Have you already seen the Boeing 737 NEO?

This hasn’t happened for a long time: The 737 is outselling the A320 this year by a wide margin. Right now the order race between the two airplane families stands at 432 vs. 185 net orders. Something fundamental must have happened to trigger this massive shift in customer favour. 
 

It could well be that potential A320 buyers are sitting on the sideline until Airbus has decided on the A320 NEO. They first want to see, what the numbers look like. Especially the leasing companies are worried because an advanced version of the 25 year old bestseller certainly would affect residual values of their fleets of A320 Classics.

However, I think the main reason is that a 737 NEO has already started rolling from the production line in Renton. 

It can be visited in the Boeing mock-up center. It is the 737 with the so called Sky Interior. Using the technology and the design language of the revolutionary 787 interior, it sets a new standard in the narrowbody world. I have seen it myself some weeks ago. It is mind blowing. From the passenger perspective the 737 has become an airplane of a new generation.

 

The new cabin is spacious, modern and friendly. Instead of hatracks which make you sprain your neck when taking or leaving even an aisle seat, there is ample headroom now - even for someone who unlike me is six foot five. At the same time the new pivoted bins are significantly more spacious than the old ones. Don’t ask me, how they did it. The cabin will be quieter as well (although that's a difference you can't notice in a mock-up).

Yes, this interior makes every other 737 and every A320 look old. No wonder that since it has been available as an alternative to the conventional interior, most of the customers have opted for it.

The discussion whether the A320 or the 737 offers better passenger comfort has always been an exaggerated marketing thing – more a question of creative measuring and a matter of belief and taste than of relevant facts. But now there is a clear leader, perceptible to any passenger and visible to the naked eye. No tape measure required.

In the real world there is not that much difference in the economics of both airplanes (pros and cons depend more on specific operation of an airline). Therefor the new cabin makes an even bigger difference. As this year’s sales numbers are indicating it seems to turn the tide in this important market segment in favour of Boeing.

For two reasons Toulouse needs to find an answer to this: 

1. Airbus can’t afford being outsold like this year because the A320 family is its main cash cow (besides the A330).
2. The 737-700 now is less vulnerable from a possible market success of the Bombardier CSeries, which has a contemporary cabin design as well. The A319 isn't.

They better come up with some innovative ideas soon.


Heinrich Grossbongardt
h.grossbongardt@expairtise.com
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Fly, Robin, Fly

A reader of my recent blog „Who want to fly with the dinos?“ sent me an interesting document, the breakdown of the costs to own and operate a charter jet. Even though it is not labelled as confidential I probably should not have it and I won’t disclose the company. But it is one with a bigger fleet; so the data should be somewhat typical .

What is the most expensive part of the business? It’s not fuel, crew or maintenance, the most costly aspect is to own the aircraft. On a per-flight-hour-basis aircraft depreciation accounts for nearly 50 percent of the total cost. When you take into account that a 10 million dollar investment isn’t used more than one hour a day (300 to 400 flight hours per year), this shouldn't surprise anybody who has at least basic economical understanding.

The numbers clearly show that utilization is the most powerful lever to influence the economics of business jet charter. Increasing utilization from let’s say 400 to a still not impressive 500 hours per year would lower the cost per flight hour by roughly ten percent. So the answer to an operator’s question “How can I make more money with my airplanes?” was already given in 1975 by German pop group Silver Convention: Fly, Robin, Fly.

You think, that is easier said than done? Yes, at least not without adopting new ideas and changing the modus operandi. Learn to sell your service, establish an transparent, easy to use and efficient distribution system, reach out to clients who haven’t used business aviation before and you will see this industry taking off.

Another interesting aspect of the data: It explains how all the single-aircraft-operators with a 15 year old Citation, who distort the charter market at the moment, can survive. With a virtually written off aircraft and no overheads they can easily live with spending more on fuel and maintenance and still make money – even with only a few flights per months.

