Qantas to look at domestic fleet replacement after Project Sunrise evaluation

The last Boeing 737-800 delivered to Qantas was Retro Roo I VH-XZP in November 2014. (Victor Pody)
The last Boeing 737-800 delivered to Qantas was Retro Roo I VH-XZP in November 2014. (Victor Pody)

Qantas chief executive Alan Joyce says consideration of what aircraft will replace the airline’s domestic fleet will occur once it completes its evaluation of types to operate ultra long-haul flights as part of Project Sunrise.

Currently, the airline has 67 737-800s and 28 Airbus A330-200/300s that operate on domestic and international routes. There are also eight New Zealand-registered 737-800s that are flown on trans-Tasman services by Qantas’s Jetconnect subsidiary.

The first of those 737-800s was delivered in 2002, making them 15 years old. At the other end of the scale, the newest 737-800 – Retro Roo I – arrived in the fleet in November 2014.

The 18 A330-200s and 10 A330-300s have a similar age profile, with the oldest aircraft rolling out of the Airbus final assembly line in 2003 and the most recent in 2012. Some of the A330-200s have also spent time operating in the Jetstar fleet.

Joyce told shareholders at the Qantas annual general meeting (AGM) in Melbourne on Friday the 737 fleet was still performing exceptionally well and generating good returns.

However, attention would soon turn to a replacement aircraft, with Boeing’s 737 MAX family and the Airbus A320neo (new engine option) lineup the two leading contenders.

Joyce said Qantas determining the best aircraft to replace the 737-800s was expected to occur after it completes its evaluation for its Project Sunrise challenge to Airbus and Boeing to come up with a suitable airframe to mount ultra long-haul nonstop flights from Australia’s east coast to cities such as London and New York. Service entry is planned for 2022.

Further, Boeing’s proposed new mid-sized airplane (NMA) project for a small widebodied airliner would also be examined for Qantas’s domestic network, with Joyce telling shareholders it could be a great domestic aircraft.

“We’re hopeful that after we finish Project Sunrise that we can start doing a competition for what’s the right aircraft domestically,” Joyce said in response to a shareholder question at the AGM.

Project Sunrise – the name is a nod to the “Double Sunrise” flights Qantas operated between Perth and Sri Lanka using Catalinas in WW2 – pits Boeing’s 777-8X against the A350-900ULR from Airbus in a two-horse race.

Separately, Boeing’s NMA study was focused on a 250-270 seat, 5,000nm range widebody aircraft that would sit in its product portfolio between the 737 MAX 10 and 787-8. It would feature a composite wing and fuselage. While the proposed NMA aircraft is still be evaluated, Boeing indicated at the Paris Airshow earlier in 2017 it could fly in 2023 and enter service in 2025.

Joyce told reporters in Seattle recently the proposed NMA would be useful as a way of providing domestic capacity growth into an increasingly slot-constrained Sydney Airport and the perfect vehicle for transcontinental routes between Perth and Australia’s east coast.

While Qantas has no more narrowbody orders, the airline group has 99 A320neo family aircraft on firm order from Airbus, comprising 54 A320neos and 45 of the larger A321neo.

The aircraft are ostensibly destined for its low-cost carrier unit Jetstar as older A320s are paid off and to cover growth. First delivery was scheduled for the 2018/19 financial year.

Joyce said future aircraft orders – Qantas will have eight 787-9s in the fleet by November 2018 and holds 45 options and purchase rights for the type – would be guided by the company’s financial targets.

“We do have a commitment that we do pace our capital expenditure,” Joyce said.

“For us that capital expenditure has to fit in to the returns the business is making, has to be managed.”

Meanwhile, Qantas chairman Leigh Clifford expressed a positive outlook for the Australian economy.

“Our balanced portfolio of businesses and brands showed its value in a complex market,” Clifford said.

“Global conditions reflect the rapid change in technology, geopolitics and demography – but Australia’s economic fundamentals remain strong.”

On future returns to shareholders, Clifford it could be up to two years before the company was able to offer a fully franked dividend.

