737NG vs A320neo: an interesting chess game

Update, Dec. 13: FlightGlobal has this interview with Ryanair and its critique of the NEO.

Original Post:

The (London) Financial Times has this interview with Boeing Commercial Airplanes CEO Jim Albaugh in which he says there is no compelling reason now to re-engine the 737.

Boeing believes the newly announced Airbus A320neo family merely brings the legacy A320 family to parity with the 737 or at most provides only a 3%-4% direct operating cost advantage to the NEO which can be matched by yet more refinements to the 737.

Airbus refutes Boeing’s conclusions but won’t release its own numbers, regarding them as proprietary. But in a new study, The Business Case for the Bombardier CSeries, by AirInsight,  with which we are affiliated, AirInsight’s independent analysis concludes the NEO generally has at best a slight advantage over the 737-700 and 737-800–but nothing to shout about.

AirInsight previously did a short report in which it concluded the A321G (for Geared TurboFan) improvements were such as to make this a viable Boeing 757 replacement. (This was done well before Airbus made its announcement about NEO, and the A321 is not included in the new AirInsight study.)

Wells Fargo put together this chart from the AinInsight data:

Cost per available seat mile (CASM) is the most common measurement and the data speaks for itself. In many cases, the difference is slim, as as can be seen with the A320neo v the 737-800W, virtually non-existent. However, as Wells Fargo noted in its report issued years on a variety of topics, including this one, the 737-800 has 12 more seats than the A320, which enables it to have the CASM costs it does.

Another way to look at efficiency is Total Trip Cost. The legacy A320 was not that far off from the 737-800W, and this difference probably would have been made up with the installation of sharklets alone (reducing fuel burn on the A320 by 3.5%). With sharklets and NEO, the A320 now has a $366 advantage on trip costs over a 500nm segment, a figure that will improve the longer the haul. This is an advantage of 7.2% in operating costs. This does not include capital costs, but the “Other Costs” includes landing fees, etc. Thus, one can make a reasonable argument that all-in, the DOC is reduced to Boeing’s 3%-4% assessment.

Still, this isn’t chicken feed for an industry where 1% can mean the difference between profit and loss.

Parenthetically, while Airbus claims the business case for the CSeries is destroyed with the NEO, the trip costs of the CS300 v the A319neo tells the story, too. The difference, according to AirInsight’s analysis, is $444 on a 500nm trip, or 10.4%.

Airbus, without providing data, says its NEO numbers are better than Boeing (and by inference, AirInsight) says they are. Bombardier, without providing data, believes the NEO numbers are worse than Airbus claims. And, of course, Airbus NEO and Bombardier numbers are all projections anyway since neither airplane is in operation, so AirInsight had to use as the basis for its analysis the published numbers of both companies.

So why proceed with NEO?

The A320 and A321 have been marginal US trans-continental airplanes and the A321 falls short of competing fully with the 757 on range. NEO fixes the first problems and comes close on the second. And, as AirInsight reported in its study, the sales threat from the CSeries to the A319 is real and had to be addressed. But for all the rhetoric that the NEO kills the CSeries, the A319neo EIS is slated last, for 2017; the A320neo and A321neo come first and second in 2016. The CS300, if its EIS is as promised, is in 2014, two years before the A319neo.

Douglas Harned of Bernstein Research believes Airbus made a mistake proceeding with NEO, due to risk to the A350 program. He has a case, and it is a concern that weighed on Airbus CEO Tom Enders–who was the last to sign on to the NEO program.

The engineering risk remains to the A350 remains, we think, though it is impossible to gauge it from the outside. But we find strong argument for proceeding with NEO for the A320/321 range/fuel burn gains; the A319 comes along for the ride, in our view. However, we believe Airbus should offer only the GTF and the LEAP-X and not continue offering the V2500 and CFM-56.

As for the financial cost of US$1.3bn, the engine companies will bear most of this expense; there is minimal financial risk to Airbus. We also take note of the 2016 EIS, basically five years hence. This is about one year more than Pratt & Whitney told us was necessary two years ago to develop a GTF for a 737 or A320 re-engine. We have to wonder–and this is pure speculation–if the extra year gives Airbus time to back out of the program in the event of poor sales, a different response from Boeing or some conclusion that a new airplane around 2020 instead of 2025-2027 is possible.

