Making a silk purse out of a sow’s ear: the 737-900ER

Here’s a story we did for Commercial Aviation Online.

Date: 04/05/2011 10:00
Source: Commercial Aviation Online
Location: Seattle
By: Scott Hamilton

Sometimes aircraft take a long time to come into their own. The Boeing 757 was initially a slow-seller but ultimately sold slightly more than 1,000 aircraft. The Boeing 737-200 was such a slow-seller that Boeing nearly decided to sell the aircraft, lock, stock and production line to Japanese interests. Boeing stuck with the 737, to its benefit; the 737 has, to-date, sold more than 6,000 and Boeing is openly talking about keeping the production line open to “at least” 2026, an incredible 60 years after it began.

The 737-900 is another slow-seller. Launched in 1997 with an order from Alaska Airlines, there have been just 381 sales through March this year, 14 years later, or an average of 27 per year. In 2004 and 2009, there were no sales at all.

 

Source: Boeing

Until last year, it was the worst performing member of the 737 family (excluding the -600, which hasn’t sold since 2005). Last year, it tied the 737-700, which out-performed the -900 every year since 1997 except 2002. Through the first three months this year, the -700 sold only one aircraft while the -900 inked 33 orders.

Source: Boeing

What has changed in the last 12 months to give the aircraft a boost?

Customers, potential customers and others say it’s clear that sales were depressed for years because of a series of factors-and rebounded due to a change in Boeing sales strategy, changing market conditions and changes in the aircraft itself.

The biggest impediment was that the initial aircraft , the -900 “standard,” was not especially attractive. Just 52 were sold and none since 2003- a worse performance than the unpopular 737-600.

The -900 standard was a straight-forward stretch of the -800, but no additional emergency exists were installed, thus exit-limiting the aircraft to 189 despite the additional floor space. Range was shorter than the -800; it was about three-quarters US trans-continental nor could it do the US West Coast to Hawaii. These factors limited the aircraft’s appeal.

“That’s an airplane that should never have been built,” said one person close to the programme.

The 737-900ER has more emergency exits and better range. While take-off field performance isn’t quite as good as the 737-800, taking 200-300 feet more runway, Boeing feels this isn’t consequential. But sales of the -900ER were slow to get going, too.

Kostya Zolotusky, managing director of Capital Markets Development for Boeing Capital Corp., did not address the view of the -900 standard, but had this take: “Boeing does not, relative to Airbus, offer significant launch incentives to artificially stimulate or accelerate new airplane introduction. Historically, all of our airplanes took a while to build sales momentum. Comparing -900ER to other Boeing launches, it looks very similar.

“The -900ER came to market just prior to ’07-’09 financial crises and economic downturn. This environment was not conducive to persuading airlines to try something new and better (risk aversion was everywhere). Recent -900ER sales surge has coincided with the end of down-turn and airlines’ recognition that additional capacity, beyond the 737-800, at similar trip economics is very valuable,” Zolotusky says.

“I refer to -900ER as -800 on steroids. During the downturn, the airlines were cutting capacity and were not looking a supersizing their -800s. Now, strong demand and high oil prices make -900ER size and economics look very attractive.”

Sales were boosted from 2005-07 by Lion Air, which ordered a total of 166-accounting for 48% of the orders. Continental Airlines has 13% (45) of the orders and Alaska Airlines is next at 7%, meaning 68% of the orders come from just three customers.

Source: Boeing, Orders 1997-March 2011

(Continental upped its order for the -900ER on 26 April with another seven units.) This customer concentration gives pause to appraisers, who said at the ISTAT annual conference in Phoenix in March that the poor market reception of the -900 standard hurt sales of the more versatile -900ER.

In addition to the additional exits and range, Randy Tinseth, VP-marketing, wrote upon the launch of the -900ER programme, that, “Several improvements to the wings and flap systems and optional blended winglets and auxiliary fuel tanks allow the 737-900ER to have a range of 3,200 nautical miles (5,900 km). So, for dual-class operators, while they weren’t going past 189 passengers, they now have an extra amount of range.”

Sales continued to be slow, with Boeing initially promoting the -900ER as a replacement for the Boeing 757.

In another one of his blog columns, Tinseth wrote, “One of [Airbus’] recent marketing thrusts has been around “sharklets” for the A320 family, and along with that what I find interesting is that Airbus is positioning the A321 as a potential replacement for the 757.

“Why is that interesting? Because the best possible 757 replacement already exists — the 737-900ER.”

