Issue 352: Looking back, Looking forward

Times have changed, but it’s fascinating to note the similarities between then and now. In forty-year-old discussions of the benefits of the Airbus A300 over the Boeing 727, it’s easy to draw parallels between today’s A330 and 737 fuselage cross-sections, since they’re practically identical. The A330 and A340 inherited the A300 and A310’s relatively spacious eight-abreast economy class configuration, while Boeing’s 737 traces its relatively narrow 3-3 economy layout back through the 757, and 727 to the 707. (Cabin Pressure, this issue, discusses forty years of passenger experience.)

It’s easy to draw parallels to today’s A330 and 737 fuselage cross‐sections, since they’re practically identical.

But fleet needs in 2017 depend, more than anything else, not on what Australia’s airlines need for their own demand, but for the demand of their much larger partners and global alliances in feeding domestic routes. Emirates, for example, dwarfs Qantas on routes to Europe, the Middle East, and Africa, while Virgin Australia’s international footprint is orders of magnitude smaller than its increasingly crucial longhaul strategic partners Delta, Etihad, HNA Group, and Singapore Airlines.

In this context, Australia’s airlines simply do not need to carry the majority (or even a significant minority) of the domestic passengers connecting from international destinations.

As a result, the fleeting decisions airline managers were making forty, thirty, twenty or even ten years ago seem almost in another world. With properly built systems and the right flavour of metal-neutral joint business agreements, new opportunities open up: can lightly loaded flights Adelaide or Melbourne shoulder some of the eastbound connecting traffic from Sydney? Can passengers arriving from Asia or the Americas connect over Brisbane? What role do low-cost subsidiary carriers and affiliated regional airlines have in carrying some of these passengers?

On balance, it that there are three principal categories of airframe for Australia’s fleets in airlines’ current planning models: widebodies, mainline narrowbodies, and regional aircraft.

The A380’s stall almost hands the widebody future to the 777, 787 and A350

By many measures, the Airbus A380 is the world’s best aircraft. Passengers love it and, anecdotally, will book towards the superjumbo if they can. This has not, however, been matched by the A380’s dwindling order book and slowing production rate.

Virgin Australia is not of a scale to value A380s and is unlikely ever to be, while Qantas has repeatedly stated that it is content to keep its fleet of twelve but has no desire to expand its numbers. The reasons for this are manifold, and many of them are outlined in Australian Aviation, July 2017. Some, too, date back further, to our very first issue in 1977, when journalist Stanley Brogden wrote:

“The simple fact about the wide-bodied aeroplane is that if you have the traffic to fill them you will make far more profit than if you carried the same amount of traffic in the smaller types. The TriStar, the DC-10 and the Airbus are all cheaper to run on the seat-mile basis than the previous generation of smaller aircraft.”

“Any of the three types can be operated to break-even or better if the cargo-holds are filled and there is not a passenger on board! For the cargo capacity of any of them is as big as an all-cargo Electra.”

Indeed, an advertisement for the A300 by a certain Airbus Industrie said opposite the 1977 article, “its breakeven point on total costs can be met by adding sixteen passengers to the full freight load. the rest is profit.”

“In practice,” Brogden explained, “the wide-bodied needs 40 per cent to 50 per cent passenger load-factors, with some cargo, to be a profitable operation, when all direct and non-direct costs are taken into account.”

Other airlines appreciate the superjumbo on trunk routes, however. Indeed, Qantas’ partner Emirates’ embrace of the A380 has reduced the Red Roo’s need for the volumes of passengers the A380 offers on all but the most airport slot-constrained routes, as demonstrated by the redeployment of one of the London-bound A380s once Qantas’ Melbourne-Perth-London Boeing 787-9 flights begin.

Yet the future will not be entirely point-to-point. “Even when we start flying direct from Sydney and Melbourne to London, I think still Dubai will play a big role because Emirates has 40 destinations in Europe,” Qantas CEO Alan Joyce has said. “We’re never going to fly direct to places like Venice, Prague. What [the partnership with Emirates in the context of nonstop 787 operations] does is we get the best of both worlds.”

