08 March 2011

Boeing’s Next Gen Vision

Trying to discern Boeing’s vision for its commercial aircraft line is like trying to read tealeaves. But lets take a little walk through the mind of the collective at Boeing.

Boeing currently has two solid product lines – the 777 where most of the profit lies and the 737 where the volume side of the business lies. The 3 other current lines are not quite so well off. The 787’s issues are well known and will eventually be solved. The 747 is enjoying a boost in its career but whether or not the market for large aircraft will be split profitably between Boeing 747 and Airbus A380 remains a question. Both aircraft are running at very low production rates.

That leaves us with where do we go from here.

Boeing is committed long term to maintain both the 767 and the 737. The former represents a Pyrrhic victory over Airbus for the tanker. Which in the view of EADS was bid below cost. Well its going to be there for a very long time arguably 20 years or even longer. The same can be said of the 737 even if Boeing does introduce a new twin aisle replacement (See the image for a patent filed by Boeing) to be announced in June at the Paris air show. The problem will be that the P3 program will run for another 20 years in my view and as a result so will the venerable airframe. Boeing has acknowledged the same by saying the 737-800 and 900 variants will remain in production “if the market wants them”. With Boeing boosting rates to the highest level ever – there is now a new level of fragility in the supply chain.

What does the world order for Boeing look like if all this comes to pass? It means that Boeing will be supporting MORE production lines not less. So synergies will be flying out the window.

Everett – 777, 747, 767 tanker 787 line 1
Renton – 737 legacy
South Carolina – 787 Line 2
TBD 737 Next

That is 6 production lines vs today’s 5. Further Boeing will be producing 787s in 2 lines at opposite ends of the country. The SC facility will be cheaper and more efficient as it will be closer to other Boeing manufacturing facilities. In my view a situation that will be unsustainable come the next recession.

So where will the 737 Replacement be built? At the present time the assumption will not be Renton. Boeing has sold off much of the surrounding land around the plant and has made no bones about the fact it wants to relocate to – lets say Everett. If however they do keep it in Renton then they will face a big problem. With only 3 possible production lines and one closed off to the military with the P3 program effectively there will not be a full facility or room to run a full 3 line production line for the new aircraft that will be needed to match Boeing’s market estimates by the time 2030 rolls around when the new aircraft will be in full production at peak. Therefore either the new line locates up to Everett or goes somewhere else. Either way its not going to be pretty.

07 March 2011

Allegiant's Answer To Rising Oil Pricess - Flexible Fares

Allegiant has a new wrinkle on the whole pricing thing.

Dealing with different pricing models has proved to be difficult for everyone. Most of all the new pricing models dont give you exactly what you want to know.

IE what is the minimum price. Since the nice people who write laws are happy to pursue people who transgress rather than writing sensible laws... no one seems to be dealing with the problem correctly.

Other markets that have complicated products have the same issue and create a pricing model that is clear. Cars do it ... even educated houses do it. My answer would be for someone to state what a minimum price really means. IE what is the price you could get on a plane for. Then there is the equivalent "nicely equipped price" model.

Getting back to Allegiant - the plucky travel company that has planes, their idea is to let you pay for a ticket in the usual format but also to enter into a risk contract with the airline betting if the price will go up or down.

Its a good idea and someone should really look into it.

Anyway read the article from the WSJ.

And Y'all hurry back now d'ya hear!

06 March 2011

Travelport Offloads GTA to Kuoni for $720 Million

Travelport has managed to offload one of the albatrosses around its neck with the sale of GTA to Kuoni.

GTA has been a step child in the Travelport organization since the creation of Travelport out of the Ashes of the Cendant empire. The synergies long hoped for never quite materialized.

With Amadeus shedding non-core businesses and now down to the twin pillars of Airline IT and GDS, Travelport finds itself as a one trick pony. Well not quite if you include the bizarre purchase of SPRICE.

GTA has always been a somewhat uncomfortable member of the family. Now it is going to a new home with perhaps an opportunity for Kuoni to restore some lustre to the once high flying traditional brand.

In my view don't look to Sabre to spin out Synxis any time soon. The big 4 GDS companies are still holding onto their cash cow businesses. This divestiture allows the core of the business to be judged on its merits - good or bad of the purity of the GDS model. Then of course there is still that small matter of their 48% shareholding in Orbitz Worldwide.