32% rise in Passenger volume through 2014 (IATA)

Discussion in 'Blogstand' started by piqaro, Feb 14, 2011.

  1. http://www.cnbc.com/id/41193522

    My opinion is the IATA is always gun-shy and underestimates all their projections. The major US airlines are mostly in pretty bad shape for large intercontinental wide-body and its due to many reasons. Airlines have been risky, particularly in the US so credit was tight and making revenue was difficult.

    AA in particular has been forced to fly their single aisle planes far longer than they would like, while being fuel inefficient. UA recently apologized last quarter that their Widebody product to Oceana is below the standard they would like to maintain. UA is working hard to refit all their 777 with good results, but even if they did them all they don't have enough for swap-out; much less new markets as this global market grows and their money is on the A350. At the same time, huge airport projects are channeling off needed funds for the same reasons, while still having pressure to build and hold cash.

    While the rest of the world was buying airplanes at a relatively healthy clip recently (in view of the market), UA, DL and AA find themselves with fleets of antiques; especially in 2015. There are relatively few planes on order, most which will be fleet replacement. They cannot all order new aircraft and get them in a timely manner today. Filling new orders for 737/A319/A320/NG range planes before 2014 is very expensive as most of the production is bought. Earlier deliveries of any volume mean paying closer to book. Its much worse for Large wide-body with over 300 passengers. The A350 will no doubt be delayed at least two years and Boeing won't be able to ramp up significant production of the 747-8i without some real magic tricks. Everyone will still wait on the 787 at this point to see it finally delivered and see how it performs.

    Not all global airlines are fully in the same boat, but US airlines in particular were very conservative, especially after some terrible calls in fuel hedging in prior years. Lufthansa, Virgin, RyanAir and Emirates are in good shape for metal.

    With fleets still in the desert, its easy to believe they can just all be rebuilt, but its also dependent on industry capacity and passenger willingness to accept old metal when other carriers have new. Also these planes are in the desert because they are least fuel efficient in their fleets.

    A big difference now than 5 years ago is that Boeing is even more dependent on remote independent suppliers than Airbus is marginally. By not having strong direct control over parts, quality always gets some compromise. The most specific case is training new workers fast enough, even if the final assembly line is hot an capacity exists.

    Engines can ring up 25% of the cost or more of an aircraft and the Industry is fielding ever more efficient and cost effective engines. The key here is new and in some cases bleeding edge. So new that failures and re-design of parts is unavoidable. Then of course is the capacity and wrinkles in the supply chain to build them.

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