Aircraft and engine manufacturers spend considerably to continuously improve their products after they enter service. Virtually every aircraft and every engine have several performance improvement campaigns during their life cycle. Typically, about every five to ten years, OEMs bundle aerodynamic and engine upgrades to provide an improvement in efficiency.
We’ve seen a number of retrofits in recent years that have enhanced performance, some visible and others hidden beneath the skin. Perhaps the most visible improvement was the introduction of winglets, which provided a boost in fuel efficiency through better aerodynamic performance. But other, less noticeable improvements are made, in many areas across both airframes and engines, that impact efficiency on an everyday basis. The question is how significant are they, and what do they mean to airlines?
When thinking about performance improvements, a number of questions come to mind. One we often ask is ‘what are the direct and indirect economic impacts of an extra 1% in performance’, and ‘how valuable is that 1% over the life of an aircraft’? Does it make sense for airlines to invest in performance improvement packages once they own an aircraft? What is the time frame for a return on investment?
To answer that question, we’ve taken a look at the Airbus A380 as an example to analyze what the impact of a 1% difference can make to an airline. What we found was surprising, because under the right circumstances, that 1% difference can be financially meaningful over the life of an aircraft. As with nearly everything in aviation, the devil is in the details, and the answer is tied to how an operator uses an aircraft.
The Airbus A380 is currently the largest passenger aircraft in service, and it burns lots of fuel to get more than a million pounds of weight up in the air. So a 1% difference in fuel burn can be significant. Airbus’ data indicate that the engine choices for the aircraft are close in performance, with a slight advantage to Engine Alliance over Rolls-Royce with respect to fuel burn. For our analysis, we chose the Engine Alliance GP7200 engine in a baseline configuration, as well as an improved GP7200+ for which we assumed a 1% improvement.
We reached out to Engine Alliance to see if they would share anything on their plans for their GP7200. Their response was: “The engineering team at the Engine Alliance has been conducting detailed analysis on an upgrade opportunity to the GP7200 engine for a 1% fuel burn improvements. Among the possible improvements could include optimizing clearances, new stage 1 HPT blades based on GE9X technology, stage 1 CMC shrouds, new low pressure turbine airfoils from the geared turbofan and several other potential projects. The team is working with the parent companies to determine funding needed for an upgrade and has talked with customers about the possibility. No decision has been made on whether to proceed.”
The primary effect of lower fuel burn is lower fuel bills. But exactly how much money does that equal at today’s low fuel prices? To answer that question, we analyzed fuel burn for a series of typical long-haul A380 routes from 4,000 to 7,000 nautical miles, and computed what a 1% difference would save.
The following table shows fuel burn for a maximum passenger load of 544 passengers and computes the cost savings at $2 per U.S. gallon for the baseline GP7200 powered A380 and our assumed 1% PIP version of the engine.
The bottom line is that one could expect around $400,000 in annual fuel savings. Using a 10% discount rate, the net present value of these annual savings range from $2.8 to $3.3 million. So if the cost of a 1% PIP engine improvement was lower than the net present value, it would be logical to go forward with the modification and improve engine performance. Airbus shared this: “In our experience, some airlines apply a harsher selection criteria than this and look for a typically 3 to 4 years payback period“.
Economic benefits also accrue from other sources. A 1% improvement in fuel burn has secondary effects that impact payload and range. And these secondary benefits are also significant, particularly long-range routes that approach limitation in the payload range chart.
For a 4,000NM flight, the benefits would typically be only fuel savings, as there is no problem in carrying a full payload. But as one moves to longer routes, that 1% difference grows substantially.
Improving payload-range performance can open new routes, or provide additional passenger or cargo capacity that increases revenue on routes near the edge of the payload-range curve.
We took a look at two long non-stop routes that could be ideal for an A380 – the 7,011nm route from Hong Kong to New York (JFK) and the 7,243nm route from Dubai to Los Angeles.
Each of these long haul routes push the limits of a current A380, and a 1% improvement should provide significant economic improvement. Other potential routes of similar distance include the 6,984NM route from Tehran to Sydney, and the even longer 7,676NM route from Dubai to Auckland, which could be achieved non-stop with a 4% improvement – 3% from aerodynamics and 1% from engines.
