Is a Boom SST good business for Virgin Atlantic?

By Bjorn Fehrm

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Introduction

November 21, 2016, ©. Leeham Co: The emergence of Boom Technology and Virgin Atlantic’s plans to offer supersonic business class passenger traffic over the Atlantic is intriguing.

airplane-1

Figure 1. Boom Technologies Boom Mach 2.2 airliner with 45 seater. Source: Boom

Enough of the business plans and data around the aircraft are known to enable us to do a first economic analysis.

There will have to be a lot of assumptions in such an analysis but having modeled around 100 different airliner types economics’, we have some data to base our assumptions on.

We think the accuracy will be enough to get a first feel if the Virgin Atlantic venture is tight on margin or a slam dunk (should it become reality).

Summary:

  • The operating costs of a supersonic airliner will center on fuel and maintenance.
  • These costs will be considerably higher than for a normal widebody airliner.
  • The Virgin Atlantic venture targets the higher yield of a business passenger to cater for these costs.
  • We check if this is true and if a SST venture is good use of invested capital.

Discussion

Business idea

The Boom SST will focus on the business traveler. In this article, we suppose that Virgin Atlantic would operate the aircraft according to the ideas of Boom Technologies. In such case, a roundtrip New York JFK (JFK) to London Heathrow (LHR) would cost $5,000.

We also know that Boom would like to charge $200m for the aircraft. Based on that and a feel for the risk the market would like to take on financing such an aircraft, we can estimate the capital costs for the SST.

Using our proprietary performance model we can then estimate the fuel burn and other costs to a level where we can compare the earnings capability of a Boom-style SST fleet with Virgin Atlantic’s present fleet of widebody aircraft for the JFK-LHR route (a mix of Boeing 787-9 and Airbus A330-300).

Economical comparison methodology

This is the way we will do our comparison:

  • We will estimate the costs for all the important cost factors in Cash Operating Cost (COC) and Direct Operating Cost (DOC, which includes the capital costs).
  • As the aircraft are different size and type, we will refrain from comparing the costs on a per-seat level; we will focus on trip costs.
  • We then compare earnings capabilities of the aircraft.
  • We apply the typical ticket yields for business class and economy class passengers (and yield for cargo) and compare the margin generated by a flight JFK-LHR for a standard widebody aircraft and a higher-yield SST business passenger flight.

We will do the comparison in a more qualitative way than normal, as our information for the SST is tentative. Nonetheless, this first check will hint whether Virgin Atlantic is on to something or taking a business risk.

Cash Operating Cost

Fuel burn.

A modern airliner like the Boeing 787-9 or Airbus A330-900 would consume about 32 tonnes of fuel on the trip, give-or-take if the flight is east- or westbound (it evens out on the round trip; the average value is the one we use).

The fuel burn of the Boom SST for the sector would be about 16 tonnes.

Note: An initial estimation of the fuel consumption gave 16 tonnes as result. Later detailed analysis of the engine situation for this kind of aircraft shows the Boom assumptions of a medium bypass engine for flights at M2.2 are not realistic. Consequently, the fuel consumption will be higher, more like 25 tonnes than 16 tonnes.

Aircraft maintenance costs

The typical maintenance cost for a twin aisle aircraft like the 787-9 or A330-900 for the trip is around $6,700; for an hourly cost of about $1,000.

The maintenance costs for an SST is harder to predict. The airframe size and material choice dictates to some extent the amount of inspections which are required. These will be more frequent than for a modern airliner, as the supersonic environment will be harder on, e.g., the skin surfaces.

The aircraft’s system complexity will be on the level of a modern Fly-By-Wire airliner except for the engine nacelles. The nacelles will be considerably more complex, as adaptable multi-chock inlets are required for the high pressure recovery these have to have for supersonic flight.

The engine maintenance costs will be higher than for the engines on a widebody. As the engine nacelles are doing a lot of the needed compression work to get the combustors to operate at the needed pressure ratio for good fuel efficiency, the engine complexity will be modest The engines will be special designs, however, produced in low numbers. This will drive up the spare parts and LLP (Life Limited Parts) costs.

In total, the maintenance costs for the airframe and engine combination is estimated to around $7,400 for the trip, for an hourly cost of $2,200.

Crew cost

We will assume the same pay scale for the two crews. SST crews might actually have a higher pay scale, but for now we will assume the pay scale for a twin aisle, the size of a 787-9 or A330-900. With that, the crew costs for the twin aisle (42 business seats, 250 economy) would be $12,800. The SST (45 business seats) cost is estimated at $4,500 for the trip.

Underway and landing fees

We will use our normal model for underway and landing fees. Both are based on the aircraft’s Maximum Take Off Weight (MTOW). The underway fees for the SST could be higher, as it’s flying supersonic, but it will be mostly over water, where the fees should be lower.

To simplify things for this first analysis, we will assume the same fee structure for the two aircraft. If anything, the SST costs could be estimated too low in this analysis. This should be kept in mind in the final discussion.

The fees for the twin aisle would be $9,100 and $4,500 for the SST.

Direct Operating Cost

The get to the Direct Operating Costs (DOC), we need to add capital and insurance costs to the Cash Operating Costs.

Capital costs

The typical capital costs for the twin aisle would be $19,000 for the trip, assuming a lease with a lease rate factor of 0.80%. Applying the same lease procedure with a higher lease factor of 0.94 (because of the higher business risk) for the SST, we have a lease cost for the trip of $9,800.

Insurance costs

Insurance costs are typically 0.9% of the lease rate per month for widebody aircraft. We expect the insurance for an SST to be higher, at 1.1%. This gives an insurance cost of $1,800 for the widebody and $1,050 for the SST.

Cash Operating Costs for the trip

The above gives a COC of $81,400 for the trip with $17 per aircraft mile for the widebody and $43,300 or $9 for the SST. These costs are calculated with fuel at $3.00 per US Gallon.

As said, we will not compare the seat mile costs as the configurations are totally different.

Revenue and margin for the trip

If we apply the standard yields for the widebody of $0.30 per seat mile for business, $0.10 for economy and $0.30 per ton mile for cargo and use a SST business yield of $0.60 (which gives a round trip Revenue of $4,300), the trip revenue for the widebody would be $137,800 versus $67,400 for the SST.

The business margin for the widebody would be $56,400 versus $24,100 for the SST.

The capital investment in the widebody and the SST would be similar, around $110-$120m for both aircraft. Seen from a return on invested capital, the SST is not a convincing proposition.

It might be that Virgin can count other values in an SST venture; it would certainly have a large brand value.

3 Comments on “Is a Boom SST good business for Virgin Atlantic?

    • Hi Crise,

      was actually a lot of fun doing it. What I found was that an SST need to fly really high, 55kft or higher, otherwise the skin friction drag kills the performance (Concorde cruised at 57kft, now I know why). At M2.2 the induced drag is no problem even with an aspect ratio of 1.5, it’s tiny in comparison.

      • Hello Bjorn,
        Sounds like à mini Concorde.
        Can’t imagine things hadn’t change? Increase speed is only increase on power? Métal alloy 50 years later than the Concorde might betteraves withstand the thermal effectivement of the skin friction!

        How good was the Concorde finally?

        Is the engines position à true révolution or just à return of expérience of the Concorde crash?

        Any clues on the aerion engines?

        Best regards

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