Bottom line: This is an interesting chess game.

56 Comments on “737NG vs A320neo: an interesting chess game

  1. Pingback: Tweets that mention 737NG vs A320neo: an interesting chess game « Leeham News and Comment -- Topsy.com

  2. I have noticed in recent years that the number of A319’s and 737-700s has dried up relative to the bigger models. Airbus used to sell as many A319s as A320s – but now it’s just a fraction. The table above I think explains why. The Neo reduces the CASM of the A320 to the same as the CSeries, which will discourage airlines from trading down to the CSeries from the A320 – if that makes sense. Airbus have to concentrate on defending their relatively less important A319 model (Boeing the 700 model).

    I assume the Neo will impact the A350, but Airbus have decided the narrowbody upgrade was too important to pass on. They will want to get the A350-900 out the way, though. If you’re being cynical, Airbus have allowed themselves two years of delay with that model if they are aiming for a 2016 release of the Neo.

    I presume the seat counts are the standard published ones for each airplane model. I think single class seat counts will flatter the A320 series CASM against the 737 series marginally and against the CSeries significantly.

    The old 737-800 warhorse is still going strong …

  3. Scott, the numbers for fuel cost in your chart for the A319NEO and the A320NEO are about 10 percent less than that of the A319 and A320 respectively. Airbus claims an overall improvement in fuel burn of some 15 percent for the NEO. I would assume that this fuel burn improvement would include:

    (a) New Engines
    (b) Sharklets
    (c) Improved aerodynamics (modified wing-body fairing, new alloys etc.)

    And that: (a+b+c) – (OEW penalty) = 15 percent fuel burn improvement.

    • Reduction in SFC (Specific Fuel Consumption) does not necessarily translate into a one-for-one Direct Operating Cost figure. Maintenance costs, crew costs, etc., go into DOC figures (as do capital costs).

  4. How does variations in Noise and NOX ( well “nongreen” emissions in general ) impact costs? Any changing legislation on the horizon that would further influence this?

    • Uwe, Europe is far ahead of US on this (and is imposing fees). This will influence airlines in Europe; the CSeries report makes note of enviro fees but for purposes of DOC does not include the fees in equation as the fees may vary considerably from jurisdiction to jurisdiction.

      • Thank you.
        Any ballpark figures relative to other costs? Direct relation ? Half the noise/NOX : half the landing fee ;-?

  5. I wonder why the 737 is shown with a more realistic 170 seat configuration while the A320 which is normally also 170~180 seats is shown with a 158 seat config.

    Is it to bring the CASM closer ?

    • Bingo…
      They should compare aircraft with similar level of comfort. Let’s start with EasyJet (183) and Ryanair (189). If these are the numbers by which the bankers and lessors go by, no wonder they go nuts.

      • In India, the LCCs and even any FSCs do an all economy 737 with 189 seats and A320 with 180 seats. If I remember correctly, EasyJet sacrificed one rear toilet to get the additional three seats.

  6. In spite of the above (small) advantages for the A320NEO, I agree with BCA CEO Jim Albaugh,
    that there appears to be no compelling reason for Airbus at this time to re-engine the 737,
    for the following principal reasons:
    1.Neither Airbus nor Boeing, have any real incentive to introduce, what must be recognized to be
    an interim step, to re-enginet existing 737/A320 models.
    2. Even with the financial support of the engine manufacturers, I would have thought that Airbus
    would recognize that Boeing has neither the incentives, nor the financial resources, to re-
    engine the 737 at this time.
    3. Unless Airbus is assuming, therefore, that Boeing will not have the resources to offer an all
    new 737 for delivery in the 1920–25 time period, which is a possibility, Boeing having to
    develop an all new 777 first and having to cope with the losses incurred so far on the 787
    and 747-8 programs, the investment to be made in the A320NEO, could very well be wasted!

    • The compeeling reasons for Boeing NOT to re-engine the 737 are
      – the 737 is not well suited to HBPR engines due to physical constraints
      – A re-engined 737 would be subject to new certification requirements that would add >1,000lbs to its empty weight

      Above that, Boeing cannot afford any new development program as long as the 787 is not generating revenues, let alone profits.