The A380 may seem an aircraft before its time, and may yet find its role, much as the iconic 747 was never intended as a long-term passenger aircraft. But the direction that most airlines have chosen for their longhaul operations is where large twinjets point them. Virgin Australia’s Boeing 777-300ER and Airbus A330-200 fleet, together with Qantas’ 787-9 and A330 aircraft, epitomise the appeal of twinjets: some for domestic, some for international, some for both.

From a fleet flexibility perspective, Australia’s airlines would ideally like to operate the same aircraft on ultra-longhaul flights like Sydney-LA or Perth-London as they do on higher demand but relatively shorter flights into Asia, across the continent, or to add capacity on the Sydney-Melbourne-Brisbane triangle — even if that means offering a higher level of comfort in business class. This kind of strategic underutilisation for the benefit of fleet commonality has been a hallmark of many successful network carriers over the last forty years.

Looking to the future, Qantas’ widebody demands come from a number of directions, with four likely to be among the most pressing: the holy grail of nonstop Sydney-New York and Sydney-London flights, enabled by the Airbus A350-900ULR’s extra fuel tanks or potentially similar solutions on the Boeing 777-8; a requirement to eventually replace the A330 fleet that ranges from five to fifteen years in age serving high-demand triangle, larger transcontinental and Asian routes; an expected increase in the number of U-shaped mission patterns to match the London-Perth-Melbourne-Dallas service; and a potential need for some future upgauging of transcontinental flights.

Virgin Australia’s needs are relatively similar, although it has never outwardly stated that it has realistic aspirations to serve Europe or the eastern US itself. That said, partner Delta has a large hub operation at New York’s JFK.

To fulfil those needs, the airlines have three options: second-hand or late-model aircraft from the existing 777 or A330 families; re-engined 777X or A330neo aircraft fresh from the factory, or composite twinjet 787 or A350 jets.

Used, re-engined, or new “plastic fantastic”? It’s a remarkably hard choice

Neither Qantas nor Virgin Australia seem bothered by integrating used aircraft into their fleets, whether that’s Virgin’s operation of ex-Emirates A330-200 jets that have now exited the fleet or Qantas’ acquisition of an ex-Asiana 747-400 and 717-200 aircraft from a variety of sources.

Indeed, with low fuel prices seeming likely to continue for the foreseeable future — and some within the industry even betting on dropping oil prices as the electric vehicle revolution takes hold — the chance to lease or purchase inexpensive airframes with either hours, cycles or both left to run seems increasingly attractive.

Similarly, the commonalities between A330-200 or -300 current-generation aircraft and their re-engined A330-800neo and -900neo size counterparts could well prove attractive as an interim step, especially given that these jets are less expensive and more swiftly available compared with the A350 or 777-X.

For Virgin, much of the decision comes down to whether to bet the house on low fuel prices through picking up second-hand airframes, or to hedge its commonality bets with A330neos. An outside choice could be to refleet with an aircraft sized between the 777-300ER and A330-200 but with its range capabilities, like the 787-9 or A350-900, but this would be expensive and trip up on one of the main issues with using an ultra-long-range jet for shorter missions: it’s “too much aircraft”, and not optimised for that kind of distance.

But what those older jets don’t solve are the ultra-long-range growth questions that face Qantas in particular. If Qantas wants to upgauge its 787-9 flights to London-Perth or Melbourne-Dallas, it would need to add a full extra Dreamliner on top of its existing aircraft, ideally (though not always practicably) staggered in terms of flight timing.

At that point, the appeal of a larger twinjet becomes obvious, and the A350 and 777X families both look appealing in separate ways.

The A350-900 can offer airlines an incremental size upgrade option at a greater range compared with the 787-9, and indeed airlines like Qatar Airways already use it in this way. The A350-1000, meanwhile, can allow for significant growth, and the much-rumoured A350-2000 could go a long way towards higher-capacity regional expansion.

The 777-8, meanwhile, is larger than the A350-900 but with a greater base range. Its 777-9 sibling will be the biggest twinjet ever produced, rivalling some Airbus A380 configurations in total passenger numbers. They certainly seem set to dominate their size category, since Airbus has a gap between the A350-1000 and the A380-800. What these high-density larger twinjets are unlikely to do, however, is replace A330 or 787 in the market for 4-7 hour flights like transcons or high-density high-demand hops between Sydney and Melbourne.