Heinrich Grossbongardt
h.grossbongardt@expairtise.com
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Bio fuels are great – sustainability can be tricky

When Swedish utility giant Vattenfall announced that the new heat and power station it was going to build in Berlin, would burn wood instead of coal everybody thought that this is an excellent idea. Today many people aren’t that sure any more, because they have learned that the one million tons of wood pellets would not come from German forests but from Liberia. In the African country wood is an important energy resource for poor people, so environmentalists are concerned, that German hunger for carbon neutral energy might make firewood unaffordable for ordinary people in Africa. 

This example demonstrates that protecting world climate can be a tricky thing. As in any complex system you have always to be aware of unexpected side effects. 

The aviation industry needs to be careful not to fall in the same kind of trap. Achieving the ambitious goal of carbon neutral growth by 2020 requires besides advancements in fuel efficiency the use of 2^nd generation bio fuels made from Jatropa, Camelina or Salicornia until algae based fuels become available. The good news is that producing theses feedstock doesn’t interfere with food production, because it grows on soil which can’t be used for traditional agricultural crop. 

On the other hand even Jatropa, the most productive bio fuel source available, needs about three hectares (75 acres) for producing 10.000 litres per year. In order to make it available in meaningful quantities will require large scale farming. In most cases this means monocultures, which have their own ecological downsides. Plus there will be a significant impact on the socioeconomic side. 

All this needs to be considered in an early stage in order to mitigate risks and to maximize the benefits for both the global airline industry and the economies in third world countries. For them this can be a source of valuable foreign currency. But Bio fuels will only be accepted by the public, when they are produced in a social acceptable and sustainable way. 

The best experts on assessing the social and ecological impact of projects like this are certain NGOs. Airbus, Boeing, the engine manufacturers and all other working to secure the future of aviation, would be well advised to get them on board early. Experience from other industries shows, that it is usually smarter to discuss these aspects early, than to do damage containment later. 

Just ask Vattenfall about their Berlin experience.

Heinrich Grossbongardt 
h.grossbongardt@expairtise.com 
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Who wants to fly with the dinos?

Believe it or not – there are industries which haven’t arrived in the 21^st century yet. Sure, they use computers, communicate per email and have a presence in the Internet. But when you compare their processes, how they understand the market and how they are running sales & marketing with what is state-of-the-art in other industries, they look like dinosaurs.

Business Aviation is one of those who have staid behind. You want indications?

• According Eurocontrol 40 percent of all business jet flights are positioning flights – aircraft flying empty from A to B to pick up a customer, who wants to fly from B to C. 
• The average utilization of a bizjet used in the charter market is a mere 300 to 400 hours per year. Many of these aircraft cost as much as a Dash-8 or a Canadair Jet, which have 2.000 productive hours per year.
• Eurocontrol says that 63 percent of all operators in Europe have just one airplane. The U.S. market is not fundamentally different.
• 90 percent of all business charters are arranged through brokers. Business Aviation is one of the last industries where you need to go through a middleman to buy a service. 

When I recently told an executive of a big German charter and aircraft management firm, that I think they are living still in the 80s, his answer was: “May be true. But where is the problem?” Exclusivity has been an excuse for inefficiency and the abundance of customer’s money during the last boom made it easy not to change. But now we are living in a different world and Business Aviation is struggling to find its place. 

A business jet is a time machine. It takes executives, technical specialists and other users where they want to go when they want to go. Our economy can’t get by without it. Just look at the Eurozone reaching from Lisbon to Tallinn and from the Polar Cycle to Sicily. But to exploit it full potential the Jurassic Parc of Business Aviation needs to evolve and to develop 21^st century structures.. Business leader, who are pushing their companies through one cycle of efficiency gains after the next in order to stay competitive, simply expect all their partners, suppliers and service providers to have the same culture. 

Those few, who have gotten the message, have been successful even during the downturn. My favourite example is Bernhard Fragner and his Globe Air team, a Linz/Austria based Citation Mustang operator. But innovators like him are scarce. We need many more like him.

Business Aviation finally needs to live up to its name. 

Heinrich Grossbongardt 
h.grossbongardt@expairtise.com 
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