Randy's Journal: Archives

16 May 2005

Back to the future

A few days ago I talked about the fact that Airbus airplanes can certainly fly nonstop, point to point, but that their forecast and product strategy is rooted in a historic hub and spoke system.

They're selling a huge 550-seat airplane and telling the world the A380 is the airplane of the future. The dilemma is that with their forecast for 1,250 very large airplanes, built on a hub to hub strategy, there isn't a lot of room for more nonstop, point to point travel, or for new city pairs.

And that's where this gets interesting. Because now, Airbus is actually validating Boeing's point to point approach with their new twin-engine offering called the A350, which is an A330 derivative with longer range capability. Maybe they're shifting their product strategy "just in case."

Boeing and Airbus do agree on one thing: that air travel will grow about 5% over the next 20 years. So the argument really comes down to the 3 ways of handling that growth:

  • Increasing frequencies (adding more flights to existing city pairs)
  • Adding city pairs (flying nonstop, point to point to new places)
  • Increasing airplane size (handling more passengers on a single flight)

If you're an airline, you can choose to keep flying to the same cities with the same amount of frequencies - and then accommodate future growth by increasing the size of airplanes.

Or, you can accommodate growth by increasing frequencies on the city pairs you serve today, and by adding new service or new cities to the network. In other words, increasing nonstop, point to point flights. This is the way Boeing accommodates growth in our forecast.

It's clearly the way things have been going for a decade or more now.

World Air Travel Trends chart

Since 1995, air travel growth has been met by increased frequencies while adding new nonstop markets. In fact, during the recent downturn, airlines helped maintain frequencies by reducing airplane size.

We think demand is going to be for long-range airplanes like the 787 and the 777, with a somewhat smaller need for airplanes the size of the 747 or the A380.

So we offer airlines multiple-size models of long-range airplanes between 200-450 seats, so they can provide service on new city pairs as soon as passengers demand it. Airlines can start with a smaller size and bring larger models along as demand increases.

But Airbus' product strategy is focused on "consolidation." They claim that city pair growth has stagnated and will continue that way. In other words, more hub to hub flying, where passengers will have to connect one or more times to get where they really want to go.

If you're Airbus and you believe that, the math works. No question, you then build bigger airplanes. The problem is, there's nothing on the horizon to justify airlines needing a whole lot of airplanes the size of the A380.

So you have to ask yourself, what is the likelihood of a future with little or no city pair growth? Especially when you read nearly every day about airlines adding more city pairs.

A good example: last month Continental Airlines announced plans to launch daily nonstop flights between New Delhi and Newark, the first nonstops ever offered between the United States and India. Continental plans to fly that route with a Boeing 777-200ER, a perfect airplane for this kind of service.

The bottom line is, we're focused on nonstop, point to point travel because we believe this is where the market is going in the next 20 years. The other guys have hitched their wagons to big airplanes and big hubs.

Well, maybe that isn't a fair metaphor. "Hitching a wagon" is a 19th Century mode of travel, while Airbus' back to the future strategy really seems more suited to the 20th Century.

In other news, the Toledo Blade has weighed in on the super jumbo. Read their interesting editorial take on how airline passengers will fly in the future here.