Airlines Go For Bigger Airplanes to Bring Unit Costs Down

If you look at aircraft ordering trends in the US over the last few years, you’ll see an interesting story begin to emerge. After years of trending toward smaller aircraft that could fly more frequently, airlines have now begun to reverse course, at least in the narrowbody market. Bigger planes are now the in-and-cool thing, and I imagine that will make a lot of travelers happy.

The trend has been clearly shown with regional aircraft. Both Delta and United have dramatically shifted their strategies with a drastic reduction in 50-seat aircraft in favor of larger 70/76-seat regional jets. In Delta’s case, it has also brought in a bunch of 717s to fly routes previously flown with smaller aircraft.

JetBlue A320 Extension

That’s an old story, but it’s not where the trend stops. We’ve seen more and more airlines shift away from smaller mainline narrowbody aircraft to larger ones instead.

Fans of Southwest have already seen this in action. With the 143-seat 737-700 as the backbone of the fleet, Southwest decided it was time to step it up and order the 175-seat 737-800. Frontier has retired its small A318s in favor of A319s and A320s and is almost out of the Embraer 190 as well. US Airways has spent years replacing its 144-seat 737-400s with 187-seat A321s. That plan will finish next year when the last 15 737s in the US Airways fleet are retired.

JetBlue has taken much more drastic steps recently. It deferred delivery of 24 100-seat Embraer 190s from starting in 2014 until 2020. I assume that’s because the airline couldn’t come to an agreement with Embraer to cancel the agreement outright. At the same time, it is converting 18 of its 150-seat A320 orders to 190-seat A321s instead. It placed an order for an additional 15 of those A321s as well as ordering 20 A321neos when those new generation aircraft are introduced.

What exactly is behind all these moves? It’s all about costs, and not just costs but rather unit costs.

As you would assume, the bigger the airplane, the more it generally costs to acquire and the more it costs to fly. After all, if you have more weight, you’re going to need more fuel to power those airplanes through the sky. But when you divide that amount over the total number of seats on the airplane, bigger airplanes have lower costs per seat. In other words, you can generally add more seats at a faster rate than you’ll see costs increase.

Much of the reason for this fleet shift is the permanent change in fuel prices. Aircraft fleet planning is generally a pretty long-term practice, so we’re just now seeing the plans that were impacted by the fuel price changes that began a few years ago.

For US Airways, the fleet size has been relatively static, but there has been growth in the number of seats. There’s been enough growth that some analysts have even cautioned that it’s too much. But for US Airways, the airline sees an opportunity to add more seats at very low marginal cost. They should be able to pay for the change with a fairly small increase in revenue on the airplane. And that means US Airways can offer more, lower price seats to attract more travelers. Everybody wins if that works as planned.

At JetBlue, it’s a bigger issue. JetBlue has long been flogged by Wall Street for having a cost problem. This is an airline that has gradually reduced the number of seats onboard its A320s from 162 to 150, the number you’ll find on other airlines that actually have a First Class cabin. So JetBlue had to find a way to tackle its cost issue. One big way to do that is to go with bigger airplanes.

On many routes, JetBlue could easily support an A321. Think about all those bottomless pits of demand between the Northeast and Florida or the Caribbean. An A321 there will bring unit costs down a lot and it shouldn’t be hard to fill.

This probably is bad news for some of the smaller, thinner routes, however. The Embraer 190 is used in short haul markets that need a lot of frequency for business reasons or markets that don’t have a lot of demand. Clearly that strategy doesn’t seem to be working as planned since JetBlue originally envisioned a fleet of near 200 as opposed to the 60 it has now.

Legacy airlines will, of course, serve those thinner markets, but will low cost carriers ever find a way to serve them? It’s possible that new technology like the Bombardier C-Series can help. That airplane, which recently took its first flight, will dramatically reduce operating costs for an aircraft as small as 100 seats. The order book is still pretty thin, though. I’d say that’s a story that’s still developing.

We’ve seen the transformative effects of smaller, efficient airplanes in the widebody market. Airlines have raced to the 787 which offers better economics and longer range than a similarly-sized 767. That has opened up new routes and will likely allow airlines to add more frequency on existing routes. So maybe someday we’ll see the same in the narrowbody market. But for now, the trend is very clearly toward bigger narrowbodies.

[Original JetBlue photo Christopher Parypa / Shutterstock.com]
[Original crane photo via Shutterstock]


14 Responses to Airlines Go For Bigger Airplanes to Bring Unit Costs Down

  1. Matt Weber says:

    Several Points. You don’t add a lot of weight when you stretch the airframe, so ASM costs tend to come down. The flip side is you don’t get much weight back when you shrink it, so ASM costs tend to go up (as does range). Unless you address the fuel carriage problem, stretches will cost range, hence several Boeing ‘ER’ models, which are generally stretches with added useful fuel carriage capacity above the original version. In any case, shrunken aircraft have never been especially popular with carriers. Neither the A318 or the 737-600 have sold very well. The A318 situation was aggravated by Airbus’s original decision to only offer the A318 with the PW6000 engine, which is incompatible with the rest of the A320 family.

    The A318 basically gives you RJ seating capacity, with mainline costs, and the need to spare up for a different engine type (although that decision was later reversed when the CFM56 became available for the A318). So there are few legacy carriers that operate the A318 or the 737-600. The cost structure just isn’t very attractive. Note that there will be no A318NEO, or 737-6X, the expected market won’t support the development costs for the shrunken variants.