This mid-haul, mid-sized market is a fascinating one, bracketed at the lower end by narrowbodies with increasingly longer range, various proposals for a next-generation “middle of market” 757 replacement, and by the 787, A330 and even A350 at the higher end.

Yet the A350 and even the 787 run into the “too much airplane” problem here. These composite twins are expensive, and their capabilities come into their own on longhaul and ultra-longhaul routes. Airlines, too, have demand for new longer routes that the 787’s and A350’s economics open up. As prices fall over the next decade and these jets become more commonplace, though, it’s likely that the Dreamliner in particular will replace A330s.

The interesting question, though, is how quickly that will happen, together with how the middle-of-market options — and particularly the narrowbody revolution — will affect it.

Bigger and better: re-engined, larger narrowbodies balance short-haul and medium-haul needs

“The real cliff-hanger in the Australian airline industry for the 1970s has been the choice and timing of a wide-bodied airliner for the domestic service. It is the biggest series of excuses and postponement our airlines have ever known,” Stanley Brogden wrote in these pages 40 years ago. With the battle over Perth transcontinental flights almost an equal preoccupation for domestic service in the 2010s — particularly up front, with five types of premium seats offered by Virgin Australia alone in that time ranging from middle-seat-free economy, domestic business recliners, ex-Emirates cradle sleepers, angled lie-flat seats and finally fully flat beds with direct aisle access — the next decade is likely to be one where the narrowbody returns to prominance.

It’s clear that for the foreseeable future the Airbus A320neo and Boeing 737 MAX families will dominate the market for narrowbody aircraft. The Qantas and Virgin Australia airline groups have, in their time, operated both A320 and 737 aircraft, with Virgin Australia already having chosen the 737 MAX for its next refleeting exercise for smaller aircraft.

Qantas, however, has yet to make a decision, with the MAX and the neo both useful in different ways. Overall, and distilling down a colossal amount of argument, the 737 is lighter and cheaper; the A320 is more capacious and more capable.

If these narrowbody aircraft are to remain within the confines of their existing missions of jetting around and across Australia, then it’s very much a matter of who offers the best price for a hundred or so MAXes or neos. (That’s unless Airbus, like Boeing’s 737 MAX 10, double-stretches its narrowbody into a shorter range but higher capacity A322neo, which would be an even higher-capacity narrowbody.)

But if Qantas — and not just the Qantas group, but Jetstar as well — want to expand the role of narrowbodies into Asia, then the A320neo family’s middle-of-market capabilities are clearly superior. (The fact that the A321neo has outsold the 737 MAX 9 so significantly is just one reason why it’s so clear.)

From a range standpoint, the standard A321neo and 737 MAX 9 can range to a maximum of 3500 and 3515 nm, respectively, while the A321LR version of the A321neo gains an extra 500nm of range. The arc that this extra range describes from Australian airports is key, and especially from airports that are not Sydney with its principal gateway draw and capacity restrictions.

From Brisbane, the extra 500nm between the 737 MAX 9 or A321neo and the A321LR includes central and Western Japan, much of southeast China, most of Vietnam and as far west as Bangkok, as well as all of Indonesia and Malaysia. From Melbourne, that extra 500nm puts within range an arc between Taiwan, much of mainland southeast Asia and the western islands of Indonesia and Malaysia. From Perth, the 500nm adds a large swathe of China and India, as well as almost all of southeast Asia.

It’s not just the sheer range, though: it’s the flexibility in operational choices within the same family, something that airlines are increasingly realising is important to their fleeting decisions. An A320neo operator can add A321LR jets relatively simply to its fleet, perhaps even on a temporary lease basis to try out new markets for viability. In the event that they don’t succeed, it can redeploy that aircraft on a domestic or shorthaul international route where it might have used a regular A321neo with only a small penalty for the extra fuel required.

It’s not just the sheer range, though: it’s the flexibility in operational choices.

Strategic underutilisation, too, begins to look attractive when an airline can mix in a transcon with an Asian round-trip using the same aircraft for missions that have similar passenger experience requirements. With seatmakers focussing on innovative products for the narrowbody market, including Thompson’s Vantage Solo herringbone and a number of fully flat beds without direct aisle access, replicating successful examples like JetBlue’s Mint subfleet looks more and more attractive.

