Sunday, March 29, 2015

The 787-9 is the Giant Fuel Price Slayer

It is known that lower fuel price gives comparable status for the 777-200 with the 787 -9. In fact  Seeking Alpha Link has expressed with diagramming on whether the 777-200 can beat the 787-9 with lower fuel prices considering passenger load factors. Passenger load is defined as the number of seats filled on average compared to the number of seats available. If a 777-200 seats 316 persons and the load factor averages 85%, then it sells 268 seats each trip. If an airline sells that average, then the same number of seats sold fills 91% of a 294 seat 787-9.  The point is made through graphing, when the 777-200 at some point intersects with 787-9 profitability after fueling at the current lower fuel price. The article makes this point well.

Image result for 787-9
The reality is what is facing airline research teams when buying the 787-9. The 787-9 is the more real option in the long run. Prices will rise because Jet A potential is finite.

Simple observations:

  • Finite Oil Reserve
  • Fuel by Crops becomes more expensive from production expense.
  • Increased passenger demands increases fuel prices.
The theme above is fuel prices will naturally rise significantly and airlines know this fact. The current fuel price dip is a unnatural geo political economic condition brought by market imposition from oil producing nations. 

The main concept for buying the 787 during lower fuel price period comes from the over-arching theme, efficiency is for higher fuel prices. The 787-9 is the most efficient wide body flying.. It will slay Giant fuel prices. The airlines know this graphically, statistically and profitably. It was not made for lower fuel prices which have a temporary nature. It was made for swinging at high fuel price fastballs with the fat part of the bat.

Seeking Alpha feature goes to the detail making sure the reader understand whether KLM is better off with its 777-200 or 787-9. My answer is no, the 777-200 is only a placeholder for the 787-9 arrival. If it is chasing the moving low fuel price target keep the 777-200. Low fuel prices are gone by 2016. An order filled takes five plus years where chances are fuel prices are doubled over today's prices. The doubling fuel price effect hits the fat part of the 787-9 bat, and all today's graphs become a moot point. Where they become only an important what if graph.

KLM should be pondering a 787-10 purchase if it perceives any passenger growth within its business model. At 323 passengers, the 787-10 is within a passenger step growth pattern. Buying the 787-9 having a 91% capacity average indicates a need for the 787-10 if KLM grows it market. The 8,000 mile range 787-10 will touch all its current route destination with greater capacity than both the 777-200 and 787-9. The stable compliment is part of a natural passenger growth progression as the travel world continues to grow. The higher fuel prices puts a shine on the corporate apple if equipped right.