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By Vincent Valery
July 22, 2019, © Leeham News: Development of single-aisle aircraft that now have ranges of plus-or-minus 4,000 nautical miles are fragmenting hub markets needed to fill large twin-aisle aircraft.
Just as twin-engine widebodies began fragmenting routes needed to fill the Boeing 747 and later the Airbus A380, the Boeing 737-8 and Airbus A321LR/XLR appear to be contributing to weak demand for the Boeing 777X and Airbus A350-1000.
With launch of the Airbus A321XLR last month and expected New Midsize Airplane once the MAX crisis is over, some markets might have structures dramatically altered in the second half of next decade. The prime candidate is the US East Coast–Europe market. We will investigate through historical examples how things might turn out.
The first long-haul fragmentation wave occurred in the 1980s with the launch of the Boeing 757, 767 and Airbus A310. Boeing delivered at least 200 more passenger 757s and 767s than 747s in the 1982-2005 period (968, 892 and 684 respectively).
The twin-engine aircraft allowed the launch of thinner trans-Atlantic routes. These were especially useful for US airlines that operate multiple hubs. Continental Airlines later pioneered 757 service from Newark to Western Europe.
A major impediment to further fragmentation with 767s was the lack of comprehensive open skies agreements across the Atlantic. The current open skies agreement between the United States and European Union came into effect in 2008.
Boeing boasts the ability of the Dreamliner to launch new point-to-point routes. However, its main interest lies in replacing larger aircraft, notably aging Boeing 747s and 777s. The Airbus A350 and Boeing 787 have benchmark-setting operating costs.
The two aircraft families are especially attractive for carriers that operate from multiple long-haul hubs. Airlines now have much greater operational flexibility to enter new thin trans-Pacific markets, add frequencies on the busiest routes and launch new flights to existing destinations from another hub.
The A350 and 787 are much easier to fill than the 777-300ER or A380 to acceptable load factors, especially during the low demand season. The numerous Oceania–USA routes launched in recent years are negatively impacting demand on flights between Los Angeles and Sydney airport, historically the two main gateways for connecting traffic in that market.
Operating long haul routes is a very expensive business. A daily flight costs dozens, if not hundreds of millions of USD on a yearly basis.
The smaller A350 and 787 materially lower the financial risks associated with operating such routes. An added bonus is more flexibility to move capacity around an airlines’ network throughout the year as demand pattern change.
During the first decade of the new millennium, the newer Airbus A330 progressively overtook the 767 as the default aircraft for smaller trans-Atlantic routes.
With US airlines in dire financial shape at the time most orders came from European carriers. American Airlines and Delta Air Lines inherited A330 fleets from US Airways and Northwest Airlines respectively.
As the years went on, Airbus significantly improved the A330, including increases in maximum takeoff weight that made it capable of flying direct to the US West Coast from Europe. It became a more efficient aircraft than the over capable and heavier 777-200ER for trans-Atlantic operations.
As mentioned in another article on LNA, the 787 was supposed to kill the A330. With the expected NMA launch Boeing intends to return the favor to Airbus and kill the A330 once and for all.
With the arrival of the Airbus A320neo and Boeing 737 MAX families a new wave of fragmentation in the trans-Atlantic market is in its infancy.
Norwegian Air Shuttle was flying the 737 MAX from Ireland and the Northern United Kingdom to secondary New England airports until the grounding. Air Canada was flying from St John’s and Halifax to London. The Canadian carrier intended to launch flights from Montreal to Bordeaux, Shannon and Dublin this summer with the Boeing bestseller single-aisle.
Aer Lingus was supposed to launch new routes to Montreal and Minneapolis from Dublin this summer until the plan was postponed due to A321LR delivery delays. TAP Air Portugal launched flights between Lisbon and Washington Dulles and increased frequencies on the Porto–Newark route with the A321LR.
In the 1970s and 1980s, widebody aircraft were the norm on US trans-continental flights.
This changed from the late 1990s once the Airbus A320 and Boeing 737 NG, capable of flying coast to coast non-stop, entered service. The Airbus A321 was also improved to fly US trans-continental missions. Nowadays, single-aisle are the norm and widebody aircraft the exception, the latter exclusively used for departures at slot constrained peak times.
This shift occurred because narrowbody operating costs are competitive compared with widebody, even at the congested LAX and JFK airports. More frequencies are critical to lure and keep high paying business class passengers. Unless there are substantial cargo revenues or a lack of slots at peak times, airlines are better off operating single-aisle aircraft on US trans-continental routes.