      • Airbus are the people that introduce innovations step by step continuously in motion.
        Just from that I would expect them to introduce new engine tech on an established frame first.

  7. Using my fuzzy math, and comparing a 738 at 189 seats v, a 320neo at 183 seats, the CASM becomes 5.356c for 738 and 5.132c for 320neo, or a 4.2% difference.

    It sure makes the C130(not the Lockheed version) look a bit weak on CASM,

      • If we do compare the LCC seating arrangements ( max cram 😉 one would probably count the CS300 with ~145 seats or thereabouts ( and the MD83 would seat ~170 ) ?

  8. Two things: as already noted comparing different seat counts is rubbish.
    Second: the numbers tell us, that the A320 “Classic” burns about 6% less fuel than the B737-800W, and the NEO burns about 15% less fuel. Now, the payload is short twelve seats (about 1200kg).
    Translating fuel costs into fuel weight (3.88l/gal, .82kg/l), the A320 Classic has a 200kg advantage over the -800W. Correcting for the additional payload, the advantage shrinks to 120-150kg in favor of the A320 Classic.

    Not sure about the maintenance costs, but when it comes to fuel efficiency, the current A320 already beats the -800W. Assume a rise of the fuel costs of 50% and the NEO will be the winner in CASM, too, even with lower seat count.

    By the way: 158 seats looks like 2-class, so the revenue potential of the 150-seat A320 might be better than that of the 170-seat B737-800.

  9. The study shows how difficult it is to compare commercial aircraft and how easily one ends up with apples versus grapes comparisons.
    The only way to ‘fairly’ compare aircraft is to use equal layout/seating standards and a specific airline route and mission profile context.
    But even without resorting to number-crunching it is obvious that the 320NEO is more economical to operate than a vanilla 320 and that the comparably modest investment on the side of Airbus is going to pay off easily and quickly.
    If you say that the NEO is not worth doing I think you may suffer from confirmation bias after being subject to half a decade of PR talking up “game changing” and “killer app” concepts that now prove elusive.

  10. The comparison above is interesting, but I’m not sure to what degree it really says something about the market chances of those aircraft involved.
    An Arab/Middle East airline which has nearly unlimited access to fuel, is calculating its cost of operation completely different from an US or European airline which has high fuel costs but a very easy access to aircraft maintenance.

    There are 2 factors though, which will always work in favor of silent and fuel efficient aircraft. Fuel in the long run tends to get more sparse and costlier. And environmental legislation tends to get tougher, which will cause higher airport (noise) and fuel taxes. In a highly competitive aviation market those costs can only be passed on to passengers to a very limited degree.

    In future, there will be even more competitors than Boeing, Airbus & Bombardier in this segment of the aircraft market, as Chinese, Brazilian and Russian manufacturers are catching up in a fast pace.

  11. OFF TOPIC Videos for a Sunday. 🙂

    The following two film clips are 54 minutes long, but for those who’ve got the time to watch — and the patience to listen — should find it’s worth to watch. I did. The slow-motion film shows a lot that you don’t normally see in a shuttle launch.

    Ascent – Commemorating the Space Shuttle


    And Bonus clips from Ascent


  12. If I’m reading it right, the Neo has an 8% advantage over the A320 in operating costs, but what the chart leaves out is the effect of the higher purchase price on the lifetime cost of operating the aircraft. Is that not expected to be significant?

    • The higher purchase price is precisely one argument Boeing uses in coming to its 3%-4% DOC number, and we discuss this issue in the text. But you are correct, capital costs are not reflected in the tables for any of the aircraft.

      • Boeing can’t gift new engines to their customers either. Public wisdom is that they would have to spend a judiciously higher budget to achieve less.
        What would Boeing have to add to their 737neo customers bill to appease shareholders?
        There was good reason imho why the CFO made the “no interest” announcement.

  13. If those numbers are correct, and the data above is what Airlines use to purchase aircraft, then why is the A320 still selling? As I can’t see any reason why anyone would want to buy it above 737s.