But just as the narrowbodies are nibbling away at the smaller widebodies’ raison d’être, a new generation of more efficient smaller airliners are pushing the smallest siblings of the 737 MAX and A320neo families out of the way.

Australia is ripe for a rethink of regional, subsidiary and affiliate flying

As Australia’s airlines (and indeed the rest of its economy) figure out what the post-resources world looks like, sub-mainline flying is changing, both at the lower and higher ends of the capacity spectrum.

Virgin Australia’s regional arm is phasing out its Embraer fleet and some of its ATR 72 turboprops, while QantasLink carriers are finding their space in a world where Bombardier Dash-8-100 and -200 aircraft are being retired, and indeed where Bombardier no longer manufactures anything smaller than the Q400 on which Qantas installs 74 seats. Competitor ATR, meanwhile, offers the similarly sized ATR 72 but also the 50-seater ATR 42 — yet nothing smaller to replace the Saab 340 and Fokker 50 aircraft that have served Australia well.

The lack of competition in the 50-seater market may be an issue for those smaller destinations where air service is almost a utility, and indeed there may well be regional operators who find themselves in a real problem when trying to operate to smaller airports. While the ATR is very efficient, it is not a miracle worker, as Virgin Australia has discovered.

Part of the issue with discussing Australian airlines’ fleet needs today and in the future at this level of operations is the volatility in the market, with smaller scheduled and charter operators running into financial difficulties and the larger airlines seemingly steering wide of smaller aircraft.

Towards the middle of the regional capacity market, Bombardier’s Q400 and the ATR 72 have a healthy duopoly, and indeed the efficiency of turboprops on sub-100-passenger loads has meant that much of the world has abandoned smaller jets.

Into this market plunge revamped aircraft like the Bombardier CRJ and Embraer E2-175, plus newer jets including the Sukhoi Superjet, Mitsubishi MRJ and Comac ARJ21. Given the distances involved in Australian flying, even if limited trans-Tasman options are included, it is seeming increasingly unlikely that the niche for these jets within Australia is particularly large or lucrative.

That’s especially the case given the preponderance of older larger aircraft — whether we call them regional jets or small airliners — like the Fokker 100, BAe 146/Avro RJ, and Boeing 717, all of which have the added Australian benefit of operating into more rudimentary airfields thanks to high wings or rear-mounted engines. Given the nature of the market for their services, the low cost of their largely depreciated operations, and the low price of fuel, it would be surprising if any major dents were made into this end of the market either.

Airport capacity is the spoiler for all this fleeting talk

Yet with airports becoming increasingly crowded, upgauging is a fact of life.

A crucial part of the challenge facing airlines when making decisions about fleet purchases is the balance between frequency and aircraft gauge. Without wanting to oversimplify, there are benefits in flying two smaller aircraft rather than a single larger one on the same route: connections, passenger schedules, redundancy, utilisation, and more.

Yet with airports becoming increasingly crowded, upgauging is a fact of life, particularly to high-demand longhaul destinations like Hong Kong, Tokyo Haneda and London Heathrow, to name just three airports where slots are like gold dust.

Airlines must make fleet decisions based on numerous factors, many of which are externalities where they have few or no levers to pull in terms of capacity, curfew and other operational challenges.

Where airports expand, airlines can operate more frequently with smaller gauge services. Where there are capacity constraints, airlines need larger aircraft, operated less frequently. The need to make decisions in these complex contexts have plagued aviation since the very first issue of Australian Aviation, which discussed widebody aircraft options for TAA and Ansett:

“From the Australian standpoint, the wide-bodied must come in the early 1980s to get Sydney airport off the hook…Ansett thinking now runs on the lines that a 7 per cent growth factor from today through the rest of the 1970s would make the wide-bodied mandatory for 1981 because of the congestion at Sydney — and to a certain extent also at Brisbane.”

“Both airlines take it for granted that no government will move to build a second Sydney airport or the second runway at Mascot before the 1980s, if then. The only method easing the situation is by the wide-bodied, which will cut down the growth in aircraft movements at peak periods.”

How things don’t change.