Once launched, the A321XLR will be able to fly plus or minus 4,000 nm in practice on trans-Atlantic flights. The Boeing NMA will have at least as much effective range in apples-to-apples cabin configurations.
As discussed earlier, the 787 and A350 are progressively taking over trans-Pacific routes traditionally operated by larger aircraft. The 737 MAX, A321LR/XLR and NMA have competitive enough operating costs compared with latest generation widebody aircraft such as the Boeing 777X, Airbus A330neo or 787 to trigger a fragmentation wave in the US East Coast–Europe market.
Airlines can recover the marginal increase in operating costs by increasing frequencies in business-oriented markets and that improve yields in the process. Adding a flight with a late afternoon–early evening departure from Europe is a prime candidate to entice business travelers who won’t need to stay overnight any more.
Most passengers are willing to pay a premium for a point-to-point service that bypasses the need to connect via a hub.
The 737 MAX, A321XLR and NMA significantly lower the financial risks associated with launching new routes. Those aircraft materially lower the minimum passenger demand needed to sustain a route compared to a current generation widebody.
It is a lot easier to achieve acceptable load factors on the smaller 737 MAX, A321LR/XLR or NMA. This is particularly enticing on the notoriously seasonal trans-Atlantic market. Airlines might even be able to make money (or at least lose a lot less) during the low demand winter months.
An NMA or A321XLR is also far more flexible than current generation widebody aircraft to operate shorter routes profitably across an airlines’ network.
These smaller aircraft might turn some airports on both sides of the Atlantic into more significant trans-Atlantic hubs. Thanks to geography, Boston, Dublin, Lisbon and Montreal have the biggest potential to significantly grow traffic.
As far as the larger hubs are concerned, people won’t stop flying between them overnight. They usually grew to that status because of higher origin-and-destination passenger demand in the first place. To prevent business passengers from switching to competitors, airlines will generally prefer down-gauging to smaller aircraft rather than canceling frequencies. The impact will be biggest on hubs that mostly rely on transit passengers.
When the A321XLR enters service in 2023-24 and NMA enters service in an estimated 2027, large 777 and A330 fleets delivered from the late 2000s until the early 2010s will be up for renewal.
Airlines are eagerly awaiting Boeing’s NMA decision to start in-depth analysis to replace those aging widebody aircraft. Along with the ongoing increased fragmentation in the trans-Pacific market, the prospect of a significant shake up across the Atlantic seem to be hurting the Boeing 777-9 and Airbus A350-1000 market prospects.
Large twin-aisle aircraft carry a hefty price tag. Most airlines’ raison d’etre is to maximize return on invested capital for shareholders while lowering risks in a notoriously cyclical industry. A larger number of 737MAXes, A321LR/XLRs and NMAs might be a preferable (and safer) investment of billions of capital expenditures rather than fewer A350-1000s and 777-9s from an airlines’ standpoint.
I partially beg to differ. In the previous fragmentation process (i.e. 787 & A350/330 vs 747/A380) range of all mentioned aircraft was similar, now it is not (A321XLR & 797 offer 4/5,000 nm vs almost double that figure for incumbent widebodies). Hence the process will surely take place on the North Atlantic routes, but not over the Pacific or other very long range missions. Secondly, in the previous fragmentation scenario there were fuel per seat/km savings to be made, which now are absent, as you correctly ascertained in your article on the new long-range single aisle planes vs incumbent widebodies. Thirdly there is the issue of airport congestion. Before this was wielded as an argument in favour of very large aircraft which finally did not play any significant role. Now, several years later, with a substantially higher volume of traffic history may not repeat itself. Airports have been expanded and new ones built, but there may well be a limitation here in the coming years.
@luisds: There are many routes aside from trans-Pacific the NMA can reach from any number of hubs: Atlanta to South America, Europe to Africa, Australia to South Asia, Hawaii to either Asia or the USA, etc.
Airport congestion is a consideration, of course, but Airbus was singing this song from 2000 through 2018 for the A380. It never did get it right.
