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Why Budget Airlines Buy Boeing  
User currently offlineCruising From Canada, joined Jan 2001, 258 posts, RR: 0
Posted (12 years 5 months 1 week 4 days 18 hours ago) and read 1611 times:

Business Week 02/11/02
author: Carol Matlack


Airbus Industrie can't seem to get a ticket to the hottest party in its own neighborhood--the rapid expansion of no-frills air travel in Europe. None of the region's discount carriers, from Ryanair to easyJet to Virgin Express, owns an Airbus plane. And there was little surprise on Jan. 24 when rival Boeing Co. (BA ) landed an order for up to 150 Boeing 737-800s from Ryanair, a deal that ensures the Dublin-based carrier will remain all-Boeing for at least the next 10 years.


Airbus, based in Toulouse, France, faces an uphill fight to win over Europe's discount airlines, which are expected to buy as many as 300 planes over the next 10 years, even as European flag carriers such as the bankrupt Sabena and Swissair have canceled dozens of Airbus orders.


Why can't Airbus grab a piece of the action? Its A320 model, the chief competitor to the 737, lists for only $54 million, compared to about $60 million for the Boeing plane. But the A320 has nine fewer seats than the 189-seat 737, which works out to $1 million less annual passenger revenue per plane. Most important, the 737 has been flying since 1966, some 22 years longer than the A320. That has created a large supply of secondhand 737s for discount carriers starting up on a shoestring.


And once a no-frills airline gets hooked on one plane, it stays hooked. Discount carriers usually fly only one model of plane to keep down maintenance and training costs--an approach pioneered by the leading U.S. discount carrier, Southwest Airlines, which flies exclusively 737s. Ryanair bought its first batch of 737s in 1994 and has stuck with them ever since. The story is much the same at easyJet Airline Co., the No. 2 European discounter, and at Britain's Virgin Express. London-based Go also uses the 737, as does KLM's Buzz. "The 737 is the aircraft of choice for low-cost carriers," boasts Toby Bright, executive vice-president for sales at Boeing.


Airbus is caught in a corner. To sell these carriers the A320, it would not only have to match deep discounts being offered by Boeing but also throw in extras such as discounted spare parts and free training for pilots and mechanics. In better economic times, Airbus might have done just that. But with aircraft orders worldwide expected to drop 60% this year, Airbus can scarcely afford such generosity. Indeed analysts say Boeing's margins on recent sales to discounters have been razor-thin.


That's why the betting is on Boeing to win a big order soon from easyJet. The London-based carrier announced recently that it wants to buy 75 planes and will consider the Airbus A320. But most industry analysts figure easyJet is just trying to squeeze a better price out of Boeing, which is estimated to have sold the 737-800 to Ryanair for less than $40 million per plane. Airbus says it will bid aggressively on the easyJet deal. But, says Airbus commercial director John Leahy, "We have no intention of being drawn into a price war."


Airbus has had better luck breaking into no-frills travel in the U.S. than on its home turf. It has found a loyal customer in New York-based JetBlue Airways Corp., a two-year-old carrier that has a fleet of 22 Airbus A320s, with up to 132 more on order. And two years ago, Airbus persuaded Denver-based Frontier Airlines Inc. to phase out its fleet of 24 Boeing 737s and switch to two smaller Airbus models, the A318 and A319. Frontier and JetBlue say the Airbus planes are more fuel-efficient and offer wider seats. "I see no reason why, worldwide, we won't eventually have the same kind of market share with the discount carriers that we have with other carriers," Leahy says. In Europe, though, it's still Boeing's party.





18 replies: All unread, jump to last
 
User currently offlineWidebody From Ireland, joined Aug 2000, 1152 posts, RR: 8
Reply 1, posted (12 years 5 months 1 week 4 days 18 hours ago) and read 1533 times:

Interesting, something I've been thinking about myself recently......apparently Airbus were fairly deep in discussions with Ryanair, but then again, you never know whether its just to squeeze more outta Boeing.......60 million USD to less than 40 million USD is a huge discount......necessary in the current situation though.........

