(Updated July 13, 2021, 9:52 A.M. with analysis from Air Lease chairman)
United Airlines grabbed headlines last month with news it had signed a letter of intent for 15 supersonic jets. The sleek vehicles from Boom Supersonic have a long way to go before becoming a reality, but if they ever become viable, they could siphon off cargo capacity on a handful of key trade lanes.
Of more immediate concern for cargo shippers are plans by airlines to rely more on smaller aircraft with long-range capability on some overseas routes instead of widebody planes that can carry lots of freight, logistics industry executives say. The pandemic accelerated the transition to narrowbody aircraft as cash-strapped airlines look to wring out costs and survive the economic fallout.
Airline executives are downsizing in response to lost demand for international travel and the need to reduce mountains of debt accumulated to maintain operations when business evaporated. With full-fare business-class passengers, who are essential for the economics of international flights, not expected to return to previous levels for several years, airlines are rethinking their strategies.
In the future, international networks are likely to be smaller. Some cities may lose service as airlines rely more on hub-to-hub flying and on alliance partners to take passengers the last mile. And airlines will have fewer frequencies and operate smaller aircraft.
“The belly capacity available for cargo on international flying is going to be reduced over what it was pre-pandemic. You’re going to have a lot of bags and potentially smaller-gauge aircraft so it’s going to leave less room for cargo,” Neel Jones Shah, executive vice president and global head of airfreight at Flexport, said on last week’s “Cargo Masterminds” podcast from STAT Media Group.
The next-generation Boeing 737s and Airbus A321s offer the range of a widebody for medium lengths of haul, but with the economics of a single-aisle aircraft, according to air carriers.
On June 29, United (NASDAQ: UAL) announced the purchase of 200 B737 MAXs and 70 A321 neos, the largest aircraft order in its history. The bulk of the single-aisle jets is scheduled to join the fleet in early 2023. Both aircraft types offer better overall range and environmental performance than earlier versions because they have more fuel-efficient engines and better aerodynamics.
Three-quarters of the Boeing order is for the MAX-10, the largest model in the 737 family, with seating for up to 230 people in a single-class configuration. United is also taking 50 737 MAX-8s, which seats up to 189 passengers and can fly 3,550 nautical miles — about 600 miles farther than its predecessor. Fuel efficiency is at least 14% better compared to older planes being replaced, depending on type, according to Boeing (NYSE: BA).
United currently has 30 MAX-9s plus one MAX-8, with 15 more -8s scheduled for delivery this year. They primarily operate on domestic routes.
In 2019, American Airlines (NASDAQ: AAL) and United each placed firm orders for 50 A321 extra-long-range aircraft.
United said at the time the planes would replace older, less efficient Boeing 757-200 aircraft, enabling a planned expansion of trans-Atlantic routes from its East Coast hubs in Newark, New Jersey and Washington Dulles International Airport. It also deferred delivery of 45 large Airbus A350s until 2027 to better align with operational needs.
The Chicago-based carrier expects to begin taking delivery of the single-aisle A321 XLR and introduce it into service in 2024.
Airbus began construction of the first A321 XLR fuselage in May. The increased fuel efficiency and range (4,700 nautical miles) of the next evolution A321 will allow service from the U.S. East Coast to a much larger selection of European destinations. The new aircraft can go 15% farther and lowers overall fuel consumption per seat by about 30% compared to previous generation aircraft, helping the bottom line and carbon-emission targets.
American Airlines last year accelerated the retirement of its 16 remaining Boeing 767 medium-size widebody aircraft, as well as nine A330-300s. The last 757s are scheduled to be permanently removed from the fleet this year. Company officials said they plan to operate the A321 XLR from East Coast cities such as Boston, Philadelphia and Charlotte, North Carolina, to Europe, including the United Kingdom and Ireland.
Meanwhile, JetBlue (NASDAQ: JBLU) will make its debut in the trans-Atlantic market with nonstop service between New York’s John F. Kennedy International Airport and London Heathrow Airport on Aug. 11 and to London Gatwick Airport on Sept. 29. The carrier will fly the routes with new A321 Long-Range aircraft.
Even before the crisis, Norwegian Air flew transatlantic routes from Dublin and Shannon, Ireland; and Edinburgh, Scotland, to New York with the 737 MAX. Aer Lingus also substituted A321 LRs for A330s on the trans-Atlantic.
“This could take cargo capacity away from shippers in the future, and it goes to show the airlines can use these smaller aircraft that can now reach longer distances and in effect serve the market with more repeated turns because they could fill the aircraft with more passengers,” said Edward DeMartini, vice president of air logistics development for Kuehne + Nagel, during a video briefing for customers last month.
A 737 MAX-9 has almost 20,000 pounds of cargo capacity. That compares to 35,600 pounds for a 757-300 and 93,000 pounds for a 767-300. Moving up the ladder, a Boeing 787-9 Dreamliner has a maximum cargo payload of more than 104,000 pounds, according to a United Cargo fact sheet.
Airbus says an A321 LR/XLR can hold 10 small containers in the belly, weighing about 28,000 pounds, compared to 33 containers for an A330-300.
