Leeham News and Analysis
There's more to real news than a news release.
ISTAT: Economist Adam Pilarski on oil prices
Adam Pilarski, the economist from Avitas who years ago predicted oil prices would hit $40/bbl to the near-total disbelief by delegates attending the ISTAT convention where he made his prediction, proved nearly right. Prices dipped into the mid-$40s two-three years ahead of his forecast and for somewhat different reasons.
At this year’s ISTAT conference, Pilarski said that to predict oil prices, you need to look at two basic facts: the industry is not competitive and we are not running out of oil.
Here is a paraphrase synopsis of his comments.
ISTAT: Randy Tinseth: pax traffic going from 3bn today to 7bn by 2033
Randy Tinseth, VP Marketing of Boeing, presented today to the ISTAT conference. Here is a synopsized summary of his comments.
ISTAT: Airlines look at the market and explain differences between the past and today
March 9, 2015: The top four players now are acting differently than previous eras, focusing on profits and return on capital instead of market share, says Mark Eliasen, vice president of finance and treasurer of Alaska Airlines.
Alaska returned 18% on its margin, the highest in the US industry, with low costs relative to its competitors. The company has grown at a rate of 7% year over year for several years. “We’re really happy with a single fleet.” The Boeing 737-focus allowed dramatic gains in lowering costs.
Of the five investment grade airlines, Eliasen notes that four of them are single-fleet carriers.
Nico Buchholz, EVP of Fleet Management of Lufthansa Airlines, said European carriers don’t have capacity discipline and the network carriers have to reinvent themselves. Lufthansa Group includes low cost carriers that are growing while Lufthansa itself strives to be the No. 1 choice for its traditional market.
Eurowings, a Lufthansa company, provides low cost service to short haul routes and soon is expanding to long haul. Eurowings prompted other LH airlines, including Austrian, Lufthansa and Swiss, to lower costs because if they didn’t, growth would happen at Eurowings.
Buchholz predicts consolidation in Europe and says Lufthansa Group and IAG (the British Airways group) will be two of the survivors. “But I wouldn’t go beyond that” in predictions, at least not before the crowd of 1,800 at the ISTAT conference where the remarks were made.
ISTAT: Warning signs for airline industry
March 9, 2015: There are warning signs the global airline industry needs to heed, says John Luth, CEO of the US consultancy Seabury Group.
The economic recovery isn’t uniform across the globe, Luth said in the keynote address to ISTAT, the International Society for Transport Aircraft Traders at its 2015 conference in Phoenix.
Luth said North American airlines had to “fix” themselves before consolidation into four major carriers that now control 71% of the market. In Europe and Asia, the top four carriers control far less traffic. In Europe, low cost carriers now control 40% of the market while in Asia LCCs control 19%, a sharp rise over a few years ago.
Redefining the 757 replacement: Requirement for the 225/5000 Sector, Part 4.
By Bjorn Fehrm
Subscription required
Introduction
08 March 2015, c. Leeham Co: In the third part of the article series around the need for a more capable solution for 180-240 seats and 5,000 nautical miles, we compared different clean sheet single and dual aisle aircraft to the Airbus A321LR and Boeing’s 787-8, the two aircraft that form the border to the segment.
We could see that a single aisle aircraft started to have trouble with weight at around 220 passengers using our normalized seating rule set. This would with normal OEM seating rules be around 230-240 passengers. At the same time the dual aisle aircraft becomes stronger the more seats one assumes. The reason is their thicker fuselage, Figure 1, lends itself better to aircraft which passes 50 meters/160 feet in length.
Figure 1. Cross sections for our studied clean sheet designs; NSA6 (New Single Aisle 6 abreast), NLT6 (New Light Twin 6 ab.) and NLT7. Source: Leeham Co.
Their advantages in boarding and deplaning then starts to outweigh their disadvantages in weight and drag. This trend is explored further in this part where we add Cash Operating Cost, COC and Direct Operating Cost, DOC, to the analysis.
Summary
- The trends seen for NAS6, NLT6 and NLT7, our Middle Of the Market, MOM, models in the segment 180 to 240 passengers gets further reinforced when we go to COC and DOC.
- A factor supporting this is the broader spread of fixed and semi-fixed costs over larger aircraft seat numbers.
- Another is that the shorter ground turn-around time for dual aisles increases the utilization for the aircraft, once again forming a broader base for fixed and semi-fixed costs.
- Introducing CFRP for the fuselage brings clear gains in weight and therefore operating costs. Key for its inclusion in the MOM designs will be the manufacturing advances that will have been made by 2025.
Pontifications: Boeing cracks open door to 777 production rate cuts (or not)
By Scott Hamilton
March 8, 2015: Boeing cracked open the door March 5 to a production rate reduction on the 777 Classic, the first time since launching the 777X in 2013 that officials have publicly deviated from their insistence the current rate of 8.3/mo can be maintained to entry-into-service of the 777X.
At least that’s how I see it. Boeing sees it differently. Boeing says nothing has changed in its messaging.
In an appearance at the JP Morgan Transportation Conference, Greg Smith, EVP of Business Development and Strategy and Chief Financial Officer of The Boeing Co., Smith appeared to back away from the Boeing messaging to-date that has been all (to paraphrase) “We’re confident we’ll bridge the gap,” “We have three years of backlog and six years to bridge the gap”, “We’re confident we’ll maintain production at the current level,” etc, etc.
At least that’s how an aerospace analyst for a New York firm expressed it when he called me. After listening to the event, I agree with the analyst.
In the recorded playback of the JP Morgan event, here’s the report of Smith’s comments starting at 9:36 into the presentation.