At the same time, Boeing acknowledged that the -900ER fell short of the 757, an aircraft that with winglets is capable of trans-Atlantic routes. At the roll-out of the first Boeing Sky Interior installed on a customer’s airplane, John Hamilton, an engineer on the 737 program, acknowledged that the -900ER can only do about 80% of the missions of the more capable 757-but he argued that this is enough, at least for now.

In recent times, Boeing’s messaging changed from being a 757 replacement – which the aircraft never truly was – to emphasize up-gauging and lower cost per available seat mile (CASM).

Jeff Knittel, president of CIT Aerospace, is the first lessor to buy the -900ER, and gave this perspective to CAO in an interview:

“A couple of things happened to transform the potential for the -900ER. Customers are up-gauging to drive lower-cost available seat miles. The -900ER improved with the current PIP (Product Improvement Program, in which Boeing and CFM provided another 2% better fuel consumption). Along with a generally improving economy, the 757 is beginning to come near the end of its life.”

The -900ER cost per available seat mile compares favorably to the 757 and Knittel noted that the -900ER is common to the more popular -800, while the 757 is a different fleet type for 737 operators.

“The 757 excels at the edge of its operating performance but the -900ER fits better in scheduled operations of 180 seats.”

Ron Baur agrees. He is VP of Fleet for United Continental Holdings, and the head of fleet acquisition at Continental Airlines prior to the merger and he was responsible for ordering the -900 standard and -900ER.

Continental operates the 757-200 and the 757-300. The -900ER has lower CASM and fuel burn per seat than the much larger 757-300 (as well as the 757-200) on route of 1,000 to 1,500 miles. Part of this is the cost of ownership, Baur admits, but he, like Knittle, says that 757 has superior performance at the edge of its operating range. Less than this, the 757 is simply carrying a lot of its excess capability around. The 737-900 is lighter and capital cost was less.

Indeed, according to information filed with the US Department of Transportation, compiled by the consultancy AirInsight for this article, the hourly cost of a 737-900 operated by Continental Airlines is actually about $250 per hour less than a 737-800 and nearly $1,300 per hour less than a 757-200 at the same carrier. Continental’s 757-300 costs just $7 per hour more than the 757-200, according to the DOT figures.

Alaska Airlines is the only other US carrier operating the 737-900. While Continental operates both the standard and the -ER, and doesn’t break out the costs in the DOT filings, Alaska’s fleet is currently only the standard. It recently ordered the -900ER, with first delivery in 2013. Alaska’s costs are about $600 higher per hour for the -900 vs. the -800.

Andrew Harrison, vice president of planning and revenue management, said Alaska uses the -900 on mid-continental routes such as Seattle-Dallas and Seattle-Minneapolis and Seattle-Alaska because of range limitations. The -900ER will have winglets and an auxiliary fuel tank, which will allow trans-con service from Seattle-Boston and Newark, Seattle-Miami with some seasonal restrictions and Seattle-Honolulu/Kona, also with some seasonal restrictions of perhaps 10 passengers.

Harrison says industry capacity reductions have driven load factors from the 60% range in 1995 to lower 80%.

“If you can fill the larger airplane, you good cost per available seat mile,” Harrison says. Alaska’s -900 standard CASM costs are up to 8% lower than the -800 and up to 20% lower than the 737-700.

Continental’s Baur acknowledged the -900 standard has its limitations; it can go as far as Newark to Salt Lake City but not to the West Coast, nor from Los Angeles to Hawaii. But the aircraft works well between Newark and Florida, for example, where extra capacity over the 737-800 is needed but not the range. Baur says Continental’s scheduling department segregates the -900 standard on routes like these.

“The -900 [standard] was essentially an elongated -800 without increased weight,” Baur says. The -900ER has the range to go US trans-con and West Coast-Hawaii, providing more flexibility.

Boeing hasn’t previously pushed sales of the -900ER, says Knittel and others with knowledge of the situation. “I think they were focused on the -800 because the aircraft worked well and the -900 [standard] was short on range. It was an iterative aircraft . But the drive on seat mile costs has heightened in the last year.”

Baur says people “are very comfortable” with the -800. “We value range. For us it was obvious the airplane had the range.”

A big US 737-800 operator, American Airlines, has yet to be sold on the -900ER.

“The 737-900ER is an interesting aircraft,” says Jay Hancock, managing director of fleet transactions. “We continue to evaluate it along with other future alternatives. We certainly are not at the point where we can make any decisions at this time. We not only have to consider the mission of any new aircraft in itself, but also consider other factors such as what our overall network will look like in the future, as well as how other aircraft types that will be in our fleet will impact the need for another version of the 737 beyond our current 737-800s.”

