance, and looks to be the potential beneficiary of short-term 757 replacement orders. But competition is also based on price, and we expect brutal campaigns between Boeing and Airbus to win those orders.

The Bottom Line

With average seat counts rising, we believe the future center of the market is going to be focused between 180-200 seats in the 2025-2030 time frame. That is likely to be the same time frame for the arrival of the next generation of narrow-body aircraft. Typically, an airframe manufacturer will optimize performance for the middle of the market, offering a less efficient shrink, and low seat-mile cost stretch model of the aircraft.

We expect the next generation of narrow-body aircraft to up-size as the middle of the market shifts, with a base model in the 185-190 seats range, with smaller 170 and larger 220 seat versions as the market continues to evolve upward. We also expect longer-range, to provide flexibility for transatlantic operations for LCCs using narrow-body aircraft, or accommodating thinner routes for legacy carriers.

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