Boeing 787 could revolutionise US long-haul market

When the first Boeing 787-8 entered service with Japan’s All Nippon Airways (ANA) in September 2011, it marked the beginning of a new era in long-haul international travel, not unlike the introduction of the Boeing 767 on medium-haul international routes back in the 1990s. In the period since then, many more 787s have been built and delivered (Boeing has built 66 787s at press time, including the first one produced at the original equipment manufacturer’s (OEM) plant in Charleston, South Carolina). Boeing plans to ramp up 787 production to 5 aircraft per month by the end of this year and to 10 aircraft per month by the end of 2013 ahead of the planned entry into service of the larger Boeing 787-9 in early 2014. What all of this means is that over the next 2-3 years, there will be an explosion of new routes announced for the Boeing 787. And this transition into the 787 (and A350) is likely to mirror the shift that occurred on transatlantic flights from larger types to the Boeing 757/767 and Airbus A330 over the 1990s and early 2000s, except on a grander scale.

Boeing 787 opens up new opportunities for US long-haul services
In the short period between first delivery of the 787 and today, several new routes to the US have been announced for the 787. Such routes would have been economically unfeasible to operate with the previous generation of long-haul airliners like the Boeing 777-200ER and the Airbus A340, as these aircraft are simply too big and too fuel thirsty to operate “long and thin routes”. And therein lies the 787’s greatest strength, especially the 787-8: it is the smallest mass-production aircraft ever produced that can fly to such great distances. While the technology of the aircraft itself may not be a true step change in the manner of turboprops to jets or narrowbodies to the 747, from an economics perspective, the 787 is truly revolutionary.

Thanks to recent information from ANA, it has become clear that Aspire Aviation may have underestimated the 787’s economics as well. ANA recently put out a press release where it stated that the 787-8’s fuel burn was 21% lower already than that of ANA’s Boeing 767-300ER. The relative assumption Aspire Aviation used in its report back in January 2012 was that the 787-8 after LN90 would be about 20% more fuel efficient than the 767-300ER on a 5,000 nautical mile (nm) route, with 787-8s produced after LN90 being 6% more fuel efficient than early-built examples, according to Aspire Aviation‘s sources at Boeing. However, ANA’s first 787s were 3-4 tonnes overweight and equipped with the Rolls-Royce Trent 1000 Package B engines that feature a revised six-stage low pressure turbine (LPT) and outlet guide vanes (OGVs) with better aerodynamics aimed at bringing its engine specific fuel consumption (SFC) to within 1% of its original target. ZA001, the first 787 ever produced, is 9.8 tonnes (21,500lbs) overweight, with a 242,500lbs manufacturer’s empty weight (MEW), versus an original target of 221,000lbs, whereas LN7-LN19 are 6.1 tonnes (13,500lbs) overweight and LN20, featuring a higher maximum take-off weight (MTOW) of 227,930kg (502,500lbs) from 219,539kg (484,000lbs), are around 4 tonnes (8,800 lbs) overweight (“Boeing eyes 787 improvements along with production ramp-up“, 11th Jan, 12).

What all of this means is that moving forward, the 787-8’s operating cost advantage over the competing Airbus A330-200 will only continue to grow, and its maximum operating range will continue to expand.

Image Courtesy of Yoshidyaji

Image Courtesy of Yoshidyaji

The enabling potential of the 787-8 and -9 emanates from two factors: its operating cost advantage relative to the current generation of mid-sized widebody aircraft, and its unique combination of size and range. In terms of operating costs, the 787 will be at a 6-10% cost per available seat mile (CASM) advantage over the A330-200 across their common operating range. This means that ceteris paribus, any route currently operated by an A330-200 becomes instantly 4.5-8.5% more economically viable, not taking into account training costs and other ancillary costs associated with adding a new fleet type. The 787 should also approach the CASM of the 777-200, only with some 50-80 fewer seats. This analysis mostly applies to 787 orders already signed, as Boeing has increased the premium it charges for the 787 which affects the finance charges/leasing component of operating costs, which is about 20-25% of the total on a 787. Still, carriers such as United Airlines, which has 50 787s on order and will take delivery of their first 787-8 on September 15th of this year and 5-6 aircraft by the end of the year, will now be able to add more marginal long-haul routes across the Atlantic and to Latin America from the United States in addition to new Asia services. This effect is likely to be muted, much akin to the relationship between the A330 and the 767-300ER though on a greater scale, but new hypothetical long-thin routes such as Los Angeles to South America, and Denver to Europe, will become possible for US carriers thanks to the introduction of the 787-8.