With Boeing’s sales team now pushing the -900ER more than in the past, additional sales are expected this year.

24 Comments on “Making a silk purse out of a sow’s ear: the 737-900ER

  1. The B-737-900ER is, and always has been a good NB airplane. It is, and has been the equil of the A-321. Neither have been the B-757 replacement beyond 3200 nm.

    The sales increases of the B-739ER is the reason why Airbus pushed the A-321NEO as the second NEO offered

    The fact that 3 of the B-737-900ER customners amount to 2/3s of the sales to date is really meaningless, isn’t it? EK accounts for nearly 40% of the A-380 sales, yet no one thinks that is a problem, Scott. The B-739ER can say it is flying today with most of the airlines that have ordered it. The A-380 is (currently) only flying with 5 of its 18 airline, leasing, and VIP customers.

    The B-737-900ER and the A-380-800 both began being delivered to airline customers in 2007. Since then, there have been about 85 B-737-900ER delivered, nearly twice the number of A-380-800 deliveries (45?).

    • Dear Mr Topbeam,

      You are always complaining about Uwe, but you’re the one who is always so negative about Airbus, at least he arguments his comments. Please try to be objective.

      Sorry Scott if I am breaking any rules here, I really enjoy reading you’re blog, but I had the sudden urge to say something about this.

    • “EK accounts for nearly 40% of the A-380 sales, yet no one thinks that is a problem”

      Actually, this is a point of concern (customer concentration).

  2. Its TOPBOOM, Denis. Yes, I am biased against Airbus, and very pro-Boeing. I admit that.

    Does Airbus build airplanes that suit some airlines business model? Yes, they do, But, so does Boeing.

    I think Scott does not want to turn this into a personal debate about Uwe, Denis, Topboom, or anyone else on this blog. We are hear to read Scott’s comment about Boeing, Airbus, or just about anything else aviation. Perhaps we should return to that style debate?

    Yes, I know I was the one who started debating individuals here. Mr. Uwe sees facts one way, I see them from another direction. That is okay for the debate, but I don’t think I insulted him personally, by ‘modifying’ his user name into something else. If he (Uwe) thinks I did, I apoligize. It is wrong to debate the individual and not the subject of the blog.

    But, back onto the topic. When I began comparing the B-737-900ER to the A-380-800 it was only because they both had an EIS in the same year, and have about the same amount of airline service (not miles flown or pax hauled) in terms of months (I believe JT got the first B-739ER in April or May 2007 and SQ got their first A-380-800 in October 2007). The -900ER only has some 5 or 6 months more service than the A-380 does.

    • “I think Scott does not want to turn this into a personal debate about Uwe, Denis, Topboom, or anyone else on this blog. We are hear to read Scott’s comment about Boeing, Airbus, or just about anything else aviation. Perhaps we should return to that style debate?”

      Correct, and thank you for the acknowledgement. Issues only, please–and with proper screen names.

  3. Scott,
    as a baseline and to bring the cost/hour differentials into perspective – can you indicate the total cost per hour on which those numbers are based. If the cost to operate is in the $10,000 range, the differences are pretty significant – if it’s in the $100,000 it’s far less significant.

    And TopBoom – what are you suggesting with your comment:
    “The B-737-900ER and the A-380-800 both began being delivered to airline customers in 2007. Since then, there have been about 85 B-737-900ER delivered, nearly twice the number of A-380-800 deliveries (45?)”
    you do realize there’s quite a difference in effort and cost involved in building the B739er and A388?

    • Scott,
      as a baseline and to bring the cost/hour differentials into perspective – can you indicate the total cost per hour on which those numbers are based. If the cost to operate is in the $10,000 range, the differences are pretty significant – if it’s in the $100,000 it’s far less significant.

      Not sure what you are asking here. The figures are based on airline filings with the US DOT, Form 41, and are crew costs per hour, maintenance per hour, fuel per hour, etc., totaling to the figures cited.

  4. Nice reading, well done.
    It would be interesting to have comparative data between the B739 and the A321.

    I fail to understand partisan-ism when it comes to plane, particularly when you know how intricate is this industry.
    And honestly, some people should refrain from comparing apples to potatoes, that does not glorify them.

  5. ikkeman :Scott,as a baseline and to bring the cost/hour differentials into perspective – can you indicate the total cost per hour on which those numbers are based. If the cost to operate is in the $10,000 range, the differences are pretty significant – if it’s in the $100,000 it’s far less significant.
    And TopBoom – what are you suggesting with your comment:“The B-737-900ER and the A-380-800 both began being delivered to airline customers in 2007. Since then, there have been about 85 B-737-900ER delivered, nearly twice the number of A-380-800 deliveries (45?)”you do realize there’s quite a difference in effort and cost involved in building the B739er and A388?