In 2015/16, Qantas delivered a dividend to shareholders for the first time since 2009 at seven cents per share fully franked.

There was a partially franked interim dividend for the 2016/17 first half, while the final dividend was seven cents per share, unfranked.

Qantas has been unable to offer franking credits, where a company offsets its tax liability against the dividends it pays to shareholders, given the losses it has accumulated in previous years.

“The reality is we had limited franking credits,” Clifford said in response to a question.

“And unfortunately, it’ll be probably, I’m not sure whether it is be 18 months or two years, before we expect to be able to fully frank the dividend.

“At the moment though the dividend is unfranked and we would very much rather that be not the situation but because of our lack of franking credits we’re not able to fully frank.”

Comments

  1. Paule says

    Isn’t the NMA simply a smaller 787? Say a 787-3? A 737 is still only an upgraded 707.

    Perhaps a deal to get out of the remaining A380 contract could involve a large order of A320/21 and the A350-9ULR.

  2. Lechuga says

    I get the feeling qantas might go flat out Boeing in their future fleet. The 737 max, the NMA, all 3 variations of Dreamliner and then the 777x for the really long range and capacity.

  3. D W Bell says

    Qantas must look at the 38 to 60 seat jet market as the options on turbo’s are slowly declining to replace the Dash 8- 400’s long term. Qantas does not have a good track record in NSW with 6 airports no longer supported by the brand and other minor boutique carriers taking up routes that QANTAS could have made their own, had it not been for the Sydney centric philosophy. Too LATE QANTAS the gate is closed and the aircraft gone.

  4. Christopher says

    The earliest 737s are going to get quite long in the tooth if they are to be replaced 2025~

  5. Lechuga says

    Boeing should really look into another regional plane. Like the 757, the 717 was under appreciated st the time and once pulled off the shelf airlines began looking for them.

    The new Embraers look alright, as do the Bombardiers. But I don’t think they’ll fit in the same group as the 717.

  6. Patrickk says

    The c-series is the 717 replacement. I suspect QF won’t be pure Boeing. Airbus/bombardier for QantasLink and Jetstar.

  7. John Reid says

    I’d be happy to fly the 717 for the next 20 years. 2-3 is a magic seat arrangement for Y class. After that, maybe the C-jet…

    Re 777s, the first one I flew was a BA example in late 2001 LHR-Dulles (we paid EUR100 return per head for FCO-Dulles – not many people wanted fly post 9/11). In Y, it was 2-5-2, which I think beats 3-3-3 by having only one seat per row 2 seats away from an aisle – but I have never seen that arrangement since.

  8. random says

    @Paule

    787-3 was never a shorter fuselage option, it was simply a shorter range variant.

    The NMA / MoM aircraft would seem to be too big to effectively cover the B752/B762 market void if it’s 250-270 seats. That really doesn’t put it squarely in the gap between B738 and B787-8. Surely 3 class capacity of around 180-220 seats is more closely aligned to the market void?

    At that size and with 5000nm range, it could provide QF with regional international route options for an array of unserviced or underserviced Australian ports, like Adelaide, Hobart, Canberra, Newcastle, Sunshine Coast and Townsville.

    At 250-270 seats, it is not significantly different from B772 and A332 – which then seems to undermine its utility and discredit its purpose of filling a size void.

    The danger here for QF is to see the NMA / MoM exclusively as a way of providing more domestic capacity whilst ignoring its potential for creating new markets, particularly in the regional international sphere.

  9. JR says

    Thinking outside the box maybe the CS100/300/? and the NMA together could replace the 717/737/A330 for Qantas domestically.

  10. Stu Bee says

    Sticking with 737Max is probably going to be the cheaper of the options available, lower cost to train flight & cabin crew. the engineering side will be similar too. Jumping across to A320Neo will insure extra costs like Ground loading equipment, containers etc

  11. Roger says

    I personally cannot see a clear link between selecting aircraft for Project Sunrise as opposed to shorthaul replacement. It should not make too much difference whether they choose one manufacturer for the former and the other for the latter or the same for both.