In a broader sense which is applicable to the transpacific segment as well, what the 787 offers is an aircraft with much lower CASM than the A330 and fewer seats to fill. The laws of supply and demand imply that in most cases, except for the most inelastic business travellers, reducing seat count will put upward pressure on average fares. So the combination of these two effects – increased prices and decreased costs, will naturally boost profitability. But whereas this effect has already been seen in transatlantic and Latin American markets from the US, it is in services between the US and Asia, Oceania, and the Middle East that the greatest disruptive potential of the 787 exists. Simply put, the 787 is the first aircraft of its size that can fly non-stop US-Asia flights. When one looks at the transpacific and transatlantic networks of US airports, one fact that must stand out is the wide disparity in the type of city served for each market. Global cities like London, Paris, Shanghai, and Tokyo will always get their long-haul services but thanks to the A330-200 and especially the 767-300ER, mid-sized European cities in terms of long-haul travel demand like Nice, Lyon, Budapest, Kiev, and Hamburg all have non-stop transatlantic service whereas comparable cities in Asia like Chongqing, Sapporo, Hyderabad, Chennai, and Busan all lack non-stop service to the US. The 787-8 will change all of that. As Asia continues to grow in economic importance and economic and ethnic ties with the US continue to build, the 787 will be a tool that will greatly expand the range and quantity of services on transpacific sectors. This shift will certainly be disruptive, much as the onset of the 767-300ER affected the traditional transatlantic hub, so too will the 787 affect the current hegemony of transpacific hubs (Tokyo-Narita, Seoul-Incheon, San Francisco, Detroit, and the like will no longer control as large of a percentage of the US-Asia market though absolute transpacific passenger numbers will likely grow at each of these airports thanks to new 787-enabled opportunities). At the very least, the Boeing 787 will open up previously unsustainable US routes as it has already done with Boston-Tokyo Narita, Denver-Tokyo Narita, and Detroit–Doha.

Many of the effects discussed above are already apparent in the roster of 787 flights announced to the United States after just 11 aircraft have been delivered to two customers – Japan Airlines (JAL) and ANA. The full roster of announced 787 routes to the US can be found below.

Sector Airline Route Announced
Trans-Pacific ANA Tokyo (Narita) – Seattle
ANA Tokyo (Narita) – San Jose
Japan Airlines Tokyo (Narita) – San Diego
Japan Airlines Tokyo (Narita) – Boston
Hainan Airlines Shanghai – Newark
Hainan AirlinesHainan Airlines Shanghai – San FranciscoBeijing – Chicago
United Airlines Denver – Tokyo-Narita
Trans-Atlantic LOT Polish Airlines Warsaw – Chicago O’hare
Qatar Airways Doha – Detroit
Qatar Airways Doha – Atlanta
Qatar Airways Doha – Chicago O’hare
Qatar Airways Doha – Boston
Qatar Airways Doha – Unnamed Eastern European point – New York City (airport TBA)
Thomson Airways London Gatwick/ Manchester/ Glasgow/ East Midlands – Florida (exact destinations TBA)
Latin America LAN Airlines Lima and/or Santiago – Los Angeles

But in addition to this empirical evidence, we can also model some of the changes that will occur in the US–Asia/Pacific and US-Middle East markets moving forward based on the historical record of changes in the transatlantic market. The following chart compares US transatlantic service in 1990 and in 2010 as well as a snapshot of the current US market (2010) to the regions in question, with some of the major characteristics of each market denoted in the table. All data was found using the US Department of Transportation’s traffic database, considers only scheduled passenger flights, and measures outbound figures for US Airlines only. Despite these limitations, Aspire Aviation thinks that this overview will serve as a good base for predicting future changes in the US market, as these figures are similar for foreign airlines and inbound flights.