    Yes, I am not trying to compare the constuction, fitting out, and delivery of either airplane. The B-739ER, being the much smaller airplane should easily be out produced when compared to the much larger A-388. The only comparison I was making is the amount of airline service between the two.

    But, since you brought it up, the A-388 (currently produced in two models, the -841 version and the -861 version, but is also introducing an IGW vewrsion of both models) is still having production and delivery problems. EADS has recently delivered MSN-70 to LH and MSN-68 is due to be delivered to KE sometime during 2011Q3. The LH delivery is delivery #45, I believe. The A-388 has been going into customer fleets now for some 43 months now, an average of about 1 airplane per month, which is a poor average at this point in the delivery schedule (CY 2010 was the first year more than 15 airplanes were delivered, they delivered about 18 A-388s, IIRC). In contrast, the B-707, which at the time it was introduced was the most advanced airliner in the world, had delivered 256 airplanes four years after the first B-707 delivery (no I am not counting the KC-135, which is not a B-707). In that time, the B-707 was introduced in 10 different models as the B-707-120, -120B, -220B, -320, -320B, -320C, and -320F, -420, as well as the B-720 and B-720B models. The B-747, which was another huge leap in technology delivered 221 airframes in the first 4 years. The B-747 was introduced in 7 models, and the B-747SP was in developement. The 7 different models were the B-747-100, -100SR, -100B, -200B, -200C, -200F, and the E-4A (later reengined and converted to the E-4B).

    Now I agree you cannot compare today’s A-388 and B-739ERs to the 1970 B-747 or 1958 B-707. But like the A-388 and B-739ER, the B-747 and B-707 were leading edge technology at the time.

  6. I think Top Boom originally was noting that the 739ER at this point in its production was in service at most of its customers, additional orders are building up because the in service performance can be measured and it is found to be positive compared to their other choices.

    In contrast, the A380 has had difficulty getting deliveries out and having in service performance measured as only 5 of 18 airlines ordered have the plane. Thus 13 customers still cannot evaluate what their actual usage of the plane will be like, hence are unable to have real cost and revenue data to determine if additional orders should be placed.

    Yes, much different airplanes and different introductions into service. But again the key point is that airlines use actual performance to decide on what to order.

    Later posts of his noted that besides for the delays to EIS, the production ramp up for A380 deliveries has been slow compared to prior cases of new planes. I don’t think he intends to imply how good of a plane the A380 is, just initial deliveries have been slow. Similarly, Boeing is having serious pains getting the 787 and 748 out to EIS and we will see how they ramp up to deliveries once EIS occurs.

  7. I find this remark rather stupid:
    “Kostya Zolotusky, managing director of Capital Markets Development for Boeing Capital Corp., did not address the view of the -900 standard, but had this take: “Boeing does not, relative to Airbus, offer significant launch incentives to artificially stimulate or accelerate new airplane introduction. Historically, all of our airplanes took a while to build sales momentum. Comparing -900ER to other Boeing launches, it looks very similar.”

    The A321 always was an extension of a family of aircraft and initially sold as such. Recently more operators are using the A321 in dense economy layout as cheaper alternative to other single aisles.

    The A321 always was a strongly modified plane (different flaps, 20t more MTOW, different exits), something the -900 only became after the ER-upgrade. The truth is that Boeing apparently didn’t want to spend the money to make the -900 an attractive aircraft, using the term “ER” (which as always simply implies a gross weight increase) they finally did it as the B737-900 was no match versus the A321 (which always was “ER” – from the very beginning).

  8. Good article Scott on an interesting topic.

    2 Factors I miss and adressed earlier (resulting in a Randy counter blog 2 days later) are the fact that the competitive field for the 737-900ER will heat up considerable in the next 5 years, making new 737-900ER a questionable investment for the next 25 yrs. A row of superior competitors is emerging, spacier, better range, more efficient and silent. A slightly tweaked 737-900ER is a not an answer IMO.

    The other factor IMO is the capasity increase of the 737-900ER came at a serious weight penalty, while many longer fligts are dual class, hardly benefitting from the seating capasity increase. (Excluding low cost, financial weak Lionair, rumours are the undelivered 100 Lion 739ERs backlog is very soft..)

    http://www.airliners.net/aviation-forums/general_aviation/read.main/4907469/

    Also the A321 proved more capable in terms of payload-range, cargo capability and comfort.

