Airline Weekly - July 27, 2011

Cover Story

Going the Extra Aisle: The A320-NEO stole the show, but airlines await big widebody developments as well

Where is Boeing going? After a week in Paris, airlines of the world are still left wondering. Will it paste a pair of next-generation engines on its B737, just like Airbus is doing with its A320? Or will it build an all-new narrowbody?

Whatever the decision, it won’t be the only one in the aircraft realm with giant implications for the airline industry. As Boeing weighs the merits of a new single-aisle airplane, it’s at least as focused on the lucrative twin-aisle market, one typically characterized by higher profit margins and one less prone to future competition. While Canadian, Chinese, Russian and Brazilian manufacturers are jumping into the narrowbody space, Boeing and Airbus still have widebodies to themselves for at least another decade. And according to Boeing’s latest 20-year forecast, the worldwide market for twin-aisle aircraft will grow at an average annual rate of 4.4% over the next two decades, making it the fastest growing segment of the aircraft market. These widebodies, moreover, will account for about 43% of the market’s value, despite representing just 22% of all deliveries.

The reason for this strong expected demand is clear enough: globalization is requiring more intercontinental business travel, which requires aircraft with great range capability. Deregulation—think of all the new open skies agreements being signed—is also creating opportunities for airlines to add more longhaul international flights. And so is global economic growth more generally. Better yet for airlines, this economic growth is spreading to large parts of the world rather than being concentrated in just a few regions.

But just as important as all of this are new midsized widebody aircraft models now on the market. Made possible by major step changes in technology, these planes offer airlines first and foremost significant fuel savings, the biggest single reason for their extreme popularity. With energy prices at painfully high levels for most of the past decade, fuel burn reduction has come to dominate airline decision making, from what markets they’ll fly to what planes they’ll buy. And even if fuel prices do wind up falling, a growing array of environmental regulations and charges will ensure that fuel economy remains a priority. In addition, these next-generation widebodies offer greater operating capabilities, most notably their ability to fly much farther than the aircraft they’re replacing.

The prime example is Boeing’s new 787, which enters revenue service this autumn. Produced in two versions, the... (419 of 1677 words)

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There’s no place like Paris for shopping.

Taking that sentiment to heart, airlines went wild buying planes at the Paris Air show, with roughly 30 different airlines walking away with orders. The big star of the show was the A320-NEO, the newly re-engined narrowbody promising major improvements in fuel efficiency. The biggest order came from AirAsia, which bought no fewer than 200 units.

Boeing made more news for what it didn’t do: reveal its narrowbody strategy. But it did leave Paris with a fair share of orders, including some for widebodies. Bombardier didn’t wow anyone with CSeries orders. And Embraer was disappointed to see JetBlue lose enthusiasm for E190s. But new entrant Comac from China got a confidence boost from Ryanair, while Russia’s Sukhoi scored its first customer in western Europe.

If all the plane ordering weren’t festive enough, oil prices fell again as importing countries released supplies from their strategic reserves.

You’d think Qantas and Cathay Pacific, two of the world’s most profitable airlines, would have much to be festive about. But even the best have their bumps, and Qantas insists its longhaul mainline business is in trouble. As for Cathay, some key markets like Japan and Shanghai are under pressure.

Will America’s top airlines feel pressure from Spirit Airlines? The LCC is boldly pushing into heavily defended territory like Chicago O’Hare and Las Vegas. The second quarter, which ends this week, is finishing with a bang.

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