Figure                  1990
                    Asia 2010
Available Seats








# of Flights












Passenger Load Factor




Number of Unique City Pairs




As the table shows, the US – Asia/Pacific/Middle East market today is very similar to where the transatlantic market was in 1990, though seat factors as they are across the entire US airline network are higher owing to tight capacity management. In 1990, transatlantic service was still primarily the domain of tri- and quad-engined Lockheed L-1011, Douglas DC-10, and Boeing 747 jets. The Airbus A310-300 and the Boeing 767-300ER had both entered service by then – the A310-300 in 1986 and the 767-300ER in 1988. But just 37 767-300ER had been delivered to transatlantic operators at that time, so the overall effect on average aircraft size was minimal. But over the course of the 1990s as 767-300ER numbers grew, and especially after Airbus introduced the smaller Airbus A330-200 in 1998, transatlantic service grew in volume and scope. The number of city pairs served doubled while passenger traffic grew nearly 80%. This provides almost a template for the future of the US-Asia/Pacific/Middle East market; the 787, and later the Airbus A350, will open up tonnes of new city pairs, with the former catering to long-haul thin routes and the latter on trunk routes. Aspire Aviation expects that by 2025, the US/Asia-Pacific/Middle East markets will cumulatively serve about 10 million passengers per annum with over 100 city pairs seeing non-stop service. These are very conservative estimates. Most predictions have Asia’s gross domestic product (GDP) doubling over the next 15 years, whereas European real GDP only grew by around 60% over the years from 1990-2010.

Image Courtesy of United Airlines

Boeing 787 could make long-haul LCC service viable in US
In recent months, there has been a lot of buzz around the potential viability of long-haul low-cost carriers (LCCs). Since Singapore Airlines (SIA) launched its LCC product Scoot Airlines with flights to Sydney and the Gold Coast, Air Canada has also spoken about plans to begin a Vancouver-based LCC for flights to and from Asia (“Can Air Canada succeed with budget long-haul where others have failed“, 21st Jun, 12). Despite these attempts, the recent failure of Malaysia based Air Asia X’s long-haul, low-cost operations to Europe speaks to the challenging economics on such flights, long-haul flights need high revenues to compensate for much higher costs.

New York-based low-cost carrier (LCC) jetBlue also entered the fray recently at the International Air Transport Association (IATA)’s annual general meeting (AGM) in Beijing, where the carrier’s chief executive David Barger said, “We are looking at larger aircraft, especially out of New York and especially Latin America. There is already plenty of service to Asia and Europe. Types such as the Airbus A350 and the Boeing 787 are under consideration, with a timeframe of 2015 and beyond. Latin America has been a terrific market for jetBlue and larger airplanes would earn their way into the network.”

In the past few years, domestic traffic at jetBlue has flattened out, with passenger traffic measured in revenue passenger miles (RPMs) essentially flat over the past 3-4 years. This is a result of jetBlue hitting the so-called “growth plateau” domestically, a point at which a successfully growing business outstrips the processes and people needed to service its existing customers. To a large degree, jetBlue’s current domestic markets are saturated. There is limited scope for profitable expansion at its central hub at New York’s John F. Kennedy International Airport (JFK) due to slot restrictions, its west-coast hub at Long Beach is heavily slot restricted, and its Florida focus cities suffer from an overabundance of domestic capacity. Its second-largest hub in Boston does have some scope for expansion, and there are incremental opportunities in its other hubs as well as key domestic markets such as Austin.

But the future of jetBlue to a large degree lies in Latin America. At the moment, jetBlue has a good service offering in the Caribbean including a hub at San Juan, minimal service to Mexico and Central America, and a few flights to Colombia (Bogota to Florida and newly-announced New York to Cartagena). In the near term, jetBlue is likely to focus on “filling in the blanks” in Latin America: adding cities like Mexico City, Panama City, Monterrey, Cabo, San Salvador and the like, as well as expanding its newly minted San Juan hub. But in the longer term (2015 in jetBlue’s number), jetBlue may have to look towards widebody flights to grow, especially to serve visit friends and relatives (VFR) and tourist passengers.