Let’s not forget what the extra range of new large NB could offer to the Gulf Carriers – full penetration of Europe and Africa. E.g. an A321LR or XLR flying to Windhoek from Dubai. No disadvantage to Istanbul airport anymore for the European routes so one can open more feeders
From European capitals only Nairobi, Dar es Salaam and Luanda would fall within the longest range of the A321XLR. Furrher north regular A321/737-8/A320 offer the range. As to my neighborhood the only viable new routes would be from Miami to Natal, Belo Horizonte and Porto Alegre, secondary Brazilian cities currently without service. Same goes for Mendoza, Cordoba and Rosario in Argentina. They might have not thin, but spaghetti-like traffic. Chile has no worthwhile secondary cities. Atlanta, Houston and Dallas are too far away to be used by the new plane. I just don’t see the point of American, Aerolineas Argentinas or LATAM dividing their twice a day services with double aisle planes to Sao Paulo or Buenos Aires since they can count with 1,000-1,500 pax/day, and smaller traffic to Rio de Janeiro and Santiago de Chile. Orlando might be benefited but on the whole I doubt the A321XLR will be a game-changer for these regions.
and everything above Nairobi, Dar es Salaam and Luanda. It would admittedly miss out on South Africa, which is a major market, but other than this the majority of Africa’s population would be covered. So all of French-speaking Africa is reachable from Belgium / France and all of West Africa from UK . On top of this north of the UK to East Africa including Mogadishu. Lisbon / Porto to Maputo would be a stretch but Luanda covered. Finally Northern UK to the Caribbean (e.g. Jamaica) also seems to work.
indeed, but this is nothing new, with A320neo offering a range of 5,100km with full cabin, 100kg/pax + bag, including 5% reserves, 200nm diversion and 30 mins circling, against headwind, or 6,300km for a A321neo under the same conditions can cover all of northern Africa from central European capitals all the way to the Congo ex Zaire roughly. A bit more from southern Europe. My contention is that the sliver between 5,100/6,300 km and the new range of A321XLR of 7,100 km again under the aforesaid conditions is indeed interesting over the North Atlantic, yet not so much in other regions so as to ring the death knell for the A330neo. To prove this point in Asia neither the Chinese or the Indian carriers have blinked so far over the new long-range single-aisle newcomer, worthy as it is.
Thanks for this. I had a look at the A320neo / A321neo payload charts and you are correct, you can do West Africa from London with current neos. Going to Easter Africa you’d however gain a lot of payload extra which would make these flights commercially viable. No comment on Chinese and Indian carriers and their orders for XLR, let’s wait and see.
a further bit of history that may interest your readers. Another cause for traffic fragmentation over the North Atlantic. The FAA administrator under Reagan, Lyn Helms emphatically stated that “it will be a cold day in hell before I let twins fly long-haul over water”. His reasoning at the time was erroneously based on the fact that piston-driven planes were substantially more prone to failures than jet engines. Until then no American twin engined planes were allowed to fly more than 60 minutes away from a diversion airport. Finally reason and sound mechanical facts prevailed, but temporarily 3 engined planes were introduced, like the DC-10 and the Lockeed TriStar, which eventually fell out of favour. It was only then that planes like the 757 & 767 began being used in an entirely different fashion than their initial purpose, something that Boeing surely must have regretted ever since, since it began eroding on their star aircraft, the 747, for which they held a lucrative monopoly. This also changed the fortunes of Hawaii. Up until the time when 4 engines were mandatory the only viable airport was Honolulu, and tourism development was only limited to Oahu. With smaller twins the other previously isolated islands began to develop and more and more continental airports began serving the islands. That is how ETOPS ratings came into being.
I was thinking on the fragmentation possibilities of the North Atlantic routes. The US receives 17 million Europeans each year, and Canada 3. Assuming that 20 million Americans and Canadians cross in the opposite direction we have 40 million travellers per year, or 111.000 per day. Assuming they fly on planes with an average capacity of 250 pax, that requires 440 planes per day from say 40-50 American/Canadian airports to an equal number of European destinations, and viceversa. Let us assume that only half these 440 planes would be subject to fragmentation, since many will serve major cities and busier routes. The other half can be sliced in two, resulting in 440 smaller planes. Therefore we end up with an additional 220 planes crossing the Atlantic each and every day. That would mean an extra 5.5/4.4 extra gates needed on average for each and every airport at either side of the pond. Many are already at full capacity now, let alone considering future traffic growth for the coming years. Those with more space might have to accomodate a dozen new planes or so. Consider Belfast International, 10th busiest airport in the UK, with 165 daily departures, or Bordeaux, 8th busiest French airport with maybe 10% more traffic than the above, or Nueremberg, 10th German airport with 180 daily departures, or Valencia, 10th busiest airport in Spain with 207 daily departures, or Pisa, Italy’s 11th busiest with 108 daily departures. Mind you that these are Europe’s largest countries. Smaller nations would be squeezed further. On the other side of the pond things would be no different. Also 220 extra smaller planes each and every day is a lot of additional work for traffic controls.