Sunday, November 10, 2013

Sense And Sensibility To The MAX

Two words define the 737 and the airline world, as a whole. Picture the airline market with many moving cogs and gears, emulating movement much like a composite aircraft. Sense has one definition and sensibility another view. The market place is caught in that vice of two words with different results. In 1910 you build a magnificent hotel  hoping to become the premier place in which to go in the world. The building is built to last 100 years. The beds get changed out every three years. The paint is applied every ten years and so forth. In all that you must keep guest entertained and updated with the latest trends into the 1920's. Just maintain relevancy. A very expensive need, is the cost of relevancy. If this magnificent hotel becomes a classic then the builders and business acumen have succeeded. By the year 2000, that hotel must have the latest appointments in service and technology (wifi) and maintain the sentimental flavor of a Victorian age hotel. However, the hotel market has shifted to a modern phase of many options and gadgets, bringing customers into the 21st century. Only people with a Victorian sensibility check-in to the overly renovated 90 year old hotel. Its market has shrunk into a refined niche for that old hotel, no matter how much renovation is conducted.

The scenario is true for auto makers, theatres, and cruise lines. The old Chevy Malibu is an example of re-invention in the 21st century. The Hilton has stepped up to a new era.  What does this has to do with aviation and Boeing? Everything, for the production of  new models and retiring old models, while keeping the customer relevant.  The NG was the next best thing just about a dozen years ago. It had all Boeing could throw at the 737 and make it relevant as a brand new model. Competing with the A-320 it had to offer more and more advanced features with its design. The   main selling point is that the NG would replace the follow-on Classic, which came from the original generation of 737's. Billions of dollars where poured at the 737 NG for its 25 year life cycle single isle jet. Those 25 years in service would make a customer buckets of money because of its longevity in service.

The 737 Max is on board in 2013. Promising the same kind of sensibility of having a long lasting modern single aisle airplane for the next 25 years. So, some airlines begin the retirement process on its 11 year old NG's fourteen years early, trying to make sense out of it. These airlines across the board would like to sell thousands of older NG's to down the line, to 3rd world airline companies just like the old days with the DC-3. "Wait a minute", someone says. "The 3rd world has grown up and are buying the latest and greatest from both Airbus and Boeing. That doesn't make sense!". What's a salesman of Boeing to do. Its sensibility says build it to the Max and a rate of 47 a month taking away Airbus' ability to shorten the wait on single aisle aircraft. Boeing is walking a tight rope of selling NG's and Max's at the same time. Ryan Air Bought 175 NG's this year and will leverage its capitalization with the after market Advance Engineered wiglets, as an ad-on, and install advanced engines making its investment fly cheaper from lower purchase price (lower loan interest payouts), and reasonable fuel efficiency. As a matter of speaking, Ryan  Air bought new beds for its hotel and added a world class spa and new fixtures, et al. The other airlines are going for the latest designs and features as a brand new Hilton.  Ryan Air is a good or great seat buy depending on your sensibilities. The sensibilities market shrinks with age. The Sense market widens with newness.

If you want to experience practicality and reliability you go for the tried and true product of your  youth. If you are adventurous you would want to to fly on all new concept airplane that may reach its perfection in ten years after delivery. However, the NG exercises your sensibility, for value, comfort and reliability of that NG. What is your sense? Adventure, excitement and  lower perceived cost? If you have a cost sense it is for a better efficiency, which is wiped out by its higher cost of purchase for the newest designed airplane like the MAX. It would be like buying a 100 mpg car for $100,000. How much fuel could you buy for $80,000, the amount saved by by buying  a $20,000 eco car. Even though the Max will burn 14% less fuel it is a more expensive airplane, and maybe could be replaced in 15 years after its first delivery, where the airline is buying the next slice of bread. By then many NG's will still be flying. The Max is for companies that will charge maybe an extra $20 dollars to fly on the MAX or a NEO. My sense and Sensibility collide on this point. I will pay for the ticket out of town no matter the model, regardless if the sense says go Max or your sensibility says go NG. It comes down to preference for the customers and the bottom line for the airline. The steeper capital investment on for the MAX could be paid back at  a quicker rate depending on the word of mouth promotion or an airline marketing for its new equipment. The real battle is for both sense and sensibility over its competitor, Airbus. It is Ryan Air Sense that the NG purpose will maintain its sensibility for 15 more years, and then it will have the sense to buy the next best slice of bread in 2030.