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.
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.