    It will be interesting to see how JetBlue deploys the A321, because the base aircraft doesn’t really have the range for transcon operations, although the A321NEO probably will (just barely).

    • CF says:

      Matt Weber – The A321 has come a long way and can reliably do transcons. US Airways has A321s on every Philly to LA flight and most Philly to San Francisco flights. Even more surprising, US Airways can now regularly schedule Washington/National – Phoenix on an A321 taking off from that short runway. And of course, JetBlue will be running A321s (in a less dense configuration) next year on JFK-LA/SF.

    • Jamzz says:

      I believe the A321 with Sharklets can do transcon missions if it has 1-2 aux fuel tanks. You lose bag/cargo space as a result.

  2. Have to admit I wouldn’t want the job to decide what type aircraft you want/need that will not be delivered for serval years yet. You plan for down the road using data available now, and it’s a crap shoot if you’ll be right or wrong once the aircraft all arrive. Jetblue and the E190 you mentioned is a good example of that. They may even be hoping in the mean time some other airline will want E190’s sooner and ‘buy’ their spot in line for them.

  3. Ben G says:

    There has been a fair amount said over the past week about JetBlue’s future E190s. I believe it was Barger himself who said that there is a pretty good chance that those will be converted to E2s which should be available by 2020.

  4. A says:

    You’re correct that people will applaud this if it means the regional jets get replaced with mainline. I’ve already noticed that in the past 5-10 years frequency has changed making overnight trips an almost 100% necessity.

    In the mid-2000’s I did a lot of day trips where I could fly out early AM, have a mid-day meeting, and get home that PM. (A benefit of living in the middle of the country.) That just doesn’t happen anymore unless I’m flying to another major hub.

    If demand on a route is constant it only makes sense that bigger planes will need to fill the void of reduced frequency.

  5. Sanjeev M says:

    When Airbus developed the 319/320 they correctly decided that 5 hours of range was enough for the vast majority of missions. In Asia it has always been clear that widebodies are the only way for a full service carrier to achieve a reasonable CASM. Look at a Cathay/SQ/MH/TG. We aren’t getting that far in the US, but it will be a great day when these 50 seaters will go to the desert.

    Once again the question is the cost to frequency (which “A” alludes to above).

    The other option is to go back to propellers and extremely small 19-seaters for hub feeder markets. ATR’s have been wildly successful in the rest of the world so I don’t see why it wouldn’t technically work here. Better to have new generation props then phase out 50 seaters and have no service at all.

  6. Chicago Chris says:

    I think there’s also a future for the Q400s. Cranky wrote about the rise of non-jet service a while ago as a way to cut costs. I’ve definitely seen an increase of Q400s flying United and while they are certainly louder, Republic has a nice interior compared to ComutAir’s Q300s.

    I also wonder if JetBlue will look to revamp its seats like United and Southwest. There’s a great cost savings there and IMO the difference isn’t that noticeable and the airlines have to be pleased to fit an extra 6 or so seats.

    Finally with respect to weight, the reduction of in-seat entertainment for wifi or cloud-based entertainment is also resulting in savings in fuel and maintenance.

    • CF says:

      Chicago Chris – JetBlue is revamping its seats on the new deliveries. The seat pitch goes down from 34 to 33 inches but the space goes up because they’re slimline seats. Not sure how they’ll feel yet, but they’re definitely doing it.

  7. Matt says:

    It’s been interesting to see the orders for larger narrowbodies when American ordered a large amount of A319s instead of A320s or even normal-density A321s. Any thoughts on why they bucked the trend? I know they ordered A321s too but those will be low-density.

    • CF says:

      Matt – American was sort of a special case. Ever since the Fokker 100s were retired, it had almost nothing between 50 and 140 seats. With the bankruptcy changes to work rules and pay rates, American wanted something back in that range, so it went for the A319. I don’t doubt that American could use a few A319s, but my guess is that it ordered more than it needs. (And it probably could have done better by ordering a next generation airplane like the Bombardier C-Series.)

  8. Dan says:

    Brett,

    I know A touched on this above, but have there really been much changes in frequency? Back in the day when I worked for UAX (like 12 years ago), we flew to a vast majority of destinations 4 times per day. This included markets like LGA. I hardly call that over served, and never bought into the “50 seat RJs crowd the skies, we can just run larger aircraft fewer times per day” theory. What we did do out of our IAD hub was serve 5 different airports in the NYC metro area: SWF, HPN, EWR, LGA, and JFK. I suppose they could theoretically upgauge the major NYC airports and drop SWF and HPN. But that’s a little different than reducing frequency and increasing gauge without dropping any cities.

    Yeah, there’s a handful of markets UA would serve hourly, and one of the most overserved markets back then had to be ORD-MSP with hourly service from AA, UA, and NW. By and large, however, you just don’t see 6x daily service (or greater) in very many markets.

    • CF says:

      Dan – Well we really haven’t seen much of the change yet – there are still a lot of the fleet changes to be made at both Delta and United. But some of these markets are going to have a hard time supporting larger aircraft so they are going to have to have fewer flights. I don’t have historical schedules in front of me, but look at what Horizon had to do when it ditched anything smaller than the Q400. I’m pretty sure markets like Walla Walla lost frequencies.

  9. aerodawg says:

    Somebody tell United about this trend so maybe theyll quit thinking hsv to den on a crj200 is my preferred routing…

    Crj200s should be banned as cruel and unusual punishment.

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