The success of the A321 XLR will go a long way to determining how airlines redesign their networks in the future, said Steven Udvar-Hazy, executive chairman of Air Lease Corp. (NYSE: AL).
“If those airplanes catch on and can operate more of those sectors that are six to eight hours with higher frequency, with more flexible schedules compared to widebodies, that will change the whole pattern of what is going on in the transatlantic or between the U.S. and Latin America, between Europe and parts of Africa and intra-Asia.
“If they prove to be successful it does mean that some airlines will downgauge and reduce the risk,” he said during an interview last month with the CAPA-Center for Aviation.
“Widebodies are not going anywhere. But the proportion of widebodies in the overall global fleet may actually come down a little bit in the next three or four years,” he added.
The trend is already visible with production rates. Boeing planned to build 14 787 Dreamliners per month, but is down to about five per month. Airbus intended to build 10 to 11 A350s per month and likely will produce about three, Udvar-Hazy noted. And there will probably only be one to two A330 neos made each month.
Narrowbodies more attractive to leasing companies because they are much more replaceable at the end of a lease term since they have a standard configuration. Of the 400 planes on order by Air Lease, only 25 to 30 are widebodies.
Air Lease recently delivered its first A321 LR to Scandinavian Airlines, which will operate it from Copenhagen to Boston and Stockholm to New York. The planes are especially suitable in the winter off-season, when traffic is lower.
As for the Boom Supersonic jets United hopes to buy, they won’t carry any cargo. The vehicles are designed to fly 1.7 times the speed of sound, or about 1,300 mph, and are very narrow to help minimize noise from the sonic boom.
United, which has put down a sizable deposit, said Boom’s Overture airliner will enter passenger service in 2029, but the plane is still under design, doesn’t have an engine yet and must be certified by aviation authorities. United has also qualified its acceptance on whether the plane meets its safety, operational and sustainability standards, which have not been publicly specified.
Skeptics question whether an aerospace startup has the billions of dollars in capital necessary to start manufacturing from scratch and say the supersonic model doesn’t work for commercial air travel because the aircraft are fuel intensive, requiring five to seven times as much jet fuel. They also can’t be flown over land. And if sustainable aviation fuels are used, as Boom and United claim, the cost of fuel will be three or four times higher because there is such limited supply. United intends to charge a premium price for tickets. Meanwhile, first-class and business-class amenities are much better than during the Concorde era and many people may prefer a full-night’s rest in lay-down pod with a TV screen and Wi-Fi as opposed to what is likely to be a cramped seat on a small supersonic aircraft.
United’s Boom jet will cater to business travelers who want to get to London and back in 3.5 hours and are willing to pay a premium price for tickets, not people going on long vacations. The baggage size will likely be limited, perhaps only with carry-on options.
Jones Shah told FreightWaves last month that supersonic aircraft aren’t an issue for cargo business for 10 to 15 years, but if that type of travel proliferates between a few major cities, it could have a trickle-down impact.
“Does it suck a lot of business travelers where they [airlines] fly one less widebody a day? Do they change the gauge or go to a super dense configuration for just tourists, and they put the business travelers on these Boom jets?” he said. “That is an implication that you could see play out in certain markets over time.”
Jones Shah, who previously headed air cargo at Delta Air Lines (NYSE: DAL), said the Boom jets will only be used in heavy business corridors and initially are envisioned for the trans-Atlantic because of range limitations.
“If United is successful, then American Airlines and Delta are going to do it. And British Airways and Lufthansa are going to do it because you can’t be the only one without a fancy business-class product like that because you’ll be at a disadvantage with corporate accounts,” he said.
Freighters fill the void
Flexport, like many freight forwarders, heavily escalated use of all-cargo aircraft during the past 16 months because of the continuing shortfall in passenger flights that has eliminated 10% to 22% of overall cargo capacity, according to various estimates.
Although passenger travel is near pre-pandemic levels in large domestic markets like the U.S., international business is still depressed by 85% and the international routes are where the vast majority of cargo flows.
Chartering dedicated cargo aircraft will have staying power if airlines downsize aircraft on medium- and long-haul routes, Jones Shah said on the STAT Media podcast.
“Freighters are going to be a very core part of our capacity needs going forward. They are going to have a very important role to play because they go where the cargo originates and where it’s destined to end up. They’re not constrained by passenger flows.
“So, we are very heavily vested in freighter capacity, in main deck capacity and will continue to be so for the foreseeable future,” he said.
Flexport quickly entered a into long-term agreement for multiple 747-400 freighters with Atlas Air (NASDAQ: AAWW) when COVID began to spread around the world shortly after getting rid of a private air service when the market was softer.
“We are committed to this capacity for the long term. And we think it’s going to form a core basis of our overall procurement strategy,” along with continued purchase of belly capacity on passenger airlines, Jones Shah said.
“I just think belly capacity is going to be less than it was before and so we can rely on it less going forward” with projections for cargo growth ranging from 4% to 6% per year. “I would say we’re overweighted toward freighters right now and will continue to be for the future.”