GUY NORRIS / LOS ANGELES & ANDREW DOYLE / SINGAPORE
Airbus's long-range, four-engined giants and Boeing's souped-up 737s are squaring up in the race to corner transpacific routes
Asia's economic giants, be they struggling or emerging, are the engines of change for the transpacific air transport market. Collectively, they have driven more than a decade's worth of developments in new technology, bigger and longer range aircraft, and larger engines.
The fight for market dominance over the North Atlantic, which gave impetus to the commercial and technological developments in air transport for most of the last century, has largely given way to the new battle for the Pacific. In particular, it is the northern Pacific where the bulk of traffic flows between Asia and North America, and where the main stand-offs will occur.
Airbus and Boeing are the main participants in this struggle: two vastly different companies with completely different products and market strategies. Both, however, agree on the need for very long range aircraft, an unavoidable pre-requisite when competing in transpacific markets. Which will prevail: Airbus's long-range A340-500/600 quads, allied to the vast capacity of the new A380 - or will Boeing's apparently ageless 747-400 and twin-engined 777-200LR/300ER family lead a new generation of high-speed Sonic Cruisers?
Asia's airlines will be pivotal in determining whether Airbus, with its ambitious A380 ultra-large airliner, can unseat Boeing from its dominant position at the upper end of the long-haul widebody market. Meanwhile, the debate has begun over whether twinjets will begin to dominate the transpacific market, as they have the Atlantic, or, as Airbus argues, four engines for long over-water flights will win the day.
Airbus insists that the projected 17% lower available seat kilometre (ASK) operating costs of the A380, as compared with the contemporary 747-400, will prove irresistible for Asia's airlines, and the European manufacturer is dismissive of Boeing's high-speed Sonic Cruiser concept, which it claims will have prohibitively high operating costs. "The Sonic Cruiser is one of the greatest public relations stunts this industry has ever seen," says Airbus executive vice president customer affairs and chief commercial officer John Leahy.
As usual, it will be the market that decides - and, in this case, as Boeing director of market analysis Tim Meskill is quick to point out, it is a market in some disarray. "The present situation is that it is one of the hardest hit in the aftermath of 11 September. It's definitely down, and it seems to be stuck at the moment," he says.
In regional terms, all eyes are on the Japanese economy, which will lead any upturn. But this doesn't seem likely just yet. "Unfortunately, they don't seem to be travelling much - and from a recovery standpoint the decline is lessening in the US and Europe, but we can't see it yet in Asia," Meskill adds. Although the effects of 11 September can be seen as a one-off, they come in the wake of the region's slower-than-expected recovery from the "Asian flu" of the late 1990s, and the worst recession in modern Japanese history. "This all affects the profitability of Asian airlines and they're in survival mode as a result," says Meskill.
Health check
A barometer of airline health is the number of frequencies planned for particular routes over a given period. "It's very similar to the last Asian crisis when they started contracting services, not adding them," Meskill adds. Frequencies are important because "that's how most will compete," he says. "When business improves, they add frequencies -Êthey don't change the size of the aircraft."
The gradual move away from strict control and government-owned flag-carrying airlines is a further major trend on Pacific routes and, says Boeing, another catalyst for fragmentation. "However, 11 September has delayed the process to expand the services and become more liberal. So, from that point of view, we think there will be a reduced pace of fragmentation. But over the next two to three years profits will rebound and, by 2005 to 2006, we think it will pick up again," says Meskill.
Airbus thinks such fragmentation will happen to an extent, and will attack this market with its growth A340-500/600 models and its current A340-300 and A330-200 products, but the European company maintains traffic growth forecasts render the A380 a necessity.
Agreements on new bilaterals, chiefly between the USA and Australia, Japan and possibly China, will be major milestones that will affect the development of the transpacific market. Some talking and "certainly some posturing", according to Meskill, has begun on the Japanese bilateral which is expected to see Japanese carriers fighting hard for access to more US cities. "No-one can imagine it will be less liberal than today," he says, adding that the outcome may be a major driver of the structure of the Pacific route network.
