Nw's Older Fleet Has Large Cost Penalties

[WorldTraveler]

Here is information on fuel cost/ASM for a number of fleet types as reported by airlines to the DOT for the year ended Dec. 2004. Obviously, fuel prices have gone up since then so the efficiency of each aircraft type relative to others has an even bigger impact. Also, the hedging positions for airlines today is not the same as it was in 2004. It should also be apparent that smaller aircraft have higher fuel CASMs so aircraft of similar size and for similar missions should be compared.

Type Operator Fuel CASM
73G WN 1.37
753 NW 1.50
321 US 1.53
757 DL 1.55
330 NW 1.65
738 AA 1.68
M90 DL 1.68
320 NW 1.68
764 CO 1.78
319 NW 1.88
763 UA 1.89
777 UA 1.92
744 NW 1.95
717 FL 1.99
318 F9 2.01
735 CO 2.28
M80 AA 2.32
762 AA 2.32
D10 NW 2.37
742 NW 2.42
E70 US 2.55
CR7 EV 2.56
732 DL 2.81
D95 NW 3.11
D93 NW 3.12
CRJ OH 3.29
ER3 AE 3.52

It can be seen that NW’s recent aircraft purchases have been of the most fuel-efficient models. It can also be seen that NW’s older aircraft are significantly more expensive to operate on a fuel basis than comparably classed aircraft operated by other airlines.

As NW people consider their future, the reality cannot be escaped that NW cannot be profitable if 1/3 of its fleet is composed of fuel thirsty models such as the 747-200, DC-10, and DC-9 when no other US passenger carriers operate those same models. While A330 and 787 orders might allow the widebody fleet to become cost competitive by grounding the D10 and 742 fleets, NW is incurring fuel CASMs for its DC-9s comparable to what regional carriers are incurring operating much smaller regional jets; the regional carriers obviously have much lower labor costs to offset the higher CASM nature of small jets. In fact, with the exception of the few 732s left in the US passenger fleet (most of which are intended to be grounded in the next couple years at the latest), NW has at least a 1 cent penalty on every ASM it produces when compared to other carriers’ narrowbody aircraft.

Obviously, that cost disadvantage has to be made up somewhere if NW is going to attempt to be cost competitive on an overall basis. As many of you look at concessions, you might consider NW’s predicament. It’s possible that given NW’s current fleet and sustained high fuel prices, NW cannot continue to operate the size fleet it currently does. Since most of the older aircraft are owned, there are little benefits from bankruptcy for obtaining a more fuel-efficient fleet mix.

AA employees might also want to consider the inefficiency of the MD-80 relative to other carriers’ core narrowbody aircraft.

 

[JetClipper]

WorldTraveler:

While I’m no expert here, I think that fuel costs alone do not present a true picture. You also need to consider ownership, depreciation, and maintenance costs.

First, with the exception of four DC9-30s, NWA owns the majority of its DC9 fleet (150 aircraft as of 3/31/05 per their Investor Relations website). Therefore, it is unlikely Northwest is making payments on any of these airplanes, something you cannot say about operators with newer aircraft (NWA included).

Second, given their age, most of these airplanes are fully depreciated, thus avoiding another cost associated with newer aircraft.

Finally, Northwest has stated time and again that the DC9 is the most reliable aircraft in their fleet. Without making too far a jump in logic, I think this translates to relatively low maintenance costs.

While these factors may not completely eliminate the DC9’s disadvantage in fuel costs, I believe they reduce total operating costs to a level competitive with those of newer aircraft. The DC9’s size and flexibility also provide NWA the ability to maintain mainline flying to destinations that other carriers serve almost exclusively with regional jets, which can be another competitive advantage.

 

[WorldTraveler]

JetClipper,
yes, fuel is just one component of operating costs. However, if I printed the total operating costs for each of these type of aircraft, you would see that in every case, the CASM for the DC-9s, -10s, and 742s are significantly higher than comparably classed aircraft. If you want to view the statistics, see Aviation Daily from June 29-30 and July 5-8. Let me know if you don't have access to the Daily and I'll try to give you total operating costs for each of the aircraft.

 

[WorldTraveler]

JetClipper,
yes, fuel is just one component of operating costs. However, if I printed the total operating costs for each of these type of aircraft, you would see that in every case, the CASMs for the DC-9s, -10s, and 742s are significantly higher than comparably classed aircraft. If you want to view the statistics, see Aviation Daily from June 29-30 and July 5-8.

 

[North by Northwest]

Fleet

Northwest Fleet (as of 3/31/05)
Aircraft Seats Owned Leased Total Orders Options3
B747-400 403 4 12 16 - 2
B747-200 353 3 5 8 - -
B747-200 Freighter - 7 5 12 2 -
A330-300 298 8 - 8 12 28
A330-200 243 7 - 7 5 -
DC10-30 273 14 8 22 - -
B757-300 224 16 - 16 - -
B757-200 182 32 24 56 - -
A320-200 148 43 35 78 2 16
A319-100 124 60 12 72 9 23
DC9-50 125 35 - 35 - -
DC9-40 110 12 - 12 - -
DC9-30 100 99 4 103 - -

World,
While this makes an interesting topic (as biased as it is), you have failed to factor the ownership vs. lease payments into the total operating cost. That is the primary factor that allows the continued use of the 9's, and the few 42's DC-10's.

