Leeham News and Analysis
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Leeham News and Analysis
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- Engineering, Innovation is our DNA: Embraer November 25, 2024
- No changes to US labor Scope Clauses for indefinite future, says Embraer November 22, 2024
Boeing, Embraer differ on the future of upgauging
By Judson Rollins
Introduction
July 30, 2024, © Leeham News: Embraer’s new 20-year Market Outlook, released during the Farnborough Air Show, forecasted the demand for jets with more than 150 seats for the first time. This comes as market observers speculate the Brazilian jet maker is mulling a move into aircraft larger than its current flagship E2 family.
However, the Brazilian jet maker delivered temperate commentary on the future of upgauging, citing one-time developments it believes are unlikely to repeat. It said, “The market environment that led to [an] increase in average aircraft size will not be the same in the future. Consequently, the growth trend likely will not continue.”
For instance, a typical two-class Boeing 737-800 Layout of Passenger Accommodations (LOPA) in the mid-2000s comprised approximately 150 seats. By the late 2010s, this shifted to 160-166 seats. A similar Airbus A320 LOPA went from 140 to 150 seats.
Source: Embraer Market Outlook (data from Sabre).
Will the pre-COVID upgauging trend continue, and what are its implications for future aircraft selection? Boeing and Embraer have decidedly different views, and the latter’s view will drive its decision whether to enter the market for 150+ seaters.
Summary
- Boeing says upgauging will continue, driven equally by cabin densification and aircraft size selection.
- Embraer believes upgauging is largely over.
- Both OEMs’ views have key flaws.
- The upshot: “Bigger” doesn’t always equate to “more profitable.”
Boeing says upgauging will continue, driven equally by cabin densification and aircraft size selection
Earlier this month, Boeing held a virtual media briefing to discuss its latest 20-year Current Market Outlook (CMO). The event was led by Darren Hulst, vice president of commercial marketing.
For many years, Hulst has argued that the “heart of the market” for single-aisle demand is 180-200 seats, represented by the 737-8 and -9. LNA asked Hulst whether his view had changed, given the recent acceleration in sales of large single-aisles like Boeing’s 737-10 and Airbus’s A321neo.
“Over time, we definitely see an upgrading trend, just like we observed over the last 20 years,” replied Hulst.
“If you think about the demand over the next 20 years, you’re looking at regional jets that need to be replaced by mainline-sized aircraft. You’re looking at mid-sized jets that need to be replaced.
“And not every one of those markets, say a 50, 70, 90 [or] 110 seat aircraft, needs to be replaced by the largest single-aisle in the marketplace,” an apparent reference to the A321neo.
“In the US market, for example, there’s not infinite demand in every market just because you’re a low-cost carrier. And the right size [of] aircraft is still really important because you’ve got to match the cost with the revenue opportunity.”
Hulst said Boeing sees the average single-aisle LOPA increasing by roughly 1.5 seats per year. He believes the trend is due to a mix of larger aircraft and optimized seating and is unlikely to change materially in the foreseeable future.
“I wouldn’t say we’re seeing a wholesale change over time.”
Embraer believes upgauging is largely over
The Brazilian OEM is decidedly skeptical that aircraft upgauging will continue ad infinitum.
In its latest Market Outlook report, released earlier this month, the Brazilian OEM cites three previous upgauging drivers it believes are finite.
Throughout the 2010s, many airlines reduced their unit cost by increasing seat counts. This trend was largely driven by so-called “slimline” seats, which allowed carriers to reduce seat pitch while maintaining passenger legroom. “This initiative will not be repeated,” said Embraer.
Around the same time, airlines historically replaced smaller, old-generation jets with around 140 seats, including the MD-80, A319 classic, 737-300, and 737-700, with larger aircraft. There were no suitable one-for-one replacement options in the 2010s, so airlines largely replaced them with 160-170 seaters.
Embraer also cited airline consolidation, especially in the US, as a mostly one-off market development.
The OEM also cited demand-related risks as a deterrent to further upgauging. This includes shifts in business travel demand, day-of-week and time-of-day patterns, and growth rates in smaller markets versus large cities.