Boeing uses the Tokyo to Los Angeles route as a classic "what-if?" scenario to back up claims of fragmentation. It envisages a time soon when Japanese carriers may gain direct access to new US western cities such as Denver and Las Vegas. Although these carriers, it believes, would continue to feed the Tokyo-Los Angeles route with 747-400s as they do today, it predicts more longer range, lower capacity aircraft like the 777 or A340 would be used for the new services. However, instead of cutting traffic levels to unsustainable numbers for 747 operations, the direct routes would "ease pressure on trunk routes" rather than slim them down.
This, therefore, is the nub of Boeing's argument against Airbus's ambitious sales forecasts for the A380. "Yes, we agree that there is a need for something like the A380 on, say, the top 10 trunk routes in the world. We don't disagree with them on that all," says Meskill. However, Boeing's forecast differs because it thinks fragmentation will absorb virtually all the new growth that both manufacturers generally see coming. "We believe over the next 10 years, 747s will remain where they are - in a market that's not forecast to go up much. That's because the growth is being handled around them," adds Meskill.
Leahy says the A380 will have slightly more range, at 14,800km (8,000nm), than today's 747-400, "bringing more markets within economic range". The A380 should also offer a cost-effective way to add capacity at congested Japanese airports for domestic routes, many of which are currently served using high-density 747s, he adds.
"With an 850-seat capacity in a short-range configuration, the A380 would certainly offer a valuable increase in capacity for the Japanese domestic markets," says Leahy. "On a broader scale, the ability to dispatch a single A380 instead of two 747s flying tip to tip will ease congestion at all major airports."
Non-stop services
According to Boeing, fragmentation, until September at least, had begun on the north Pacific thanks mainly to the 777-200ER. Since China Southern began direct services from China to Los Angeles in 1997, the twin-engined aircraft is now operated on non-stop services to nine US cities from Beijing, Fukuoka, Guangzhou, Hong Kong, Seoul, Taipei and Tokyo. New direct 777 transpacific flights are being proposed to US cities from Nagoya, Osaka and Shanghai, while Delta Air Lines plans to begin direct Asia 777 services from Atlanta.
Nicole Piasecki, Boeing vice president, business strategy and marketing, says: "All things being equal, people want to go where they want to go. It's the people of the world who will decide where we go." Piasecki illustrates her point by outlining several selected new non-stop flights inaugurated in or around 2001. The Guangzhou to Los Angeles flight, for example, saves 4h 40min of journey time against the old route which included a stop at Narita. A 4h saving is made on the new direct Chicago-Beijing service, while travellers on the Hong Kong to New York direct service save 3h 30min as against the former route, which included a stop in Chicago.
The 16,000km-range 313-seat A340-500, which made its maiden flight last week, will, for the first time, enable airlines to fly non-stop between cities in South-East Asia and the USA. Singapore Airlines (SIA) has ordered the aircraft to launch Singapore-Los Angeles services, while Air Canada plans to fly from Toronto to Hong Kong. The Canadian flag-carrier is due to receive the first A340-500 before the end of the year, and SIA will introduce the type in October 2003, after recently deferring its first delivery by nine months.
Leahy points out that Boeing has struggled to secure customers for its rival 777-200LR, and has delayed the project by 18 months. It meanwhile faces the prospect of losing its only customer to date, EVA Airways, which has re-opened the bidding for its ultra-long-haul requirement.
Avoiding ETOPS
"Range is only one part of the attraction of the A340-500," says Leahy. "Independent surveys consistently show that Asian travellers prefer to fly in four-engine aircraft." He says operators can also avoid "the complexities and uncertainties of flying under extreme ETOPS [extended twin-engine operations] conditions".
The stretched A340-600 offers significantly greater capacity than the -500, and is being pitched as a replacement for older 747-400s, many of which are operated by Asian airlines. The 380-seater competes directly with the similarly sized twin-engine 777-300ER, which is due to enter service in late 2003. Leahy believes many Asian carriers are "at the point" of considering options for replacing their 747-400s, and thinks this market will be split evenly between A340-600- and A380-sized aircraft.
Customers for the A340-600 in the region to date include Cathay Pacific Airways, which is taking three on lease from International Lease Finance (ILFC), and China Eastern. Cathay plans to operate its aircraft on the transpolar route between Hong Kong and New York.
"The A340-600 liberates 747 operators from the high running costs of an ageing aircraft, and allows for a superior profit-generating balance between passenger and cargo revenues," says Leahy. "It provides a significant payload increase for airlines operating A340-300, 777-200ER or equivalent equipment, and offers flexibility of operation, to overcome traffic congestion and benefit from optimum routeings."