  9. Good one Keesje, quoting your own thread on the world famous and anti-Boeing airliners.net. That site has the world’s largest bunch of wanna be amiture aviation “experts” and Airbus salesmen there is.

    To bad the average age of most posters is just 20 years old. Yes, I am a member of that site too, but one of the “older” guys, there are a few of us.

    I have read and anylised your “designs” and comparisons for years, and none of them are worth the mega-bits you use to post them on the internet.

    Just how is the A-321 more capable and comfortabvle than the B-737-900ER? I have flown on both and find them about equil. If EADS thought the A-321 was superior to the B-737-900ER, then why are they rushing to make it the second NEO model out the door?

    You opinion of the B-739ER having a “serious weight penalty” is, as usual factually wrong. The A-321 has an OEW almost 10,000 heavier than the B-739ER. The A-321 has an OEW of 107,000 lbs vs. the B-737-900ER with an OEW of 98,495 lbs. Interestingly enough, the A-321 OEW is even heavier than the basic weight (which includes all cargo loading/tie down equipment, crew survival equipment, engine oil, and everything else except the crew and fuel) than the 4 engine KC-135A!

    You have not identified the “superior” aircraft in the 180-220 seat class to the B-739ER, unless you are talking about the B-757. The B-757 is clearly the most capable airplane in that market, far superior to the dog called the A-321.

    Yes, the huge sales of the B-739 to JT is “soft”. But you say that like Airbus has no “soft” sales for its products, when clearly they do. As I have said before, some 40% of the A-380 sales go to one airline, EK. What do you think will happen to those WhaleJet sales if France or Germany PO the ME countries? EADS, like Boeing, has several questionable orders from less than economicly stable airlines.

    So what?

    BTW, since you started your thread on airliners.net, last August, Boeing has sold some 35 B-737-900ERs

  10. “Just how is the A-321 more capable and comfortable than the B-737-900ER? I have flown on both and find them about equil.”

    The cabin and cockpit are bigger and more silent. On payload-range, try a diagram iso your feelings.

    “You opinion of the B-739ER having a “serious weight penalty” is, as usual factually wrong. ”

    The 2 doors and some other adjustments added 4000 pounds to the -900, equivalent to 3 rows of (non rev) passengers.

    “Yes, the huge sales of the B-739 to JT is “soft”. But you say that like Airbus has no “soft” sales for its products, when clearly they do. As I have said before, some 40% of the A-380 sales go to one airline, EK.”

    If we ignore EK is one of the richest, most profitable airlines and Lionair less so (to state it mildly) that sounds like a balanced observation.

    There are more variant of aircraft types less successful. Thing is the 737-900ER is in an important segment and clearly superior alternative become available. Saying there isn’t a problem seems a risky strategy for Boeing.

  11. “You opinion of the B-739ER having a “serious weight penalty” is, as usual factually wrong. ”

    The 2 doors and some other adjustments added 4000 pounds to the -900, equivalent to 3 rows of (non rev) passengers.”

    It is still much lighter than the competing A-321. No, I don’t find the A-321 quiter than the B-737-900ER. I find them about the same.

  12. “If EADS thought the A-321 was superior to the B-737-900ER, then why are they rushing to make it the second NEO model out the door? ”

    To counter 737-900ER market domination?

    As you probably know the A321 totally outsold the 737-900/ER. The A321 NEO is a responds a the emerging 200+ medium haul marketrequirements, created by growth, slot restrictions and aging 757, 762, A300/A310 and Tu154 fleets. If the A321 can do 90% of 757 flights, A321 NEO can 95%. On top of that A321 can do thing a 757 cannot, such as offering low fuel burn, maintenance costs and move cargo containers.

    I see United and Delta moving soon.

    The 737-900ER sales speak for themselves. If the 737 was ok, Boeing wouldn’t announce something at le Bourget.

    • The -900ER has sold pretty well over the past 9-12 months. Something in the range of 50-60 orders. Not likely to catch A321, but I imagine it’s enough to make Airbus reply. For a long time Airbus didn’t have to worry about that segment at all.

  13. The 4000lbs are given in the B737 ACAP. These documents are notoriously inaccurate (but: the Boeing ones are way better than the Airbus ones). The A321 has a serious weight penalty versus the B737-900ER, while the entire A320 family is on average heavier. That is due to many reasons:
    > the B737 is slightly smaller in diameter and height
    > the entire layout of the B737 maximizes cabin space in relation to fuselage volume (see tail arrangement)
    > the B737 is based on older design standards (grandfathering)
    > Boeing traditionally builds very efficient and light, Airbus never really came close to it

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