The company also believes the balkanization of trade in trends like “reshoring” and “near-shoring” will reduce long-haul travel demand. Its outlook report says, “Greater connectivity, in the form of new nonstop flights, will be required, as will smaller-capacity aircraft to optimally serve secondary and tertiary markets.”
Both OEMs’ views have key flaws
Hulst’s comment that “there’s not infinite demand in every market,” while true, ignores a key constraint, as Boeing does in its CMO: airport slot availability. Although this isn’t an issue in most US airports, it is a major factor in large and even some medium-sized airports in Europe and Asia.
Governments across Europe are taking increasingly drastic measures to reduce slot availability for noise and environmental reasons. A prime example is the ongoing legal fight between the Dutch government and airlines over Amsterdam’s Schiphol Airport.
If hub airports see their slot pools reduced, airlines will have to increase their average gauge to protect connecting market share within their home region.
Embraer’s belief that upgauging from 170-seaters is a one-off is similarly difficult to embrace. Arguing this is a one-time trend ignores the ongoing transition from 737-800s and A320 classics to the 737-9, -10, and A321neo.
Similarly, the Brazilian manufacturer’s view that market consolidation is largely over is rather US-centric in its analysis. Europe still suffers from a glut of commercially shaky state-owned airlines, the Middle East is seeing an explosion of new entrants of questionable viability (particularly in Saudi Arabia), and Asian market demand continues to be below pre-covid trend lines, particularly within and to/from China.
Meanwhile, neither OEM addresses the biggest elephant in the room: a growing global shortage of pilots and mechanics to fly and maintain smaller aircraft. This will raise the bar for any airline to operate aircraft smaller than 150 seats.
Upshot: “Bigger” does not equal “more profitable,” but smaller does not equal “lowest risk”
Where both manufacturers agree – and reality probably lies – is that demand for 200+ seat single-aisles is likely to slow eventually. Passenger demand is unlikely to achieve the rosy growth rates called for in OEM 20-year forecasts.
Global trade and travel demand seem to be past their peak as “reshoring” takes hold, Western governments turn away from immigration, and anti-tourism movements grow in Europe. Business travel is unlikely to ever reach its pre-pandemic trend, and airlines can no longer count on the previous peak-and-off-peak daily and weekly rhythms that drove previous upgauging.
The risks of adding capacity too fast are painfully apparent in the financial woes of Frontier Airlines and Spirit Airlines, which grew rapidly in recent years via a mix of fleet expansion and upgauging.
In a world where capital is expensive, labor is constrained, and spares are harder to come by, profitably operating regional jets or small single-aisles will become increasingly difficult.
While the exact “heart of the market” is still debatable, it is unlikely to be at either end of the single-aisle spectrum. But a single-aisle market where 170-seaters dominate may still have space for a well-funded new entrant.
As long as a +18seat passenger aircraft need 2 expensive physical pilots inside the cockpit aircraft size matters. The more pax you can spread its cost among the better. Once one of them is replaced with computers and secure communication the aircraft size matters less. Widebodies up to today do not have the durability of a narrowbody and shorter range widebodies like DC-10-10, L1011, A300-B2 were quickly replaced for longer range versions flying fewer cycles. Today you could design a widebody with low MTOW and just cross continental range that is as durable like an A321neo/LEAP-1A and would need new 40k engines that stay on wing for 20 000cycles for 400pax with a small business class section replacing 2ea 737-8200 or A321’s.
I believe that single pilot cockpits will become quickly feasible when new GNSS generations enter into service. With Galileo and GPS 3 operational, and the new protection layers that are being implemented against jamming and spoofing of GNSS signals, navigation will be so reliable that automation will reach a new level for commercial air transport! And a single crew will be able to manage everything in the cockpit alone.
Last week’s worldwide cloud software meltdown has shown the folly of excessively relying on centralized computer architecture…
On a related note:
“Elon Musk said Tesla robotaxi skeptics should try ‘full self driving.’ A Wall Street analyst nearly crashed”
https://www.cnn.com/2024/07/30/business/elon-musk-tesla-robotaxi-fsd-test-drive/index.html
“The system is “no better, arguably worse, than last time” when he tested it in April, Stein wrote.”
