Friday, December 12, 2014

Transcending The 787 From The Back Door, A330 NEO

Slap a NEO on the A330 frame and you have an A330 NEO. A derivative of 787 engine technology, implants some 787 like metrics without using a clean sheet change out, or a new model class for Airbus. The advantage for Airbus is quickly summarized on balance sheets. How many gallons of Jet A can a customer buy from cheaper capitalization cost on one A330 NEO over buying the 787? If the answer is,  $20 million US dollars, then 10 million gallons of Jet A is bought with current prices becomes a number of significance and a Airbus selling point. If twenty-five thousand gallons is loaded on a Trans-Atlantic flight for an A330 NEO then it cost about $50, 000 dollars as a full load. But it will load something specific for its range and weight metrics with a standard safety margin within economic measures. Even if you go 70 % fuel capacity for an extended range trip of up to five thousand miles, the gallons will convert to about 15, 000 gallons or about $30,000 dollars fuel costs for one trip. Buying an A330 Neo with a new 787 type engine evolution will take the A330 even further.

As an A330 is sold for 20 million cheaper than the 787, you have tapped into capitalization savings and interest averted with the significant lower cost of buying cheaper. That too buys a lot of fuel for a less efficient aircraft than the 787. If the A330 NEO is 10% less efficient than the 787, as a number for this exercise, then an A330 NEO airline will slid slowly backward against the 787 performance, but it will have that $20 million advantage on price, as it uses its Extended Operational Cost Advantage (EOCA). A fancy way of saying, "we are leveraging the bargain". The metric also includes interest on capitalization investment, which also buys more fuel making-up the 10% efficiency margin the 787 has over the A330 NEO. The 10% percent fuel efficiency of the 787 over the A330 NEO and its 20 Million less cost, signals an A330 can fly for a long time within its routes at the same competitive nature of the 787 using the EOPA model. Here is how:

10 % fuel efficiency on an average, is on a load of 15,000 gallons on a medium route, (4,500 miles), which includes 1,500 gallons or more needed for the A330 NEO than the 787. At $2.00 (US dollars) a gallon, buying 1,500 (10% margin) more gallons for the A330 NEO cost about $3,000 dollars.  This amount divided into 20 million from its purchase savings, plus capitalization interest saved, means the A330 can fly about 7,000 different times on routes, before even approaching going into the red against the 787 in a daily comparison, of the bank accounts. Tack on a “baggage fee charge” (sneaky) on 250 tickets for $12, and the A330 NEO can buy the additional fuel margin lost to the 787. It will always stay even with the 787 on the bottom line. These are very rough numbers, but it is the selling or talking points Airbus uses when selling the A330 NEO. You can have a cheap 787 knock-off in the A330 NEO, and make money like a 787. Airbus is hoping for any lower tier and emerging Airlines will buy it.