timz
Posts: 6102
Joined: Fri Sep 17, 1999 7:43 am

Embraer 190 Lower Break-even Than A320?

Wed Jun 18, 2003 12:40 am

Okay, JetBlue says the Embraer 190 only costs 1 cent more per seat-mile than the A320. Could be true for all we know. And maybe the break-even load factor is 60%. But now he says the A320 break-even is 73%!

So, I guess the 60%-break-even for the E190 assumes that per-mile fares will be higher on the E190? For the same distance? Or is there some other way this could be true?
 
sllevin
Posts: 3312
Joined: Wed Jan 30, 2002 1:57 pm

RE: Embraer 190 Lower Break-even Than A320?

Wed Jun 18, 2003 1:29 am

Actually, Timz, you read that annoucement the same way I did initially.

But when you read the statement in full, it says that jetBlue's AVERAGE cost per seat mile will rise by 1 cent. In other words, when you total up all the seat miles flown by 190's and 320's, the average cost will go up 1 cent.

Now, we don't have access to the assumptions used to that figure.

However, if you use "full fleet" estimates (that is, basing in on full delivery of current orders), I think you are lookiung at 1/4 of all seat miles being flown by the 190 fleet.

In other words, the 190 costs about 4 cents a seat mile more than the 320. But, when averaged into jetBlue's total flying, you see just a 1 cent average across the entire fleet.

Again, these figures could be wrong, but the 190 being 4 cents a seat-mile more than then 320 doesn't totally surprise me (at least, not as much as it only being 1 cent more did!)

Steve
 
timz
Posts: 6102
Joined: Fri Sep 17, 1999 7:43 am

RE: Embraer 190 Lower Break-even Than A320?

Wed Jun 18, 2003 11:07 am

Sounds likea good clarification, but it's the break-even load factor that I don't get. The article I read was in the SF Chronicle for 11 June; it quoted Neeleman that the E190 would break even at 60%,and went on to say (tho not indisputably a quote) that the A320's factor was 73%. That's what puzzles me.
 
Jeff G
Posts: 438
Joined: Fri Jan 18, 2002 9:56 am

RE: Embraer 190 Lower Break-even Than A320?

Wed Jun 18, 2003 2:56 pm

Steve,

I was looking for that quote (i.e. average costs go up by 1 cent), but I couldn't find it. It wasn't in the company press release. I found this, though, from Forbes: "According to Neeleman, regional flights on the Embraers would cost about one cent more per passenger-mile than the longer routes, so JetBlue will charge higher prices than it now does." That doesn't sound like average costs to me.

I did find another quote that mentioned that the EMB-190 would only cost $6 more per seat than the A-320 to make a 600 mile trip. Now, it's not very straightforward to make an apples to apples comparison with just that information, but you can make some analysis from other existing data.

For the 1st quarter, system CASM was 6.25 cents and the average stage length was 1169. So the average trip cost was 1169 * 162 * .0625 = $11836. A 600 mile trip is about 51% of that length, so the cost would be less, but still more than 51% as much due to fixed costs. Call it 70% to be conservative. So, a 600 mile trip in the A-320 would cost $8285. Dividing back out, the CASM for a 600 mile trip is 8.52 cents. The cost per seat is $51.14.

If the cost per seat in the EMB-190 is $6 more on a 600 mile trip, then that cost would be $57.14. Its CASM would therefore come out to 9.52 cents, exactly one cent more than the A-320's, not 4 cents more. The math does work, and it is consistent with what we know about JetBlue's current operating costs.

JetBlue employs an analyst staff that crunches numbers on everything (potential routes, costs, traffic, yields, etc.), and they are very conservative. They like to beat estimates, and don't like to be overly optimistic. If they think that costs on the -190 will only be a cent higher on medium-short routes than on the -320, you can assume that it will be pretty close to that. They have proven to be frighteningly prescient, and I'm inclined to believe them on this.

Timz, if the BELF on the -190 is expected to be 60%, as opposed to 70% or so on the -320 (it was 70.8% in 1Q), that reflects a higher expected RASM on the -190 routes, since those routes will be planned to avoid LCC competition. The math works here, too. If a 600 mile trip costs $5714, and the load factor is 60%, you would need an average fare of only $95.23 to break even. With the right route selection, that should be easily sustainable. You'd only need an average fare of $114.32 to make a 20% operating profit, which is phenomenal.
 
sllevin
Posts: 3312
Joined: Wed Jan 30, 2002 1:57 pm

RE: Embraer 190 Lower Break-even Than A320?

Wed Jun 18, 2003 11:32 pm

Jeff:

The quote was in the article carried in the WSJ, but as we all know, when it comes to aviation the papers aren't always accurate on the details  Smile I'd accept your figures over theirs any day!

Embraer has truly done an excellent job if they've gotten the CASM on a 100 passenger jet down to just a penny more than a 160 passenger machine. Anyone have any idea where a 717 would stand in reference to that?