B737NG and B7E7/Boeing vs. Airbus

Hey gang, this is a long, but interesting article from the Toronto Star business section. I think that it compliments Andrew’s article.

Boeing alters course
Smaller planes emerge as lifeblood for the biggest commercial aircraft maker
Airline industry is struggling through downturn

SUSAN PIGG
BUSINESS REPORTER

SEATTLE—The wingless shells of 737 aircraft are lined up neatly in Boeing Co.’s massive Renton factory, preparing to begin their 13-day metamorphosis from metal cocoon to the top-selling jetliner of all time.

As the hollow bodies move down a state-of-the-art assembly line on massive transporters at the barely perceptible speed of five centimetres per minute, hundreds of skilled workers move with almost surgical precision, attaching the wings, intricate avionics and landing gear that will eventually work together to get this big bird off the ground and back to Earth safely.

It’s been 35 years since the Boeing 737 began its steady ascent into the skies — and the record books — from this mammoth plant south of Seattle.

The basic model has been tweaked and twisted over the years to add more seats, better avionics, bigger engines and more aerodynamic wings. But every one of those adjustments — carefully engineered with advice from the very airlines that fly the 737 — has only added lift to the metal bird’s trajectory.

Although 737 production has been cut in half since the Sept. 11, 2001, terrorist attacks — from 28 to 14 airplanes a month — the jetliner is proving to be the lifeblood for the world’s biggest commercial aircraft maker as it struggles through the most severe downturn in civil aviation.

“We needed an aircraft that was a serious workhorse and it doesn’t get any better than the 737,” says Ed Stewart, spokesperson for the profitable poster child of the 737, Texas-based low-fare carrier Southwest Airlines. “Much of the credit for our success really goes to the aircraft and the employees. They both are incredibly efficient.”

In fact, Boeing is banking its future on the 737 — along with its larger cousin the 777 and the new, mid-sized 7E7 — as it fights off unrelenting competition from Airbus Industrie SA of France.

The Toulouse-based consortium now boasts that it has gone “from challenger to industry leader in 30 years.”

Airbus expects to deliver 300 aircraft this year, surpassing its 87-year-old U.S. rival, which has cut production to about 285 planes — a dramatic drop from the 608 aircraft it built in its peak production year, 1999.

For the first time, the two biggest commercial aircraft makers are charting radically different flight paths.

“We think we’re in a prime spot,” says Randy Baseler, vice-president of marketing for Boeing’s Commercial Airplanes Group.

“While Airbus is building their A380 (a new, 550-seat jetliner that will eclipse the Boeing 747), we’re going to be out there delivering to the airlines what they want and what their passengers want.”

Boeing believes that small and mid-sized, not jumbo, aircraft are the way of the future. The company is developing a new “super-efficient” mid-sized aircraft — code-named the 7E7 — that it says will overtake and improve on its 757 and 767 aircraft.

Boeing maintains that in the future, travel will consist of more frequent, direct city-to-city flights on planes averaging 190 seats — instead of big aircraft feeding passengers into major hub airports for connecting flights on smaller planes.

Evidence has been mounting over the past decade to support that view.

It believes the long-range Boeing 747, still the biggest commercial airplane in the world at 416 seats, will lose more of its already dwindling market share to the sleek, 301- to 368-seat Boeing 777.

The eight-year-old 777 aircraft, the longest jetliner in Boeing’s fleet, was built for transcontinental travel but is proving more popular on transoceanic routes once dominated by the 747, Baseler says.

It also predicts dramatic growth, especially in Europe and possibly Asia, for low-fare carriers that have continued to thrive using 737s at the same time that giant rivals like American Airlines, United Airlines and US Airways are teetering on the brink of bankruptcy.

“We have a very different view (than Airbus) of how airlines will carry people,” says Baseler.

To some, this may seem like crystal-ball gazing, especially given the fragile state of the industry and mixed opinion on when air travel will return to pre-Sept. 11, 2001, levels. Boeing has suffered along with the airlines and was forced to delay some orders, cut back production and lay off 35,000 workers, or about one-third of its workforce.

But Baseler backs his vision of the future convincingly with a 58-page, state-of-the-industry study completed recently by Boeing.

There are currently 15,271 commercial aircraft in the world and 2,000 of them are grounded, about half since the terrorist attacks sent air travel into a tailspin. But long-term demand for airliners — fuelled in part by cargo growth and the demand for travel by aging baby boomers — looks strong, Baseler says.

Boeing is hoping for a recovery for the industry in 2005 and then predicting 4.9 per cent passenger growth and 6.4 per cent cargo growth a year, which means the world fleet will double to 32,500 airplanes by 2021. Almost 24,000 new planes will be needed during that time to replace older, retiring aircraft and service the new demand, Boeing says.

The bulk of those new aircraft will be regional jets and single-aisle aircraft, like the 737 and Airbus A319, A320 and A321, which will double the existing fleet of those aircraft from 11,500 to nearly 24,000, Boeing predicts.

