Pontifications: The pricing jigsaw puzzle

By Scott Hamilton

May 22, 2017, © Leeham Co.: The prices airlines and lessors pay for their airplane purchases have long been of intense interest to just about everybody associated with the airline industry.

The manufacturers want to know what their competitors are selling the planes for.

The airlines want to know what their competitors pay for their airplanes. The same is true for lessors and their competitors.

(Airlines are less interested in what the lessors pay; they are only interested in what they must pay the lessors to lease the airplanes, and aren’t really concerned about the lessors’ costs.)

Appraisers want to know the prices of new aircraft, and prices on the secondary market, to have a basis for predicting base and current market values today and 25 years in the future.

The credit rating agencies want to know that values of the airplanes to rate financing deals.

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WestJet’s 787, international strategy fraught with risks

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Introduction

Boeing 787-9. WestJet ordered 10 and placed an option for 10 more. Deliveries begin in 2019. Boeing photo.

May 8, 2017, © Leeham Co.: WestJet, Canada’s #2 airline behind Air Canada, is making dramatic departures from its low-cost, low-fare strategy since the company began operations in February 1996.

The company earlier announced it will form an Ultra Low-Cost Carrier (ULCC). Last week came an order for 10 Boeing 787-9s and options for 10 more. Deliveries begin in 2019.

Summary
  • WestJet is taking on Air Canada and its LCC unit, Rouge, in LCC and long-haul LCC markets.
  • “Too much going on to get comfortable,” writes analyst.
  • Capital costs will go up significantly.

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Pontifications: Branson gets pissy over dropping the Virgin America name

By Scott Hamilton

April 3, 2017, © Leeham Co.: Sir Richard Branson came to Seattle last week to promote the new service by Virgin Atlantic Airlines to London. In a hissy-fit, he promptly pissed on Alaska Airlines for the business decision to drop the Virgin America brand in 2019.

Alaska, of course, acquired Virgin America last year. The acquisition didn’t sit well with Branson, who nevertheless made out well in the deal.

Although Alaska officials said they would decide later whether to retain the Virgin brand, only those with wishful thinking gave any chance of this happening.

Richard Branson in Seattle for Virgin Atlantic’s new service to London. USA Today photo via Google.

Branson certainly knows this.  In 1997, Virgin Group acquired the low fare carrier Euro Belgium Airlines for $60m and promptly dropped the name in favor of Virgin Express.

VE lasted only nine years; it ceased operations in 2006 when it was sold and merged into the new Brussels Airlines.

Branson’s whining over Alaska’s decision to operate the merged operations into the Eskimo’s image smacks of hypocrisy.

Let’s also remember that his Virgin Atlantic is 49% owned by Delta Air Lines, which is building a hub in Seattle in competition with Alaska. The fight between Alaska and Delta is sometimes bitter.

Branson’s criticism of Alaska might have as much to do with Virgin Atlantic’s partnership with Delta as it does his own bruised ego.

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Major fleet decisions may not be positive for Airbus, Boeing

Pontifications is off this week.

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Introduction

March 20, 2017, © Leeham Co.: There are some major fleet decisions that will probably come down the pike this year at American, Delta and United airlines. Not all of them are going to be viewed positively by Airbus and Boeing.

There is also a serious warning sign emerging from the Middle East that could have serious, negative impacts on Airbus and Boeing.

Summary
  • American Airlines doesn’t want its Airbus A350-900s any more. Consolidation with US Airways appears to have made these surplus.
  • Delta Air Lines, which so far eschewed any orders for the Airbus A320neos and Boeing 737 MAXes, is understood to be readying a Request for Proposals to be issued this year.
  • United Airlines doesn’t want its Airbus A350-1000s any more. Picking up cheap Boeing 777-300ERs appear to have made these surplus.
  • Emirates Airlines, reacting to Brexit and Donald Trump’s travel bans, is undertaking a full business review in response to a sharp drop in bookings.

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Airline assets and lessor assets: Bombardier and Embraer

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Part 2. Part 1 may be found here.

Introduction

Bombardier invented the regional jet. Despite some sales these days, the CRJ was eclipsed by the Embraer J-Jet. Bombardier photo.

