Wednesday, January 25, 2017

Wide Body Demands Comes From Cheap Tickets Not Fuel

Currently, the bent on buying a wide body is high fuel prices, thus suggesting the wide body market is saturated and will derive fewer sales going forward. However the secret is not low fuel prices but hauling more passenger through the incentive of lower seat prices. Several European carriers have stocked up with 787-9's, such as Norwegian Air offering incredible deals for the traveler.

Cheap fuel only goes so far on an old frame or airplane type such as the 767 or A330, as most airline customers are considering during this low fuel price siege. Norwegian lists on its website a Paris to JFK flight for only a $199. Quite astounding for going transoceanic from a major point to point.

Economy cabin
All fares per person in EUR
Premium cabin
All fares per person in EUR
02:05 PM
08:30 PM
New York-John F Kennedy
Premium on parts of route
Premium on parts of route

The example is a low fuel price buster using the wide body aircraft instead of old equipment. In order to be competitive the price of fuel does not have to rise. Qantas is currently re-configuring its fleet with long range 787-9's going all the way from Australia to London because it can! 

The second note is the old inventory has a narrow shelf-life and the airlines inventory will need replacing within the next few years where placing a wide-body order in 2017 is advantages no matter where the fuel price goes. If fuel does rise up there will panic driven orders for the 737Max, 787 and 777X types churning a ripple effect in the seat pricing. Either way the low fuel price status quo will no longer drive how airline buy its inventory. Competition is the key driver at this point in time. 

The US pipeline from Canada was approved by President Trump and it will suppress fuel prices a little while longer even if the Trans Continental Pipeline had not been approved by the President.

This is not a game changer for buying new generation wide bodied aircraft vs buying in the surplus market. The older bodied option is drawing nigh as those fleets will age faster than an Airline can write it off the books.