    • depends on seating arrangements, if you look at LCC numbers the situation changes:
      CS300 regular ( 130): 0.0587 cram ( 147): 0.0519
      A320N regular ( 158): 0.0594 cram ( 185): 0.0508
      737-8 regular ( 170): 0.0596 cram ( 189): 0.0536
      A320O regular ( 158): 0.0646 cram ( 185): 0.0551
      MD-83 regular ( 146): 0.0783 cram ( 173): 0.0660

      ( corrections or numbers for the other types? give a note )

  14. Bryan,

    In my opinion, the post of Schorsch nails it already. The table is flawed. There is also another point to add. The Airbus Single Aisle Family is able to load LD3 containers and earn extra money with some air parcel. The 737 cannot load LD3s, because of the smaller fuselage diameter. An airline like Ryanair is not really interested in things like that. They make their revenue soely with economy passengers. Larger Airlines with other needs, destinations and infrastructure like Lufthansa try to use these birds as efficiently as possible (Two class layout + extra freight).

    If this is all taken into account, you know why Airbus sold over 4000 of these birds already. The airlines are not stupid and sometimes things aren’t as simple as a comparison table put together by some consulting agencys.

  15. It’s a one-point analysis of routes that are not typical for these kind of aircraft. Just have a look at Great Circle Mapper and see where 500nm takes you from LHR, FRA, AMS, MAD, or CDG. Factor in airways, circling, etc. and it really isn’t much at all in terms of distance. When you look at the fuel burn, it should be clear that the A320 old (BTW, which engine is this referring to?) has an advantage over the 738. At longer distances, this will be more pronounced, while at least part of the other cost are fixed, or semi-fixed. In terms of seating, looking at Turkish Airlines, who operate both 738 and A320, they preserve a 12 seat gap, with 143 seats for the A320, and 155 for the 738 (based on seatguru.com) Lufthansa flies their A320s with 156 seats, but they don’t have any 737NG for comparison. Austrian would have 162/184 (A320/738) on a like-for-like comparison.

    The point remains, the analysis, while interesting, does not take into account a wide difference of routes, and is based on fixed seating configurations, which in reality are quite different. E.g. SAS fly their A319s with 141 seats.

    • What I have heard elsewhere indicates the trip cost of the old A320 and the 737-800 are essentially identical. On some routes and configurations, the 737 is marginally ahead, on others it’s the A320. But the 737-800 cabin is a bit bigger so the CASM will typically be lower. There are other factors – the single source engines on the 737 cost more and the better freight and payload/range capabilities on the A320 matter to some customers.

      Up to now Airbus has made up for a relative weakness in the middle model by strengths in the A319 versus the 737-700 and the A321 versus the 737-900. Unfortunately for them, airlines are now concentrating on the middle model at the expense of the smaller one, and that’s where Boeing has the advantage. As Leeham points out, the 737-800 can still hold its own against the A320-NEO, which is a testament to its design.

      737-700 model is completely inadequate against the CSeries. In principle the A319 NEO will compete against the CSeries. But I wonder whether it’s good enough? Whether it’s by a mile or a country mile, a miss is still a miss.

      It seems to me the real prize is the A321 NEO, which should be unbeatable on performance and operating economics. Every purchase of the A321 will be at the expense of another plane. If it’s the A320, that’s OK because they will be selling a more expensive plane. Even better if it’s the 737.

      So the NEO allows Airbus to conserve A320 sales (which might otherwise go to the 737 or to the CSeries if customers trade down) and boost A321 sales. They will probably lose most of their A319 sales to the CSeries, even with the NEO.

  16. One thing to note is that list price on the 738 and A320 are virtually identical at present. I really can not see how Airbus could get away with charging a 7.5% list premium on the NEO.

    The A319 NEO will continue to sell to:

    a) operators who need it for longer ranges (not just exclusively, but as part of a flexible network)
    b) operators who also operate and need other models of the A320 family, and who don’t want a small(ish) sub-fleet from another manufacturer.

    • If we go with Mr. Leahy Boeing has competed this year
      by adjusting “customer final” pricing arrangements
      downwards ( supposedly explaining the imbalance in sales numbers
      to the benefit of Boeing for NB craft ).

    • They may not be able to charge the premium but they will sell more of their bigger models, so the average price will be higher. Indeed, they will be able to sell more planes, which is obviously worth doing.

      If the new model is in demand, they won’t need to discount so much. Or put it another way, they can charge the premium and and discount more.