    As to the medium-size aircraft, has anyone heard of the events of the past week of United rumoured to be considering purchasing a large number of 767s? In my mind, this could either a) force Boeing to restart production on the 767 in its current form; b) make some small adjustments to the 767 to make it even more attractive for United, assuming that this is something that really interests them; or c) try to push United to something else like the 737MAX or 787. I personally see b) or c) being most likely. Assuming that United does acquire more 767s, whether they are in one of the currently-available variants or a newer version still branded as the 767, does anyone see Qantas potentially jumping onto that? I don’t, but what do others think?

  12. Lechuga says

    @roger the 767 is almost obsolete these days. The 787 is basically the new model 767. The 787-8 is the 767-300 replacement. The only thing I can see United doing regarding that is to push United for the 787-3, which is a shorter range more domestic version of the 787-8. Mostly designed for Japan, but would possibly be useful in the US.

  13. Chris says

    Silly question, just wondering if Qantas will tell QantasLink to replace the Fokker 100s & B717-200s with the same aircraft or is it up to Cobham & Network management to decide when and what the replacements will be ?

  14. Teddy says

    Much of the world completely ignored the B757 and seemed to want additional capacity on the B767/A310 from sometime in the late 1980s – creating this gap in the 180-240 seat market? Is this market a poison chalice with bad economics?

    For Boeing – Why propose the NMA rather than a small capacity B787, particularly if it is as big as they are suggesting? At 250-270 seats it seems to be oddly skewed towards B787 and not B737 – so why develop a completely new aircraft for that?

    For Qantas – Is domestic utility really the best employment of this aircraft if it has 5000nm range? Obviously wide-body looks good for transcontinental domestic services (Perth-East Coast, Darwin-East Coast, North QLD-Victoria), but that range on a smaller wide-body aircraft would seem to open up a bunch of SE Asian ports also?

    Does anyone have a theory for why Boeing is going big on this aircraft; or why Qantas seems completely disinterested in thin international routes?

  15. AlanH says

    So to be fully frank, Qantas is not able to offer fully franked dividends at the moment. Frankly, will they ever be able to?

  16. Corey says

    The best option for QANTAS to take is to buy the 737 MAX in the 8 along with some MAX9 and or 10s. Also, the Boeing NMA to replace the A330s. There are minor changes from the 737NG to the MAX meaning it only takes a couple of days for pilots, cabin crew and maintainers to be qualified there for reduced training costs. If they ordered a fleet of 90-100 MAXs along with 40 NMAs. This allows for increased capacity along with new routes domestically and internationally. On another note is the new Bowing NMA a next gen 757 but a wide body version?? What engines will power it GE, CMF? Will it still have some mettle sections of the fuselage?

  17. Russ says

    The Bombadier C-series seems ideal for the shorter routes. On fact the C100 and C-300 can be flown by the same pilots giving greater flexibility for staffing.
    Very good reports coming through from Swiss about economy and running costs.
    Would Qantas be brave enough to say no to Boeing? Its a cosy relationship.

  18. John says

    @ roger , The 767 production line is still going . I was in the factory a couple of months ago . They don’t have any orders from airlines . The ones currently being built are to become Tankers for the USA Air Force

  19. Darren says

    I bet that Qantas will stick to Boeing on its QF domestic fleet, however they may switch to Embraer or Bombardier on their QFLink fleet.

    Perhaps the A330s will stay or they might use the A350 instead.

    I foresee the use of the 777X for the future Intl routes

  20. Glenn says

    Re the comment in 767 is still in production. i was in the Boieng plant a month ago and they have an order from Fedex for 50 767’s on top.of military refuler so its going on for a while yet and there was talk of the fact that A380 may stop producing next year lack of orders ( not sure i believe it) but still 747-800 is in production primarily as a freighter but some passrnger variants still on books. The aircraft of the hour is the 787 they can’t get them out fast enough. The new 787 with longer wing that folds up like miltary aircraft on aircraft carriers will be interesting to see.