Bombardier invented the regional jet. Despite some sales these days, the CRJ was eclipsed by the Embraer J-Jet. Bombardier photo.

Oct. 10, 2016, © Leeham Co.: Regional aircraft are much riskier assets for lessors than mainline aircraft.

Until recently, Bombardier and Embraer were the only two regional jet Original Equipment Manufacturers (OEMs).

Today, the Sukhoi SSJ100 and the Mitsubishi MRJ90 join BBD and EMB in this arena.

Summary

  • Bombardier’s regional jets CRJ series enjoyed a good life with airlines and lessors, but fell into disfavor as fuel prices spiked.
  • BBD’s CSeries was ordered by four lessors, but two of them have question marks.
  • Embraer’s E-Jet found good homes with lessors, but some worry about supply-and-demand in the secondary market.

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Pontifications: “Sully” sullies NTSB

Hamilton ATR

By Scott Hamilton

Sept. 12, 2016, © Leeham Co.: Sully, the movie about the miracle of the successful water landing of US Airways 1549 on the Hudson River in New York City, sullies the National Transportation Safety Board.

Apparently not content with the gripping drama of the flight’s emergency itself and the dramatic rescue of all 155 souls on board, the movie gins up an NTSB out to hang Capt. Chesley Sullenberger (Sully) and co-pilot Jeffrey Skiles.

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Book review: Glory Lost and Found

Sept. 8, 2016Glory Lost and Found: How Delta Climbed from Despair to Dominance in the Post-9/11 Era is a ponderous title for a ponderous book.

But this is not a criticism.

Glory Lost is one of the best books I’ve ever read about the turmoil in the airline industry. Authors Seth Kaplan and Jay Shabat, two journalists, put together a book of nearly 450 pages that goes beyond just the focus of how Delta Air Lines spiraled into bankruptcy following 9/11, emerged and suffered through more travails after the 2008 financial market meltdown.

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Will United’s new president open door for Airbus?

Scott Kirby moves from president of American Airlines to president of United Airlines. Photo via Google images.

Scott Kirby moves from president of American Airlines to president of United Airlines. Photo via Google images.

Aug. 30, 2016, © Leeham Co.: Will Scott Kirby’s move from president of American Airlines to the same position at United Airlines lead to a major shift in fleet acquisition at the Chicago-based carrier?

This is an intriguing question that may take some time to answer.

Kirby spent 20 years with American CEO Doug Parker through their careers at America West Airlines, US Airways and American.

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Embraer sees broadening market in North America

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Introduction

Nov. 17, 2015, © Leeham Co. The chief commercial officer of Embraer sees US mainline carriers adding

John Slattery, Chief Commercial Officer, Embraer. Photo via Google images.

aircraft in the 100-plus seat sector that will open new opportunities for the largest E-Jets hitherto a limited interest in this region.

First among high profile possibilities: United Airlines, which was identified as a major prospect for Bombardier and its CS100. According to multiple news reports, UA is holding out an order for the CS100 as an inducement for some pilot contract revisions. According to Market Intelligence, the potential order is for an equal number of orders and options, well below 50 orders but one which would be a crucial win for struggling Bombardier.

But Embraer isn’t going to let this order go without a stiff fight. Through United Express partners, EMB has a large installed base of E-175s operating for United. This is viewed as a major advantage by EMB’s CCO, John Slattery.

Summary

  • United, JetBlue, Air Canada targets for CSeries sales.
  • Embraer has large, installed fleet of E-Jets at these airlines.
  • Broadened market potential seen with North American carriers for 100-plus seat airplanes.

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Pontifications: Fare and market share wars

Hamilton (5)

By Scott Hamilton

May 25, 2015, c. Leeham Co. Airline stocks took a dive last week when it appeared fare wars and eroding capacity discipline is beginning among US carriers.

Southwest Airlines said it will be adding capacity at the rate of 6%-7% compared with recent increases of 2%-3% and American Airlines said it will begin matching the prices of Low Cost and Ultra Low Cost Carriers rather than see its market share erode.

And the markets went into a tizzy.

I’m old enough to remember when American aggressively matched the low fares of the emerging new entrant airlines after deregulation in the 1980s. The matching spread and the 1980s became a bloodbath. Read more