User currently offlineTravellin'man From United States of America, joined May 2001, 530 posts, RR: 0
Reply 2, posted (12 years 5 months 1 week 4 days 18 hours ago) and read 1511 times:

There's also the issue of cargo capacity. As far as I can tell, many Airbus models are able to carry more cargo than their Boeing counterparts; however in the no-frills and holiday charter market, this is not really an issue, because they are only carrying pax baggage. So maybe Airbus' advantage in this area is irrelevant, thereby giving Boeing more leverage with its planes' advantages.


It is not enough to be rude; one must also be incorrect.
User currently offlineN79969 From , joined Dec 1969, posts, RR:
Reply 3, posted (12 years 5 months 1 week 4 days 18 hours ago) and read 1501 times:

I think someone on this site mentioned that Boeing hold up better than Airbus in high-cycle operations. I do not recall in what thread this was discussed.

User currently offlineWidebody From Ireland, joined Aug 2000, 1152 posts, RR: 8
Reply 4, posted (12 years 5 months 1 week 4 days 18 hours ago) and read 1493 times:

I was also suprised that hear that apparantly, Ryanairs 737-800's are causing many maintainence problems, and some record files for the -800's are larger than those for the -200's........then again, stick with one a/c type is the only way to go for a low-fair airline......

I would have thought that with the current downturn, Ryanair could have sourced relatively new second -hand 737 aircraft dirt cheap?


User currently offlineEugdog From United Kingdom, joined Apr 2001, 518 posts, RR: 0
Reply 5, posted (12 years 5 months 1 week 4 days 18 hours ago) and read 1487 times:

Definetly Airbus aircraft have the edge on cargo capacity. Perhaps this is why Jet Blue bought A320. Cargo is a viable option on their long haul coast to coast flights!

User currently offlineGDB From United Kingdom, joined May 2001, 13147 posts, RR: 78
Reply 6, posted (12 years 5 months 1 week 4 days 15 hours ago) and read 1407 times:

Some errors in the report, EasyJet are considering the A319, and comparing B737-100's to NG is facile.
But I'm sure that Southwest's experience is a factor in carriers that are, or think they are, emulating them.
By mentioning Jet Blue and Frontier, the report rather contradicted it's line of arguement.


User currently offlineDonder10 From Canada, joined Oct 2001, 6659 posts, RR: 22
Reply 7, posted (12 years 5 months 1 week 4 days 14 hours ago) and read 1393 times:

Main reason is the abudance of second hand cheap 737 classics that allow low cost carriers to start up and then build up their operations.As part of the low cost model is simplicity and standardisation of fleet type it makes sense to get the updated 737s instead of getting Airbus.

User currently offlineConair From United Kingdom, joined Nov 2000, 196 posts, RR: 0
Reply 8, posted (12 years 5 months 1 week 3 days 20 hours ago) and read 1278 times:

Widebody,
Evidently Ryanair were looking at secondhand aircraft they were advertising recently in the aviation press for up to 50 used B737 aircraft, but with the discount they have got from Boeing it was just as attractive to by new. Both Ryanair and Easyjet fly their aircraft over at least 12 hours daily with very fast turn arounds, reliability is a very big issue for both carriers, Whisch is why they would prefer to buy new. It was reckoned a few months ago that the option of buying secondhand was partly a negotiating lever on Boeing.




User currently offlineEGGD From United Kingdom, joined Feb 2001, 12443 posts, RR: 35
Reply 9, posted (12 years 5 months 1 week 3 days 20 hours ago) and read 1273 times:

Donder10 is right, the obvious choice for new low cost carriers are 10+ year old 737's at a very low list price, and then they build up their fleet from there, it is only common sens that they keep commonality in the fleet, and keep buying 737's.