Irregardless of the cost of fuel, when one must utilize the a/c while paying (ball park figure of min. $300,000- 450,000 a month in lease payments PLUS FUEL COST) vs. the ability to park a owned a/c.

Moreover, the only significant neg. is the operation of the DC-10's. So...I don't get your point. It would behoove you to include ALL of the variables when concluding cost ratios.

I'm confused ...is Delta only operating 3 a/c types now? What is the cost for UA 47-400's? It appears that the chart is incomplete.

DAL Fleet:
B–737–200 6 40 46 – – –
B–737–300 – 26 26 – – –
B–737–8002 71 – 71 56 60 168
B–757–200 77 44 121 – – –
B–767–200 15 – 15 – – –
B–767–300 4 24 28 – – –
B–767–300ER 50
9 59 – 10 6
B–767–400 21 – 21 – 21 –
B–777–200 8 – 8 5 20 5
MD–11 1 3 4 – – –
MD–88 63 57 120 – – –
MD–90
quite abit difference in the above post...

It would be interesting to see a true analysis of fuel cost ratio. I am sure that the older models are hurting NW big time with fuel at this level, to what extent would be the interesting point. Can you post a link?

 

[Bigsky]

WT
Any chance you missed all the A319/320s NWA has accumulated over the last ten years? Haven't been to Europe, DTW or MSP in awhile? If you missed out you may have noticed a few A330s prowling around. Also a few in NRT. Perhaps you also missed the headline, "NWA to be North American B787 Launch Customer".

As for the DC-9s, they are paid for and that alone overrides the record fuel prices. The DC-9s that are retiring this year are all leased aircraft and yes you are correct if you combine a lease payment with the extra gas the DC9 burns then it is not an efficient aircraft. But when you are just throwing gas into a paid for aircraft you can bet that it is a much better option than buying a brand new aircraft, paying a huge lease payment just to save a little gas.

The DC-9s are the reason NWA isn't in the position the UA, DL, and US are in now.

cheers

bigsky

 

[WorldTraveler]

I have said that the Airbuses are competitive aircraft. The point is the DC-9s and -10s.

Total aircraft costs for the DC-9s are not competitive with the narrowbody aircraft other airlines are using. See Aviation Daily issues above. Hopefully I can get the summary chart attached with total costs.

The file is too large. You'll either have to look up the Aviation Daily chart yourselves in the 7/8/05 edition.

NW could get by with operating gas guzzling paid for aircraft when fuel was $30/barrel but it won't work now.

 

[luv2fly]

Fleet

Irregardless of the cost of fuel,

[post="281287"][/post]​

What?

 

[WorldTraveler]

Further, NW reported to the DOT that they do have ownership costs associated with their DC9 fleet - 7-10% of the total aircraft costs. Since NW reported that their A319 fleet has ownership costs approx. 15% of total, it is apparent that the DC9s are not free to operate from an ownership standpoint.

 

[Busdrvr]

I have to agree to some extent with WT on this one. although the full PURCHASE price may have already been paid, and depreciated, subsequent AD's and upgrades are depreciated against the new "life" of the airframe. For example: TCAS, Cargo fire suppression system, Stage three upgrades. Although there may be no 'cash' costs, there are depreciation expenses. In some respects, these can be considered "sunk" costs.

 

[C54Capt]

I have to agree to some extent with WT on this one. although the full PURCHASE price may have already been paid, and depreciated, subsequent AD's and upgrades are depreciated against the new "life" of the airframe. For example: TCAS, Cargo fire suppression system, Stage three upgrades. Although there may be no 'cash' costs, there are depreciation expenses. In some respects, these can be considered "sunk" costs.

[post="281697"][/post]​

Not to mention powerplant and rotables, which in the case of the DC-9, represents pretty much the total value of the asset.

 

[Bigsky]

I would have to disagree with Bus, WT and C54. If you compare the cost of these upgrades verses the cost of a new B717 you it would become quite apparent that the DC-9 wins.

Of course the value of the DC-9 is close to zero and it is still a revenue producing machine. How would the balance sheet look if NW was depreciating a fleet of 160 B717s every year. The DC-9 almost can't depreciate any furthur as they are worth almost nothing. As Bus mentioned, you'd be hard pressed to give the away old Diesel 9 with a happy meal.

The DC-9 has been a great aircraft for NW and will continue for years to come. A much better option for NW than contracting a very high portion of the domestic route structure to the CRJs, which BTW, is an aircraft that the NWA DC-9s often compete with head to head in many markets. Example (SDF United Express CRJ against NWA DC9) The CASM on the CRJ, believe it or not, is higher on the CRJ than the DC-9 and the 9 is a much better ride.

cheers

bigsky

 

[WorldTraveler]

no, Bigsky, the total CASM on RJs up to 50 seats is COMPARABLE to a DC9 and the CASM on 70 and 90 seaters is BELOW the DC9. That is according to data which all US airlines have filed with the DOT.

I know you are trying hard to convince yourself that NW's fleet will remain where it is, but the reality is that NW could easily go into bankruptcy, pare the fleet by 1/3, dump the DC9s along with the labor agreements that necessitate keeping them (or prevent bringing in more and larger RJs), and find plenty of operators that would add 200 RJs to NW's system tomorrow. And replacing DC9s with RJs would improve NW's schedule since frequencies could be increased.

The alternative is that NW could go to BK, dump the labor agreements and the 9s and 10s, and sell themselves to someone else.

NW will not be able to continue to operate their current fleet of DC9s with fuel above $50/barrel.