The smaller side of MoM is a tightening space for Boeing

Boeing is building interest in the 797 to a frenzy with its quiet and not so quiet activities. While everyone is focusing on what it could be or should be, what does market data suggest? There is talk of a twin-aisle aircraft with seating at 220 and 270. The range of the aircraft is said to be from 3,000 NM up to 4,500 NM. Only Boeing and its target customers know the current thinking and this thinking is evolving. If we look at the target customers in the US, notably the big three airlines, we can get a glimmer at what might be on their minds. These three airlines, American, Delta, and United are key customers for the 797. This is because they were key customers of the 757 and 767. These three airlines accounted for the largest fleets of these models. Look at this ad from Boeing when they announced their middle of market solution a long time ago. How are these airlines using their current fleets? The following charts combine the data reported to the US DoT and were analyzed using the T2 data source. We looked at the typical stage lengths being flown as well as the load factors of these flights. We used the period 2013 through the third quarter of 2018 (the most current data). We start our focus on the 757 and 767 as they are the models Boeing is trying to replace. If we summarize the data from all US airlines operating both models of 757 and the 767-300ER we get the following. The first item to notice is that the range being evaluated for the 797 probably could remain below 4,500 NM. Both fleets show robust load factors, so they are doing good work for their operators. The middle of the market is a good place to focus attention. After all, with the 767 and 757, Boeing invented the space. Evaluating the 757-replacement side of the MoM, we need to add two models the 737-900 and the Airbus A321 for the evaluation. Load factors and stage lengths for the 737-900 and A321 are roughly equal. Both these models are operating on average stage lengths 25% shorter than the 757. That is a significant number. However, the newer A321neo is now in service and shows stage lengths equal to or better than the 757. The A321neo has slightly lower load factors, and we expect these to match the other aircraft. The data suggest that the A321neo is already the equal of or better than the 757 in terms of range. The A321neo has a much lower fuel burn per seat than the 757-200. The A321LR is coming soon and will have even more range with a seat count equal the 757-200 making it an even more compelling offering. Note today that Qatar has converted ten A321neos to LRs. For Boeing the lower end of the MoM is a market with a complex series of tradeoffs. The A321neo is clearly a threat as it achieves 94% of the smaller 797’s target seating (206 vs 220 in two classes) and has a 4,000NM range. Market prices for the A321neo are in the $60m range. The numbers box Boeing into a small and tight corner. It gets worse because currently, Airbus can charge higher prices because there is no competition; the large 737 MAX aircraft do not match the A321neo's range. The A321 outsells the larger 737 MAX by six to one. When the smaller 797 comes to market, Airbus can lower price on the A321neo to match any economic equivalent of that aircraft. This means Boeing’s space to maneuver is tight and will get tighter. The tradeoffs Boeing faces are formidable. Since Boeing wants the 797 to be a family, there should be a lot of commonality between the two models. Does Boeing focus its design on the larger model, as one might expect? After all, the 767 sold better than the 757. That means the smaller model is compromised further. At the upper end of MoM, Airbus has its A330-800 which is also aggressively priced. Boeing will have the smaller 797 eat into its MAX9 and MAX10 line at the bottom and the larger 797 will eat into the 787-8 at the top. While it is better to “eat your own”, the MAX9 and MAX10 are facing an early sunset. The 787 already sees the -9 and -10 attracting the most attention, so losing some -8 business to the larger 797 might be acceptable to Boeing. It’s no wonder Boeing has taken so long to define the 797. They might have started five years earlier, but the 787 fumbles took all their attention. Also, Boeing had to react to the A320neo with the MAX. The 797 could not get the resources it needed to allow Boeing to react to the rapidly rising A321. And this may be why Boeing now speaks of a 2019 decision to offer and 2020 for a launch decision, pushing the decision to the right again.

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