While the three-class, 555-seat A380 is advertised as delivering around a 17% reduction in ASK costs, compared with the 416-seat 747-400, Leahy says the A340-600 can provide not only a 4-5% lower ASK costs, but a 12% reduction in tonne-kilometre outgoings, as the aircraft can carry five more lower deck cargo containers.
Boeing's product strategy is built on the twin pillars of fragmentation and a large market niche which it sees has opened between the A340-600 and the A380-800. Dubbed by Boeing as the "220-seat gap" it is occupied by the 365-seat 777-300/300ER at the lower end, the 747-400/400ER at 416 seats in the middle and, possibly, the long-envisaged 747X with capacity for up to 522. Boeing still forecasts a requirement of around 1,010 new aircraft in the 747-400/400ER and 747X category above 400 seats in the next 20 years. Below this, it sees the 777 fighting the A330 and A340 for a market of around 2,420. Airbus, for its part, sees around 2,270 deliveries in the 300- to 500-seat market over a similar period, while also remaining confident of a 500-seater-plus market of 1,535 aircraft.
Boeing now positions its 747 and 777 families together as a long-range "dynamic duo", and presents data to support claims that they represent the "preferred" solution. Net orders for 747-400s (1989-2001) and 777-200/300 (1995 to 2001) are 1,223, versus 296 for the A340-200/300/500/600 between 1993 and 2001. Although obviously ignoring the A330-200, which it portrays as more of a 767-300ER/400ER competitor, the figures also show a backlog of 278 for the Boeing types versus 84 for the Airbus quads. In deliveries, Boeing also claims a three to one lead for the 777 over the A340 family, with 261 against 124 from 1995-1999, and 116 to 41 for 2000-2001.
Similar operating costs
Leahy rejects any suggestion that the 777-200LR/300ER family will be more attractive to airlines in terms of direct operating costs than the A340-500/600 because the former have only two engines. "The operating costs for their propulsion systems are similar," he says. He points to the ETOPS restrictions still facing the 777, particularly on transpacific routes. Though inflight engine shutdowns are rare, a twinjet is obliged to land at the nearest suitable alternate in the event of a failure, whereas a quad-jet can often continue to its destination on its remaining three engines.
Leahy also says the 777's inability to fly over mountain ranges such as the Himalayas in the event of an engine shutdown means the Boeing twinjet may have to take a longer route on flights between cities such as London and Bangkok.
Meanwhile, Airbus lacks a twinjet in the 777-300 size category for short- and medium-haul intra-Asian flights. But Leahy believes the A340-600 can be used profitably on such routes, which are typically 5-6h in duration. "The A340-600 has very good short-range performance as well as long-range," he says. The A340-500/600 firm orderbook stands at 62 aircraft ordered by nine customers. "I think we are about to see a big influx of orders for the A340-600 now," Leahy adds.
Development of the 777-300ER is pressing on swiftly with roll-out in October and first flight in January. Roll-out of the first -200LR is still scheduled for October 2004, with Boeing remaining committed, at least publicly, to the programme. Nonetheless, with only three orders (from EVA) in the bag, and rumours flying over their fate, the future remains uncertain for this project.
Uncertain market
Some potential buyers of the ultra-long-range A340-500 and 777-200LR, particularly major leasing companies such as ILFC, have decided not to place orders because they believe the aircraft will apply only to certain niche markets, which would affect their long-term residual value. Leahy says, however, that the A340-500 would be a relatively inexpensive addition to a fleet of -600s (and by implication the 777-200LR to a fleet of -300ERs) given the extremely high level of commonality between the models. "There is an advantage in pushing the range envelope [from the A340-600]," adds Leahy.
The 747-400ER/ERF, meanwhile, plods towards first flight in July for the passenger version and September for the freighter. Both provide building blocks for a possible -400QLR "quiet" variant with greater range and capacity in mid-decade, and possibly the foundations for the 747X. Airlines will be briefed about the -400QLR around the time of the 2002 Asian Aerospace show (26 February-3 March), and Boeing is expected to finalise details of the "quiet" package for future deliveries by mid-year.
Source: Flight International