The number of larger, twin-aisle planes, like the Boeing 767, 777 and Airbus A330 and A340, will also grow by about 5,000 aircraft, it says. And Boeing predicts airlines will start avoiding congested major hub airports like London Heathrow, where Baseler says 40 per cent of traffic currently consists of passengers transiting through to other destinations. (At Japan’s Narita Airport, the number skyrockets to 70 per cent, he says.)

Boeing began to see signs in the early 1990s that customers wanted to fly cheaply but safely — reflected in the growth of Southwest and other low-fare, no-frills carriers like Calgary-based WestJet Airlines Ltd. and Ireland’s Ryanair. They also wanted more frequent non-stop flights, often to less congested secondary airports.

In 1984, Basel says, 60 per cent of all U.S. airline traffic across the North Atlantic travelled on 747s. As of August, 2001, that number dropped to 4 per cent as more passengers boarded direct, city-to-city flights at a wider choice of times, on mid-sized aircraft like the 767 and 777.

Boeing predicts 200 additional trans-Atlantic routes will open up with non-stop service by 2021.

Airbus’ vision is somewhat different, but the biggest disparity is in the demand for massive airplanes of 500 seats and more. Airbus forecasts demand for some 1,138 of those big birds in the next 20 years, while Boeing predicts just 356.

Airbus maintains those big planes will ease congestion at major airports like Heathrow by reducing the total number of planes that will fly in daily. But Boeing argues it could actually increase congestion, because more small planes will be needed to provide connections.

“Can you imagine how much fun it will be getting off that plane, getting through customs and getting your bags,” Baseler says. “We have decided that we’re not going to be in the 550 (seat) and above marketplace at this point. We don’t think that’s a prudent place to be.”

Boeing sees lots of growth yet to come in the low-fare market where Southwest, with a 375-strong fleet of nothing but 737s, has set the standard since 1971 for moving people and making money.

As the 737 evolved — from the 100 and 200 models with between 85 and 130 seats to the “next generation” 600, 700, 800 and 900 models with up to 189 seats — so has Southwest and a growing host of copycats.

“Southwest is by far the smartest airline operator in the world and they opted for the 737. They studied this very closely and everything that we saw really mirrored everything that they saw, that this was by far the best airplane for us,” says Clive Beddoe, chief executive of WestJet, which will be flying 44 737s by the end of this year.

“It the most versatile, it’s the most rugged, it’s the most successful aircraft ever built (more than 5,100 have been sold so far, a jetliner record). It’s easy, then, to get parts, it’s easy to get people to work on them and so on and so on.”

There are a number of features that make the 737 — especially the new 600 to 900 models — ideal for the low-fare carriers. They are highly fuel efficient, have a reliability rate of more than 99 per cent — which means they rarely break down and can be airborne 12 hours a day or more — and they are low to the ground, which allows workers to store baggage and perform maintenance without having to drag ladders around.

That allows for quick turnaround times. Southwest averages 20 minutes, WestJet recently hit a new record of five minutes — which means the aircraft can make seven or more trips a day, generating more revenue and profit.

The 737 underwent more of a revolution than an evolution in the 1990s with new engines and wings that allowed the plane to fly further, faster and higher, increasing fuel efficiency by about 30 per cent.

The changes allowed Southwest, WestJet and other low-fare carriers to suddenly expand into longer-haul, transcontinental markets that just weren’t reachable or economical with the “classic” first-generation 737s.

“I really believe that a huge part of the future with the 737 is ensuring the success of the low-fare carriers. This is a wonderful airplane for them,” says Carolyn Corvi, vice-president and general manager of Boeing’s 737 and 757 programs.

“If airlines follow the model that Southwest established (low-fares, short turnarounds and point-to-point travel to mainly secondary airports) and don’t deviate, we can almost guarantee they will make money with this aircraft.”

Another key is having one airplane type, which vastly simplifies and cuts the cost of training and maintenance (the major carriers, such as American, can have 10 or more different airplane types.)

The growth of the low-fare carriers, both in North America, and more recently Europe, has been closely tied to deregulation of the airline industries in those countries, Baseler says.

Airlines used to be told where they could fly and when. When controls were lifted, the major U.S. carriers in essence carved up the market through the hub-and-spoke system, which gave carriers geographic dominance at some airports and required all their traffic to transit through the hubs, regardless of inconvenience to passengers.

Southwest set its own flight path, offering short-haul, point-to-point service to secondary airports where fees were cheaper and turnaround times were faster. As a result, it could drive up demand by offering extraordinarily low fares.

The same model has been copied by Ryanair, Australia’s Virgin Blue and others, including new players like Air Asia in Malaysia and German Wings.

Of the 800 aircraft currently flown by low-fare carriers, 92 per cent are Boeing 737 brands, with one major exception, Britain’s easyJet, which has 60 of the 737s and recently placed an order for 120 Airbus A320s.

There has been widespread speculation that Airbus sold the planes at 50 per cent off, and offered millions in maintenance and training perks, just to get a solid toehold in the fast-growing low-fare market.

It’s considered a major coup for Airbus, which Baseler says was slow to see the growth of the low-fare sector, even in its own European backyard.

“They’re (easyJet) deviating from the (Southwest) model and we’ll see how they do,” Corvi says. “My personal belief is that they put themselves at risk by doing it. Time will tell and the market will tell.”