Boyd Group - Hot Flash - June 16, 2003
The jetBlue Embraer Deal...
It's A Lot More Than A Jet Order
Airbus Just Took One Right On The Nose Cone...
Two very significant events took place last week. One caused a media frenzy. The other was hardly noticed, if at all.
The first was the jetBlue order for 100 Embraer E-190s. The second notable event was when Frontier, at the Paris Air Show, accepted the keys to the carrier's first Airbus A-318.
Airbus Thought Boeing Was The Competition. They're Thinking Again. The significance of these events has apparently been lost on most everybody, except maybe for some thunderstruck folks deep within the Airbus and Boeing strategic planning departments. While the media types babbled on about jetBlue's "regional" jets, the folks in Toulouse no doubt got the real message: the 170/190 E-Jet platform has launched Embraer into the forefront of the mainline airliner business. Worse, with the jetBlue order, Airbus just got kicked in the nose cone, and possibly even relegated to a secondary role in the 100-seat market as well. The A-318 is in deep trouble.
Consider: jetBlue ordered a fleet of 100-seat airliners. Simply because the manufacturer was Embraer, the veneer types in the media called it a big "regional jet order." (They must have missed the press releases from both the airline and the manufacturer: neither used the term "regional jet.") At the same time, Frontier took possession of the A-318, which Airbus describes as its "100-seat" airliner. But nobody called it a "regional jet" when Frontier ordered it. Frontier ordered a handful of A-318s. jetBlue ordered and optioned 200 Embraers.
The E-190 is a 100-seat jet with a range well in excess of 2,500 miles. The A-318 is what Airbus bills as its own 100-seat jet, and it also has a range in excess of 2,500 miles. The real-world, in-fleet mission capabilities of the two aircraft are not much different, but some media trendies, many of whom couldn't recognize a E-190 from a Curtiss Condor, saw the name "Embraer" and confidently referred to the aircraft as a "regional jet."
Airbus Just Got The Bionic Winkie. The 2003 Paris Airshow, at least behind the scenes, was likely not a real happy place for Airbus. While they were publicly tipping the bubbly, toasting a couple of A-380 orders, they where being zapped out of the lower end of the fastest growth airliner demand category.
Consider The Impact. The jetBlue order likely hit Airbus like a brick. The A-318 is almost 100% compatible with the A-320. Cockpits. Maintenance. Parts inventory. Training. Pilot exchangeability between the two. Consider: jetBlue has over 100 A-320s in operation and on order. From that perspective, the A-318 was the slam-dunk choice when jetBlue was looking for a smaller airliner, right? Wrong. The relative economics of the two airplanes apparently more than made up the difference. jetBlue clearly understands that it isn't the number of seats, it's the economics of the airplane.
The hard fact is that the A-318 and the E-170/190 series are direct competitors. Looking at what both airplanes can do, say, from Frontier's Denver hub, there isn't much difference. The A-318 is a little bigger, and has more range, but both aircraft have very similar in-fleet mission applications. Both, by the way, can reach either cost from Denver. Both can offer seats more than an inch wider than a 737. The only difference, and it's a big one: the economics of the Embraer are likely leagues better than the A-318, which is a downsized A-320.
The Beginning of The RJ End. Far from being an extension of the "RJ phenomenon" as some are trying to spin it, the emergence of the E-170/190 as a viable player in the US is another signal that the RJ order cycle is ending fast. While <51 seat jets (and their stretched 70-90 seat Canadair progeny) will continue to have a role, it's going to be one that will be in decline by the end of the decade.
Leveling The Playing Field. While jetBlue is a low cost airline, they do not have a permanent lock on operational efficiency. These smaller E-Jets can be used to great effect by network carriers. Not only do the economics lend well to feed roles, but the ergonomics are equal to larger jets, or better. Mega-carriers can apply these aircraft to building medium-size markets, generating more revenue through their hub operations than possible with 50-seat RJs.
Where The Demand Will Be: 70 - 150 Seats. As the fleet forecasts at our annual Forecast Conferences have made clear over the last four years, the main growth area in airliner demand in the coming decade won't be widebodies. And, as we alone first forecast, it sure won't be <51 seat RJs. The real demand in terms of units will be in the 70-150 seat narrowbody jets. The jetBlue order shows without any doubt that Embraer has staked out the lower end of this demand category.
We'd all better wake up and smell the Brazilian coffee: There are now three global producers of airliners: Boeing, Airbus, and - Embraer.