I can’t imagine setting foot on an airliner w/ only one pilot in the cockpit, let alone zero pilots. Way too much faith in Tech for these bones..
Interesting article Judson, thanks.
Apart from the factors mentioned in your article, it seems forecasts by OEMS are influenced by what they have on offer.
E.g. Boeing has little to offer under the 737-8s 170-180 seats. So they probably do not foresee enormous market potential there.. 737-7 orders have been disappointing/ vanished, but it is hidden in the combined numbers these days. The A319NEO same story.
Also minimal cabin crew requirements play a role in CASM. 149 or 199 seats are much more attractive than 154 or 206 seats. For each 50 extra passengers an extra evacuation ca is required. Hard requirements.
For Embraer to offer a lean, affordable E200 stretch towards 149 seats with 3-4 hours range, they can’t go wrong IMO.. A220-100 is has low sales anyway.
https://groups.google.com/group/aviation_innovation/attach/35d4515a510e6/Embraer%20E200-E2%20Boeing%20737-7%20Southwest%20Keesje.jpg?part=0.1&view=1
I would be interested if there is another stretch that is feasible out of the E195. For Embraer to ever enter the A320 size market it will need to be a much bigger company. Airbus delivers more per month of A320 than Embraer delivers per year on E190/95
The A220-500 would be a nice addition too for those more regional airlines that are not looking to move up to the A320 sized aircraft.
The 195-E2 is as stretched as it can be. It’s actually slightly longer than a MAX 8.
Interesting a very long thin tube. I was curious about the options especially given that the E2 generally operates at lower thrust ratings than the engine is capable of flying.
I’d be interested in what could they do with a wider fuselage section and maximal system and production commonality, specially as they already do “optimized” wings.
If you do a wider fuselage, you’re talking about a new airplane, not a derivative.
I wouldn’t be shocked if Embraer has prepared a capacity expansion/ stretch. The frame is already certified for 148 passengers, we saw an MTOW boost announcement last week.
The E2 wing was enlarged compared to the E1 wing, the aircraft is high on its wheels because of the big GTF’s. A 2.3m stretch would mean ~0.8m behind the wing, which seems doable with regards to take-off angle.
The Embraer E fuselage cross section is a high dubble bubble like e.g. the 757-300 and MD90, providing additional stiffness compared to a circular cross section.
When launching the E2, Embraer marketing made sure to emphasize the E2 was still a regional, not to wake up Airbus & Boeing executives. They even kept the typename E195,while stretching it 3 seat rows..
https://leehamnews.com/2014/01/13/embraer-continues-and-refines-its-strategy-at-the-low-end-of-100-149-seat-sector/
A couple of points:
It’s engine size.
A more efficient engine mean a larger bypass ratio, resulting in a larger engine, which weighs more. More weight on the wing means a beefed up structure, which mean adding more seats to offset the cost of the extra weight. This is why shrinks don’t sell as well as stretches.
“Hulst’s comment that “there’s not infinite demand in every market,” while true, ignores a key constraint, as Boeing does in its CMO: airport slot availability.”
Year World Population Yearly Change NetChange
2023 8,045,311,447 0.88 % 70,206,291
2022 7,975,105,156 0.83 % 65,810,005
2021 7,909,295,151 0.87 % 68,342,271
2020 7,840,952,880 0.98 % 76,001,848
2019 7,764,951,032 1.06 % 81,161,204
2018 7,683,789,828 1.10 % 83,967,424
2017 7,599,822,404 1.15 % 86,348,166
2016 7,513,474,238 1.17 % 86,876,701
2015 7,426,597,537 1.19 % 87,584,118
2014 7,339,013,419 1.22 % 88,420,049
The 20 year market forecasts indicate an increased need in aircraft, as evidenced by the seemingly unstoppable population growth. People are still making babies and those babies will eventually want to fly somewhere.
The trend is headed back up again, after a few down years (probably pandemic related) but if the airline industry is a global industry (which it is) then there will be a continued need for aircraft, airports and diapers.