The potential for jetBlue is exponential. As Latin American gross domestic product (GDP) continues to grow and inbound tourism from places like Brazil and Peru continues to expand, demand for air travel to the US, especially in the VFR and leisure segments that jetBlue is strongest in, will increase rapidly. When combined with the superior operating economics of the 787/A350, jetBlue may well become the first airline to have a sustainable long-haul low-cost operations. Boston is also underserved across the Atlantic relative to historic service levels, and the growing jetBlue hub could also enable a limited amount of transatlantic widebody service augmented by the Airbus A321neo’s expected range that would allow service to Western Europe on the re-engined narrowbody aircraft.

JetBlue’s Dallas-based rival LCC Southwest Airlines could also take advantage of the 787 to start long-haul international operations as it continues to shift from a growth-based model to a revenue-based one. The airline, which is grappling with flattening growth and rapidly appreciating labour expenses, finally began international operations after its merger with Atlanta-based AirTran Airways was completed on March 1st, 2012 (“Southwest Airlines faces challenges in AirTran integration“, 6th Feb, 12). While the idea of Southwest operating long haul flights was dealt a blow recently by the rejection of a proposal for overwater flights by its unions, in the long term, Southwest may have to fly international long-haul flights to sustain its revenue growth and prop up its frequent flier programme as the gap between its fares and those of the American full-service carriers continues to narrow. Fortunately, the 787’s operating economics especially in a higher-density all-economy class configuration should enable Southwest to make such an operation viable.

There are other more questionable opportunities for long-haul LCC service from the US, Ryanair’s rumoured transatlantic 787 service is just one example, but regardless, the 787’s excellent fuel burn and general cost reduction just might be the spark needed.

Thus the Boeing 787 is set to revolutionise the US long-haul market. Whether between the US and Asia/Pacific or to Latin America and across the Atlantic, Aspire Aviation expects that US long-haul markets will rapidly expand in terms of size, frequencies offered, and city pairs served over the next 15 years.

Image Courtesy of Bloomberg

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  1. Airbus is right on A330 improvement strategy | Aspire Aviation
    [...] is a 6%-10% cost per available seat mile (CASM) advantage of the 787-8 over the A330-200 (“Boeing 787 could revolutionise…


  1. If the few 788s now in service are really doing as well as ANA, JA, and you claim, then the later 788s as well as the 789/10s should do much better, assuming as I do that B will be able to get their weights down. My question is, if they all turn out to be much more efficient than originally thought, how does this increased efficiency affect the viability of the A332/3 NEO? Can neoising them really make them competitive enough with the 787s to justify airlines' buying them?

  2. Christopher,

    It changes the calculus a little bit. But remember, a neo of the A330 is a relatively small investment compared to what Boeing has to pay off on the 787. So moving forward, Airbus has more leeway in terms of pricing an A330 neo versus the 787-9/10. Again, we think that the 787 would outsell a hypothetical A330 neo, probably on the order of at least 1.6:1. But that's better than Airbus sacrificing the 333 replacement all together (or getting say 15-20% of it)

  3. I would say it reinforces the point I was arguing on the A330neo a few months ago: an A330neo doesn't have much market viability unless its market window as Airbus' only offering in that sector is expanded by further delays to the A350. Even when this came up during the spring, Airbus would still have had to find a compromise between making all the improvements they can to reduce the performance gap with the 787 and maintaining a long enough market window to sell the 330neo before the newer planes squeeze it out. Empirical data showing that the 787 is performing better than was expected a year or 2 ago just makes that dilemma worse. So now the performance gap the 330neo would have to close is larger, which means Airbus would have to make the program longer to incorporate more improvements to even get close, which means less of a window to sell them. Or Airbus if Airbus still tries to push a neo out earlier, they have to discount more to attract customers, which eats into the economic viability of the program. And this is just the data from the smallest, most problem-ridden, and supposedly least efficient of the 787 family.

  4. [...] is a 6%-10% cost per available seat mile (CASM) advantage of the 787-8 over the A330-200 (“Boeing 787 could revolutionise US long-haul market“, 5th Jul, 12) and while more seat counts on the larger A330-300 are going to negate part of [...] Reply

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