Upgrading from NG to MAX – which model to select?

As airlines start to accelerate their fleet updating, 737 operators are in an especially good position. Boeing is aggressive to keep its existing customers and has earlier delivery slots than Airbus. As lessors and airlines consider their fleet updating, in light of a traffic recovery, but also in an effort to be seen as "greener", should their choice be to replace existing NG models with equivalent MAX replacements? The selection process is, as always, a tradeoff between operating economics and capital costs. Fortunately for the buyers, the usual drivers are becoming more in focus again as the pandemic impact gets baked in. People are increasingly coming around to the idea the Covid virus is here to stay and we are going to see successive variants. Fear of the pandemic declines with growing confidence that the pharma industry can keep pace with vaccines. The old drivers like fuel costs and pilot costs are back at the forefront, between them accounting for roughly half the operating costs. This is a familiar territiory for fleet planners. Rising oil prices, expensive (but necessary) SAF, and a pilot shortage are "normal" for these decision-makers. The issue of pilot costs is significant and training costs for switching OEMs are equally significant. This is an advantage that Boeing will use in every deal. Besides pilot concerns about the MAX are now more easily understood and Boeing has addressed the MCAS issue. It is noteworthy that since the MAX has returned to service it has operated without mishap. If there were any, pilots would have gone public instantly. The entire industry is watching MAX operations closely, and with each month of "no news" ops, confidence has grown. So with that largely out of the way, what do fleet planners have to consider? Airbus has experienced a swing away from the A320neo in orders in favor of the A321neo. Last year, for the first time, the A321 outsold the A320. This was huge news and it surely impacts fleet planners as they consider their MAX selection. In our O&D tracking model, we have seen a steady rise in aircraft size. The following chart illustrates this. The MoM is growing in popularity. Along with many other observers, we have commented on the absence of Boeing addressing this segment. But this isn't the issue here. What we expect is that fleet planners start to move in the direction of the MAX9, and even the MAX10. Upsizing is the way to drive down seat costs and larger aircraft offer that. Moreover, larger aircraft are also likely to offer better "green" credentials. But the real driver is always cost. And it is here where the MAX9 shines. Looking at the early data from the US shows the MAX9 to offer significantly better operating economics. The following table illustrates this. The MAX9 fleet is relatively small, but already is delivering impressive numbers. The numbers shown are for US network carriers. None of these operate the A320neo - the only US operators of the A320neo are LCCs and ULCCs. For context, Southwest's MAX8 is tracking at $31.32 in 2021. The MAX9 numbers above are from a combination of Alaska and United. Given the numbers, it seems clear fleet planners should favor the MAX9 going forward. As traffic recovers, but schedules remain reduced, the upsizing case is clear. If you're staying with the 737, the MAX9 is the one to go for.

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