Also, i'd say this article was slightly biased to Boeing... 'But the A320 has nine fewer seats than the 189-seat 737'.

hhmm, yeah, if we are going to compare the A320 to the biggest 737 version, which to my knowledge no low cost carriers have ordered, we should surely compare the largest A320 series, which is the A321...


User currently offlineConair From United Kingdom, joined Nov 2000, 196 posts, RR: 0
Reply 10, posted (12 years 5 months 1 week 3 days 20 hours ago) and read 1266 times:

The B737-800 is the varient that Ryanair are buying. Yes that is what Easyjet did,starting with a couple of srs 200's they moved on to various leased 737-300's from a variety of sources. When they acquired their own 300's they started to standardize the fleet and have replaced a few of the leased ones, and are now taking new srs 700's. I believe they took delivery of their 10th 700 (G-EZJJ) this week.

User currently offlineAndreas From Germany, joined Oct 2001, 6104 posts, RR: 31
Reply 11, posted (12 years 5 months 1 week 3 days 19 hours ago) and read 1258 times:

Yes, of all arguments, the ones about high availability of second-hand 737s seems the most plausible one of all. Furthermore it doesn't make much sense to switch from B to A or vice versa, when you already have a fleet of considerable quantity, because that would cost a lot of money (follow-up and transaction cost), even if, in this case, A offers a comparable pricing.
On the other hand I do think that A and B will reach a patt situation in the LCC market, too, it just will still take some time.
Regards
Andreas



I know it's only VfB but I like it!
User currently offlineDavid_itl From United Kingdom, joined Jun 2001, 7359 posts, RR: 14
Reply 12, posted (12 years 5 months 1 week 3 days 18 hours ago) and read 1248 times:
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This artllce appeared in the London Evening Standard:

Airbus will have to make budget airline easyJet one of the most generous offers in its history or risk ceding Europe's fast-expanding no-frills short-haul market to its American arch rival Boeing.

The European aircraft manufacturer, which has claimed it is now outstripping Boeing in new orders, has entered the bidding to deliver the new 75-strong fleet that easyJet has said it wants by the end of 2007 to keep pace with major rival Ryanair and grow to a level where it will be competing with European big three British Airways, Lufthansa and Air France.

It is understood Airbus came close to making a winning offer to deliver 100 new aircraft to Ryanair but the Stansted-based carrier owned by Michael O'Leary decided last week to stay with Boeing.

Aviation analysts at Merrill Lynch say Boeing was so desperate to win the contract that Ryanair may have nailed the Seattle-based manufacturer for discounts of up to two thirds. This means Ryanair is paying just $20m (£14m) for each 189-seat next-generation 737-800 priced in the Boeing catalogue at
more than $60m.

EasyJet chief Stelios Haji-Ioannou said last month that Airbus is in the running to land a contract to supply his airline with enough new aircraft after 2004 to meet its planned 25% a year growth target. Airbus said it would customise its A319 aircraft to seat 150 passengers in a bid to rival the 149-seater Boeing 737-700s easyJet is buying to increase its fleet from 27 aircraft to 48 over the next three years.

But industry sources believe Airbus will not only have to aggressively undercut the massive discounts being offered by Boeing but also make a very strong case for easyJet to run a mixed fleet of Boeing and Airbus jets with all the extra costs of running two separately trained teams of pilots, cabin crew and maintenance engineers.

One insider said: 'Airbus's best hope may lay in nobbling Boeing by offering to take the whole 737 fleet off easyJet's hands so the airline becomes an Airbus-only fleet.'

While that could prove ruinously expensive, industry experts recognise budget airlines as the key European growth market for the rest of the decade. The 737-700 and A319 have list prices of about $50m but catalogue guides are now largely irrelevant as the big two manufacturers slug it out to win new orders.