I’d temper that comment somewhat by what the demographics actually say. The population growth rate is at or near replacement levels in the following countries: Japan, Korea, China, United States, Mexico, Canada, Europe, Brazil, Indonesia, and India. Population size is increasing in these countries primarily due to increased life expectancy, not due to having more children.
The only countries that still see high birthrates are very poor countries, e.g. poor parts of the Middle East and Africa. Certainly not countries that have the wealth to expand their air travel significantly.
What one is seeing in passenger travel is actual due to an expanding middle class in newly developed countries, for example Indonesia, India and China.
To your point, as China’s middle class growth rate slows, air service and aircraft demand will be buoyed by India and SE Asia. Growth of the Indian middle class in the 2040-50’s will drive the next commercial aircraft supercycle.
Wealthy countries with low birth rates are importing immigrants to continue expanding.
India
2024 1,441,719,852 0.92 % 13,092,189
2023 1,428,627,663 0.81 % 11,454,490
2022 1,417,173,173 0.68 % 9,609,331
2020 1,396,387,127 0.96 % 13,275,077
2015 1,322,866,505 1.29 % 16,450,577
2010 1,240,613,620 1.45 % 17,194,981
2005 1,154,638,713 1.73 % 19,001,008
2000 1,059,633,675 1.90 % 19,070,909
Adding 10mil+ a year.
Indonesia
2024 279,798,049 0.82 % 2,263,927
2023 277,534,122 0.74 % 2,032,783
2022 275,501,339 0.64 % 1,748,148
2020 271,857,970 0.84 % 2,275,092
2015 259,091,970 1.21 % 3,015,159
2010 244,016,173 1.30 % 3,042,206
2005 228,805,144 1.34 % 2,946,545
2000 214,072,421 1.56 % 3,186,452
Also growing
Mexico
2024 129,388,467 0.73 % 932,900
2023 128,455,567 0.75 % 951,442
2022 127,504,125 0.63 % 798,987
2020 125,998,302 0.73 % 912,991
2015 120,149,897 1.32 % 1,523,499
2010 112,532,401 1.31 % 1,418,000
2005 105,442,402 1.50 % 1,513,792
2000 97,873,442 1.70 % 1,580,774
Brazil
2024 217,637,297 0.56 % 1,214,851
2022 215,313,498 0.46 % 987,275
2020 213,196,304 0.67 % 1,413,426
2015 205,188,205 0.88 % 1,766,943
2010 196,353,492 1.00 % 1,911,232
2005 186,797,334 1.21 % 2,184,723
2000 175,873,720 1.47 % 2,471,678
Back up to adding over a million a year.
Canada’s population increase is due to immigration, as 200k are added per year. The US is still growing, mostly by immigration.
Yes, the fertility rate is dropping among the wealthy nations, as kids are expensive to have. They’re making up for it by bringing in people from other countries. Developers like to sell homes to people and unless you can force people to have children (which is what we’ve seen somewhere…can’t remember where) then they have to increase your size another way.
People are viewed as profitability centres. Poorer nations can produce the raw assets, then send them over to the countries that need them.
Unless you’re Japan…who wants little to no immigration. Last person turn off the lights, please.
Assuming that immigrants — with the desired skills sets — are (continuing to be) interested in immigrating to the countries that need them…
There is no reason for chicken-little panic should societies reach stable populations. It is just different than what we so-far have experienced. There will still be the opportunity for economic growth through innovation and increased productivity. I take all these projections for continued growth in aviation with a degree of skepticism because it has yet to be shown convincingly how aviation can achieve sustainability goals while also meeting these growth projections. Personally I don’t see it happening.
Sorry if I’ve given you the impression that he sky is falling, it isn’t. Not sure how you get there from my posting of the increase in population. It’s why Airbus highlights this in it’s 2024 projection
https://www.airbus.com/sites/g/files/jlcbta136/files/2024-07/GMF%202024-2043%20Presentation_4DTS.pdf
GDP, trade and population are the main drivers of air traffic growth
World population
+1.3 bn
from 2023 to 2043
Urban population
+1.5 bn
from 2023 to 2043
The world is going to add another billion people or so, over the next two decades. Just the way it is…