      I presume the premium is a PR exercise to suggest that residual values on the older models won’t drop following the re-engining. Whether they do or not seems to be as much a factor of the market as of how the model has developed. ie if the market is as tight as it is now, good quality previous generation planes will still be in demand.

      • I wasn’t suggesting that it was not economically attractive for Airbus to launch the NEO. I think it is. But not because of the premium, but for the reasons you outline. They’ll sell more planes than they otherwise would have, and more bigger planes. The premium is neither here nor there.

        As for discounting, Airbus gives planes away in buy 1, get 2 free and a cash rebate worth another one, if you believe some, and Boeing apparently now does the same. Makes one wonder why anyone is in the business of building the things.

  17. Just a note of clarification to those who challenge or question the use of 500nm or a particular seating capacity.

    500nm is a standard, generally used range by OEMs in examples when discussing capabilities. (AirInsight personally prefers 1,000nm increments, but 500nm is the standard.)

    Certainly seat configurations differ carrier-by-carrier but a snapshot is required so standard seating configurations are also used for these demonstrations. You will see Boeing and Airbus list finite seating, finite payloads, etc., on their website specifications charts, ignoring the varied seating capacities from one carrier to another, when illustrating range/payload data for their airplanes.

    AirInsight relied on OEM data for Airbus, Boeing, Bombardier and Embraer; and US DOT Form 41 data in reaching its conclusions. AirInsight did not include capital cost assumptions or cargo revenue assumptions in calculations, nor did it calculate European environmental fees as part of the cost basis of any of the airplanes. All these costs, revenues and fees vary to greatly to provide broad-based comparisons and, it should be noted, the environmental fees would disadvantage the older technology A320 and 737 families vs the new GTF and LEAP-X powered airplanes. We also think the A320neo would not fair as well against the CSeries, even with the similar GTF engines, because the A320 family airframe is not 21st technology and it is heavier than the CSeries. Thus, the advantage to BBD in this category is not factored in.

    This comment is not posted to argue with any previous Commenter, but simply to provide some clarification about methodology.

  18. Of course, for any analysis you need to take a fixed point. I was just raising the issue of the somewhat unrealistic mission parameter in response to the question of why the A320 still sold.

    As for the extra weight of the A320 family versus the C-Series, how much of this is due to it being an older airframe, and how much is due to it being more capable in terms of range and payload (e.g. max passengers in LCC layout on C-300 = 145, while on A319 = 160)?

  19. 400 appears to be as good as pointless. I’d be interested to see 1,000 and 2,000, since that should give a lot of the required info.

    • example: Dublin “Hamburg Land” aka Lubeck is about 1100km/600nm, Billund to Edinburgh is quite a bit shorter, some of the souther Europe destinations are further from where i live. For European traffic the long routes are not representative.

  20. Maybe someone can confirm if the chart is nautical miles, not standard miles. I presumed the latter.

    Nevertheless, 600nm GCM is not the same as airways plus the distance spent circling while you wait for clearance. I would still think that a lot of the routes flown by 738s and A320s in Europe would be somewhere on the line from 1,000 to 2,000 miles, probably clustered at the lower end of that.

    • The graphic has “mi” which could be indicative of “land mile” ( which one)
      the text references “nm” which without leeway is nautical mile.

      I remember a nice graphic on airliners.net showing the percentile of routes
      covered by range. Can’t (re)find it.

      • AirInsight data in nm. Wells Fargo replicated in “miles” but there is no basis to assume this is statute miles or “land” miles.

  21. Good discussion being developed here with the basic conclusion being very well summarised by Schorsch: “comparing different seat counts is rubbish”.

    Scott has mentioned that “… we believe Airbus should offer only the GTF and the LEAP-X and not continue offering the V2500 and CFM-56”. The more I think about it, the more I agree. However, I guess the reason why Airbus continues to offer the other engines could be to do with contracts with various suppliers, not least IAE itself. Overall, I think the consensus, here at least, is that NEO makes good sense for Airbus, which ensures the SA lines continues to pump out the frames, bringing the unit cost down even further. NEO will be very competitive on CASM with whatever new SR programme Boeing decide to launch and Airbus will know exactly what they need to beat, when it enters service.

    I was wondering about the following. If both A320 types will be on offer, what standard wing will exist going forward? If Airbus decide to standardise the wing for both variants, the old version will be penalised with the extra weight and if they keep different standards, the costs could rise. Scott, have you heard anything on that front?

