Thursday, January 5, 2017

The Era Of Airline Expansion Is Drawing Nigh Replacement is The Future

What has Airbus and Boeing wrought? An era is closing before this decade ends. The era of "expansion" in the airline market place. The last ten years has seen the airline industry eagerly purchase wide bodies in great numbers, expanding the business reach not over continents but around the world. 

The advent of the Boeing 787, 777X and the A-350 is going into a pausing purchase phase as airlines are currently seeking renovated air frames from the millennial era of the 2000's. The low oil prices, higher new technology costs, and its filled world routes converge causing a slower demand for those types. Most used aircraft which can fill legacy markets such as European and North America passenger service begins afresh with a certain intensity for renovation.

One case in point is the Emirates condition. Tim Clark, Emirates CEO, ordered a preponderance of A-380's during the last dozen years and it has a substantial wide bodied high tech aircraft yet to be delivered with few route options available. Near term new orders from Emirates will be a one-for one aircraft exchange. For every wide body aircraft retired, a new generation aircraft will replace it as it tries to seek new routes for its inventory. 

Emirates has few options to expand and has relative few older aircraft needing a renovation or retirement. Additionally, Emirates is the Poster Child for the future of market place conditions for most all airlines operating successfully today. Currently Emirates has a massive wide bodied order pending between choosing Airbus or Boeing. The trigger for the order is a higher fuel price status at this time. It is rumored before 2017 closes, Emirates will make a long term order to the delivery cycle with Boeing.

Fig. 1 Emirates Wikipedia reference

As one can observe in the above figure, Emirates has firmly landed into the fleet replacement mode as it still remains to receive 224 wide bodies with too few routes for which to place those already ordered aircraft. Higher fuel prices would cancel any notion of renovating what is in place with fleets having older models and only if the lower fuel prices continue for another three years. 

Emirates is not the type of company for flying older renovated equipment. It will just slow orders and deliveries of its already placed order backlog. Emirates is the "Gold Standard" for Airline expansion.

By 2020 a projected fuel price increase will shake-up the slump of wide body orders across the board as airlines will once again dump inefficient inventory, and then opt for new aircraft replacement and fleet expansion.