The following chart illustrates a payload-range chart for an Airbus A380. The assumptions for this chart include temperatures at ISA standard, which may be a low for Dubai or Hong Kong, and a new engine at peak performance. In real life, with higher temperatures and normal performance retention on engines, the ranges shown may be a bit optimistic. Nonetheless, the chart illustrates the steep slope faced by an A380 operator for long-range flights in the 7,000NM range. An additional 500NM in range can mean taking a payload reduction of 12,000 kilograms. And, at 110 kilograms per passenger, that extra range can be the difference between a strong or moderate load factor and revenue profile.
As routes approach the payload-range limits, the impact of an improvement lengthens the route the aircraft can operate with a full passenger load. A 1% improvement would provide about a 75nm difference on a 7,000nm flight, and on certain routes that is enough to make a huge operational difference.
The real benefits accrue for routes that are near the payload-range limits (at the right side of the curve) from the ability to carry full payload. On the JFK-HKG route, the GP7200 with a 1% PIP should carry about 17 more passengers than an aircraft equipped with the baseline engine, which cannot always make the route with a full load against strong headwinds.
In our analyses we illustrate what a 1% PIP engine improvement offers. But we also think Airbus is considering adding sharklets to the A380. (Airbus advised “On the A380 wing we have estimated that winglets could bring a block fuel improvement of around 1%, and our engineers are constantly working on other technology opportunities to further enhance the performance”.) Based on Airbus’ success with sharklets on the A320 and A330neo, we believe these devices could add at least 3% to range. Together these two improvements could offer a total of 4% in improved performance. As a guide Airbus states “4% Aerodynamic gain from re-optimisation” on the A330neo wing tweak.
An additional 17 passengers per flight, at a typical RASM of 12 cents per seat mile, is roughly $840 per passenger, yielding $14,280 more in revenues per flight. That route length would typically operate 349 trips per year – once a day less maintenance down time. That schedule yields an additional revenue benefit of $4,9 million annually from the additional performance capability. Over a 15-year period, the present value of this stream at 10% would be $37.9 million. That is a meaningful difference, and, when added to the fuel savings, is well worth the cost of an engine upgrade. Economically, it’s a “no-brainer.”
On the DXB-LAX route, which is slightly longer, the impact is also enhanced. For this route, we estimate that 21 additional passengers could be carried with the 1% PIP improvement, providing a substantial total economic improvement of nearly $50 million over the life of the aircraft. This demonstrates that even a 1% PIP improvement can make a huge difference – and in fact – make or break the use of an aircraft on a specific route. There are several routes similar to this for which a 1% PIP improvement is a game changer for the A380.
Airbus thinks we may be a tad optimistic: “You are absolutely right that a relatively modest performance improvement can yield substantial revenue benefits on payload (and particularly passenger) limited routes. Our experience with this effect, however, is that it may not always be as high as the figures that you quote. Among the factors at play:
- The winds, which are not constant over the months of the year. In some seasons, they might not be so adverse and allow higher payloads
- The sophisticated operational procedures, such as on-route re-clearance, that most airlines now commonly use on these ultra-long routes“
The Bottom Line
Modifications have the highest economic impact as aircraft approach their operational limitations. Typically, long routes that stretch the performance of an aircraft may result in the need for flying weight restricted (empty seats and belly), thus reducing revenues and load factors. Sometimes, it doesn’t take much of an improvement to make a tremendous difference. For the A380, HKG-JFK and DXB-LAX are examples of just such routes.
This begs the question as to whether Airbus really needs an A380neo. If Airbus could combine a 1% PIP improvement in engine performance with a 3% improvement in aerodynamics (perhaps sharklets and other aerodynamic improvements), the impact, particularly for long-haul routes, would be substantial. This could negate the need for an expensive A380neo program for an aircraft that has a very specific and market niche.
Every extra 1% for an aircraft, engine, or airline helps substantially, and for some routes, a 1% improvement can be a make or break decision for using an aircraft on a specific route. 1% may seem like a small number, but for the right plane, and the right route, it can be extremely meaningful and a financial game changer.