  22. FF :According to lessor 4 in Leeham’s review of lessor attitudes to the Neo, Boeing hasn’t discounted the 737.

    So lessor 4 should take some classes in a) market intelligence and b) advanced negotiation

  23. Ryanair: 199-seat aircraft would hit capacity “sweet spot”.


    He says this would make sense in terms of incremental costs because when an aircraft goes over the 200-seat mark, another member of cabin crew is required.

    “We think we could still do our turnarounds in 25 minutes with 199 passengers. If someone made this aircraft, we would operate it,” says Millar.

    Today Boeing offers the 737-800 and -900, both of which are limited to a maximum of 189 seats, while the Airbus A320 carries a maximum of 180 passengers.

    Boeing’s most recent offering – the 737-900ER – is available with additional passenger doors and is capable of accommodating up to 215 passengers. However, Millar rejects this as an option because it would be inefficient to operate the 737-900ER below its maximum capacity.


    If Airbus would stretch the A319NEO and A320NEO by respectively 3 frames (2 added frames in front of the wing, one added frame aft) and 5 frames (3 frames in front of the wing, 2 frames aft of the wing), the A319NEO would better its CASM vis-a-vis the CS300. Such a “new” A319NEO would then have 2 extra rows of seats, and the length of the aircraft would increase to 35.46 m (from 33.84 m). This “new” A320NEO would then have 3 extra rows of seats (for a total of 198 seats in a LCC configuration), and the length of the aircraft would increase to 40.11 m (from 37.57 m).

    One should keep in mind that when Boeing developed the 737NG, the fuselage length of the 737-600 and 737-700 was not changed respectively over that of the same length (fuselage) 737-500 and 737-300. However, the 737-800 (737-400X) was stretched by 6 frames over that of the 737-400. Additionally, the then new 737-900 was stretched by 5 frames over that of the 737-800. Also, Boeing had to develop a new wing for the 737NG, something Airbus won’t do, which means that the A32XNEO is substantially less of an undertaking than Boeing’s NG program in the mid nineteen nineties.

    • I would just add that for LCCs which would operate an A320NEO stretched by 5 frames, Airbus would have to incorporate the option for LCC customers to add two A321 “short” doors aft of the wing (similar to the 737-900ER). A 5 frame stretch adds 2.7 m of cabin space, while 3 rows with a 30 inch pitch (i.e. Ryanair), would account for 2.29 m in added seat row length. This means that you would have around 40 cm extra space around these extra emergency exits. Also, two seats would have to be removed which means that the total number of seats (in a typical LCC configuration with a seat pitch of 30 inches), for an A320NEO stretched by 5 frames, would be 196 seats.

  24. UKair :Trip cost is surely a function seats and cargo.

    Not really. There are also fixed cost which are not related to seats and cargo, and a lot of the weight of the plane (which drives fuel consumption) is also not related to seats and cargo.

    • If we are discussing trip cost alone, which consist of many items (not including airline administrative costs and so on), it has been shown that the trip cost v no. seats, shows a linear variation for a mission of 1000km – 5000km. Have a look at this paper, it’s an interesting read.

  25. leehamnet :AirInsight data in nm. Wells Fargo replicated in “miles” but there is no basis to assume this is statute miles or “land” miles.


  26. leehamnet :Aluminum Lithium is about 10% lighter than “old” aluminum.

    Okay, so that’s a 10% reduction on XX% (how much is the fuselage? 30%? 50% of weight?) of the airframe. In any case a (possibly significant) single-digit weight improvement through new techniques, which could presumably be countered to some extent by Airbus by moving to increased use of AlLi on the NEOs, and extending laser welding beyond the A318.

    What’s the manufacturer’s empty-weight difference today between a CS300 and an A319(NEO)?

  27. leehamnet :The CS300 is about 13,000 lbs lighter than the A319neo.

    Thanks. That’s a bit short of 20% less I guess? Looks like an unbridgeable gap.

  28. Weight does matter to the engines and fuel burn.
    How about the weight of paper – 1000kg – Magazines ,Newspapers,food menus,.etc..on board, will offloading these save great amount of fuel? anyone with accurate answers?


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