David/MAN


User currently offlineLowfareair From , joined Dec 1969, posts, RR:
Reply 13, posted (12 years 5 months 1 week 3 days 14 hours ago) and read 1208 times:

>>hhmm, yeah, if we are going to compare the A320 to the biggest 737 version, which to my knowledge no low cost carriers have ordered, we should surely compare the largest A320 series, which is the A321...<<

The 737-900 would be more comparative to the A321 as it's bigger. The 738 has garnered orders from Ryanair, along with ATA and Sun Country. I can't think of a single low-fare carrier that ordered the A321, although B6 took the A320.

And about AI making EZY a 150 seat A319; wouldn't that just add another flight attendant as 149 seats are the most a plane could have staffed by 3 attendants.


User currently offlineTravellin'man From United States of America, joined May 2001, 530 posts, RR: 0
Reply 14, posted (12 years 5 months 1 week 3 days 14 hours ago) and read 1188 times:

One insider said: 'Airbus's best hope may lay in nobbling Boeing by offering to take the whole 737 fleet off easyJet's hands so the airline becomes an Airbus-only fleet.'


Ay, there's the rub...



It is not enough to be rude; one must also be incorrect.
User currently offlineGeotrash From United States of America, joined Jun 2001, 326 posts, RR: 0
Reply 15, posted (12 years 5 months 1 week 3 days 13 hours ago) and read 1163 times:

Widebody mentions that Ryanair's 737-800s are experiencing much higher than normal maintenance needs. Can anyone comment on precisely what these problems are? I would like to know more.

-Geo


User currently offlinePW100 From Netherlands, joined Jan 2002, 2350 posts, RR: 11
Reply 16, posted (12 years 5 months 1 week 3 days 13 hours ago) and read 1159 times:

Lowfareair

Yes, the 737-900 is bigger than the -800. However Ryanair will fly their -800 in a 189 pax config, which is the max certified pax limit. This is due to the configuration of exits and the emergency evacuation certification requirements.
The -900 has the same exit config as the -800 and is therefore also limited to 189 pax. All airliners that are taking the -900 use the extra space for increased pitch. They have some extra ft of cabin length, which is used for better pitch as compared to the -800.
therefore the -800 is the obvious choise if you're looking for max pax and min cost. I think the A321 would do even better, but I guess it's just too big for the budget airlines



Immigration officer: "What's the purpose of your visit to the USA?" Spotter: "Shooting airliners with my Canon!"
User currently offlineEGGD From United Kingdom, joined Feb 2001, 12443 posts, RR: 35
Reply 17, posted (12 years 5 months 1 week 3 days 13 hours ago) and read 1147 times:

Woah, didn't know the 738 also seated 189 seats, still, not comparative, thats like saying that the A320 is better to buy than the 732 because it seats more...

User currently offlineSrbmod From , joined Dec 1969, posts, RR:
Reply 18, posted (12 years 5 months 1 week 3 days 13 hours ago) and read 1147 times:

The reason why low-fare airlines buy Boeing is the ready availablitiy of 2nd hand Boeing (and MD) jets like the 727, 737 Classics, and DC-9 family (including the MD80 series), while the oldest A320 family aircraft are a shade over a decade old, which in the airline industry is very young. The relative young age on the A320 family makes the cost of acquiring them more expensive than say acquiring a Boeing product of similiar capacity. So if you are a start-up budget carrier, your initial fleet will consist of the 20+ year old Boeing and MD products because of the ready availabilty of such aircraft at a good price. Why do you think the 737-200 and the DC-9 have been used by some many low-fare startups since the early 1990s? The bigger airlines were replacing them with 737NGs and A320 family aircraft. And when the low-frare airlines that survive long enough to upgrade their fleet, they will more likely stick with something from the stables of the company that made the aircraft they started off with. The only airline to really buck this trend was Frontier, which decided to replace their 737 Classics with A319s and A318s. JetBlue is the rare exception to all rules of startup airlines, since they had the needed capital to start with new aircraft, and that has really raised the bar to other potential startups. Maybe Airbus will snag a low-fare order other than JetBlue or Frontier. If they do snag an order from EasyJet, those 737s will be remarketed by Airbus, just as Boeing has remarketed Airbus products acquired in trade.

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