737 MAX 8 could be enabler for some LCC Long Haul

Discussion

This market niche is a feat made possible by the MAX 8’s 3,600nm advertised range, 400nm-580nm more than the 737-800 it will replace. This provides plenty of market opportunities for Norwegian from its home base in Oslo, Norway (Figure 1).  We previously examined the prospect of using the 737-8 in long, thin operations  as a 757 replacement using a mainline airliner type business- and coach-class configuration. We concluded then the 737 MAX 8 would have the range but have 50 fewer seats than a typically configured 757-200.

Norwegian plans to use the MAX 8 in short- and medium-haul service on a large scale configured with no frills cabins reaching 186 seats. Norwegian also said it will explore the unique capability of 737 MAX 8, with its internal fuel capacity for up to eight hour flights without extra tanks, and couple that with a LCC long haul cabin which would keep the seating capability over 165 seats.

As we analyzed the economics of LCC long-haul service with the MAX 8, we concluded the MAX 8 could change the face of long haul LCC; it could make quite a dent in the up-to-eight hour market when the plane enters service in 2017.

Norwegian, as a low cost carrier, configures its 737-800s with 186 seats, the exit-limited capacity. Seat-pitch is 29-31 inches. No information has emerged as yet what its international 737-8 seating might look like. To make a comparison on seat cost possible with Norwegian’s present long haul aircraft, the 787-8, we made a similar cabin with 18 Premium Economy recliner seats at 46 inch pitch and filled with 31 inch pitch economy seats to a total of 168.

At this capacity, the aircraft will be quite interesting as a start vehicle for long haul routes and, depending on the per seat economics, also as a sustained network carrier for LCC long and thin routes. To find out the viability of the 737-8 for long haul for Norwegian in particular but for all LCC carriers in general, we pitted the MAX 8 against Norwegians established long haul aircraft, the 787-8.

In our analysis of the 737-8 as a long, thin airplane in our Nov. 10 post, we concluded that a 136-seat configured -8 was superior to the 737-9 and the Airbus A320neo. The 737-9 has operational limitations due to its longer fuselage than the -8; and the A320neo carries fewer passengers and is at a  range disadvantage due to fuel limitations. The 737-8, in a United Airlines international configuration, carries only 136 passengers and therefore is at a substantial per-seat disadvantage to the Airbus A321neo in typical main airline configurations.

At the time, we did not analyze the 737-8 in a LCC long haul configuration where seats are lighter and placed at higher density, such as would be used by Norwegian. Taking clues from their 787-8 long haul cabin, Figure 2, we came up with a MAX 8 cabin holding 168 seats, Figure 3.

Norwegian 787-8 LOPA

Figure 2. Norwegian 787-8 long haul cabin. Source: Norwegian and Leeham Co. Click on image to enlarge.

NAS 738 LOPA 18+150= 168 seats

Figure 3. Tentative 737 MAX 8 LCC long haul cabin. Source: Leeham Co. Click on image to enlarge.

Norwegian (or NAS for Norwegian Air Shuttle) flies its Boeing 787-8s, with a range of 7,500nm, on mission up to 14 hours. NAS provides premium seating as 46 inch pitch recliners and a coach section with seat pitch of 31-32 inch. Eleven percent of the airplane is configured with premium seating. We expect that NAS may configure its long-haul 737-8s with a similar seating for trans-Atlantic operations. Accordingly, the 737-8 may have 18 premium recliner seats and a coach cabin of 150 seats with a slightly greater pitch than the high-density 737-800s NAS operates throughout Europe. We assume an average pitch of 31 inches.

Based on these fundamentals, the question then arises: can an LCC make money with a low-capacity, single-aisle, new 737-8 on routes where either larger, higher capacity aircraft or older, perhaps fully depreciated airplanes are used?

The short answer is; Yes, if the missions stay within eight hours and don’t need more then 165+ seats.

Assumptions

The current airfares between Oslo and New York/Newark vary widely. NAS offers coach fares of US$315-$375 and premium fares of $632-$798 one way on a date we selected in January. Icelandair, the longest-running LCC across the Atlantic, charges $502 with one stop over Iceland. United Airlines charges $2,000 and SAS charges $1,262. On top of these charts, NAS publishes that they add $17 per scheduled passenger of ancillary revenue.

Fgure 4 and 5 details the other assumptions, in great detail (NAS 787-8 as datum is in orange). These assumptions probably don’t match up with NAS’ current operating costs, nor the assumptions it used when placing its order for the 737-8. Neither do we know NAS’ aircraft purchase prices. However, based on our market intelligence, a common true sales cost of the 787-8 today is typically $115m. The true sales cost for a volume purchaser of the 737-8 is about $38m, according to our market intelligence. Neither Boeing nor NAS would be likely to comment on the price, so we are going with our market intelligence in our assumptions.

NAS Table 1u

Figure 4. Comparison of Cash Operating Cost (COC) for an LCC operated 787-8 and 737-8. Source: Leeham Co. Click on image to enlarge.

Comparison range is the maximum possible for the 737-8 at 3,400nm (eight hours endurance). The aircraft is not equipped with extra tanks as these do not bring any increase in range. The aircraft is weight limited with the proposed cabin rather than fuel-volume limited. Flight and cabin crew, Maintenance and Landing and En-route costs follow our standard practice. We have included a variable fuel cost to increase the value of the analysis. Aircraft and per seat mile costs for fuel prices from $ 2.00 to 4.00 per US Gallon are shown.

Covering the costs

With the NAS seating configurations as the starting point for the analysis, we then assume an 85% average load factor (NAS’ system average for the third quarter) and average ticket price from the range of trans-Atlantic fares, coach fares of US$315-$375 and premium fares of $632-$798. To that we added ancillary revenue of $17.

NAS Table 2u

Figure 5. Direct Operating Cost (DOC) and margin for an assumed LCC long haul operation of 787-8 and 737-8. Source: Leeham Co. Click on image to enlarge.

The result is that the 737-8 has lower per-seat costs than the 787-8, stemming from the far lower capital costs (almost one-third of the 787-8) paired with similar fuel costs per seat. Lower maintenance and landing/en-route fees (the MTOW of the 737-8 is close to a one-third of the 787-8) then makes the cash operating costs 5% lower than the 787-8. Add the capital costs and this increases to 15% lower direct operating costs.

737 MAX 8 therefore recovers close to the same margins on long haul mission within its capabilities despite lower capacity.

Summary

The 737 MAX 8 is Boeing’s best single aisle aircraft. It has higher capacity than its competitor, A320neo thanks to a longer cabin. Its more modern wing can hold more fuel. In the present configuration as 737-800, it is used on longer missions by the airlines but these are still within what is commonly called mid-haul, i.e., five to six hour missions. With the re-engine to the CFM LEAP-1B, aerodynamic improvements and an increase of the Maximum Take Off Weight to 82 tonnes, this extends to eight hours, the mainline of long-haul, such as over the Atlantic.

There is no margin left at those eight hours so tech stops for fueling when winds are unfavorable will happen when the range is at or beyond 3000nm, e.g. Oslo to Boston, but this happens with the 757 used today as well. Our conclusion is that the MAX 8 will be known as the aircraft that enabled the LCCs to take the first steps to long haul operation without risking high investments in new or used dual aisle aircraft. The up to eight hour long haul market will be very competitive come 2017.

 

 

 

 

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