How will Air New Zealand replace its 777-200ER fleet?

Hello All,

Today’s blog post focuses on Air New Zealand. The Kiwi flag carrier gave an update at its half year 2018-2019 financial earnings presentation. The airline will likely place an order to replace its 8 strong 777-200ER fleet by the end of June 2019 (an extra 2 are on short term lease due to Dreamliner disruptions. We exclude them from the discussion). Deliveries are expected from 2022-2023. This post is a follow up on the one written last year:

Should Air New Zealand replace its 777-200ER fleet with the A350, 787 or 777X? https://epsilonaviation.wordpress.com/2018/03/22/should-air-new-zealand-replace-their-their-777-200er-with-the-a350-787-or-777x/

The focus in the blog post will be more technical. We will look at aircraft capabilities across the Air New Zealand network.

AirNewZealandlogo

Credit: Air New Zealand

Which aircraft will we include in the analysis? At the latest earnings call the carrier said that flights to Los Angeles had lower load factors. This is where the carrier operates the 777-300ER, largest aircraft in the fleet. That means the carrier is unlikely to order a larger aircraft than the 777-200ER. This effectively rules out the 777X. We can safely rule out the A330neo as well because Air New Zealand already operates the Dreamliner.

This leaves us with 2 potential aircraft families: the A350 and 787. Since the carrier does not want a larger aircraft, we can safely exclude the A350-1000. That leaves us with 3 candidates: A350-900, 787-9 and 787-10. In order to better assess the capabilities of those aircraft we will plot a payload-range diagram (another blog post explains in details how their work, https://epsilonaviation.wordpress.com/2019/03/09/is-the-a350-1000-ulr-or-777-8-x-favorite-for-qantas-project-sunrise/):

payloadrange_midsizewidebody

Up to 4700 nautical miles the 787-10 is closest in payload capabilities to the 777-200ER. Beyond 4700 nautical miles the A350-900 is the closest match. The Airbus aircraft overtakes the 777-200ER in payload capabilities at around 8000 nautical miles. Below is a summary of the aircraft’s key capabilities:

Aircraft MTOW Fuel Capacity Range at Max Fuel Payload at Max Fuel Cruise Fuel Burn per hour Cruise Fuel Burn per 500nm
B787-9 254 101.5 8200 23.9 4.7 4.8
B787-10 254 101.5 8050 16.8 5.1 5.2
A350-900 280 110.5 8600 25 4.8 4.9
B777-200ER 297.5 137.4 8650 23 5.9 6.1

Range in nautical miles. All other metrics are in metric tons

MTOW is maximum takeoff weight

Max fuel indicates the point where the fuel tanks are full. Therefore the airline cannot trade payload for more fuel to increase range. The only way to increase range further is to remove payload, which is not desirable.

Air New Zealand currently flies the 777-200ER to the following destinations: Perth, Honolulu, Vancouver, Houston and Buenos Aires. Apart from the first 2 all those flights are beyond 5000 nautical miles. At those ranges the closest replacement is the A350-900. Is this the optimal 777-200ER replacement for the Kiwi flag carrier?

It is worth remembering that Air New Zealand is a relatively small carrier. It currently operates 28 widebody aircraft:

Plane Count Capacity Avg Age First Delivery
B777-200ER 8 312 12.9 2005
B777-300ER 7 342 6.9 2010
B787-9 13+1 275-302 3 2014

Fleet commonality is very important for such a small carrier. It saves on maintenance, crew training etc. Therefore the airline likely prefers the 787-9 or 787-10 to replace the 777-200ER fleet. However can the 787-9/-10 combo meet the carrier’s current and future network requirements? Below are a few points to consider. Can the:

  • 787-10 fly to current Asian destinations? If so how much cargo can it carry?
  • 787-10 replace the 777-300ER on flights to Los Angeles? This is to prepare the 777-300ER replacement down the line.
  • 787-9 fly to potential ultra long haul markets, notably Toronto and New York?

Before we delve into aircraft capabilities we will look at the number of passengers that traveled between Auckland and long haul destinations in the Air New Zealand network (http://archive.stats.govt.nz/infoshare/default.aspx):

In Asia – Oceania:

Asia – Oceania 2018 Passengers Other Airlines
Denpasar 128,477 Emirates
Singapore 439,051 Singapore Airlines
Hong Kong 591,001 Cathay Pacific
Taipei 13,109
Shanghai 314,895 China Eastern
Osaka 30,027
Tokyo 224,631
Perth 173,905

And the Americas:

Americas 2018 Passengers Other Airlines
Honolulu 219,750 Hawaiian
Los Angeles 370,525 American
San Francisco 233,125 United
Vancouver 109,712 Air Canada
Houston* 132,262
Chicago
Buenos Aires 53,250

Below is the annual seating capacity of Air New Zealand aircraft assuming a daily flight:

Aircraft Seats Annual Capacity 85% Load Factor
777-200ER 312 227,760 193,596
777-300ER 342 249,660 212,211
787-9 302 220,460 187,391
787-10 325 237,250 201,663

We will first look at the 787-10’s Asian capabilities. We will assume Air New Zealand fits the aircraft with 325 seats. This corresponds to a 33 metric tons passenger payload. The longest intra Asia flight from Auckland is Shanghai, at 5046 nautical miles. The effective distance is 5500 nautical miles. With 43.6 metric tons of payload capabilities at that range it is more than adequate to carry passengers. The aircraft can also carry 10 metric tons of cargo. While decent it is 6.5 less potential payload than the 787-9 (50.1) and 9.7 less than the A350-900 (53.3).

On a 5000 nautical miles mission the payload capabilities are much closer: 48.8 for 787-10, 52.5 for the 787-9 and 53.3 for the A350-900. The 787-10 is a good replacement on shorter and denser intra Asia routes. Potential candidates are Hong Kong, Singapore and Tokyo. For longer flights if the carrier wants to carry more cargo the 787-9 is close in performance to the A350-900. The extra 3.2 metric tons of payload capabilities of the A350-900 at 5500 nautical miles do not justify losing fleet commonality in my opinion.

What about the 787-10’s performance from Auckland to Los Angeles? The distance between the 2 cities is 5652 nautical miles. In order to account for headwinds we put a 6150 nautical miles effective distance. This translates into a 36.7 payload capacity. At that range the 777-300ER can carry 63.3 metric tons of payload. Long story short the 787-10 can fly to Los Angeles with passengers but it can’t carry much cargo (3.5 vs more than 25 for the 777-300ER). Flying the 787-10 from Los Angeles to London isn’t a problem since the distance is 4741 nautical miles.

The 787-10 can replace the 777-300ER on flights to Los Angeles for passenger operations. However its cargo capacity is far lower. This might seem a problem at first but there is a major mitigating factor. Air New Zealand has a joint venture with United Airlines. As part of the joint venture more non stop flights between New Zealand and the USA have been launched, Chicago being the most recent. Those tend to be on the smaller 787-9, which has better cargo capacity than the 787-10.

The start of those new flights is having consequences on the Auckland – Los Angeles route. The Kiwi carrier said the route has overcapacity since passenger numbers dropped by 14% year on year. Passenger numbers to San Francisco were roughly flat in spite of United Airlines using a larger 777-300ER for the New Zealand summer. Launching new routes on smaller aircraft is the way to go for the Air New Zealand – United Airlines joint venture in my opinion. No other route in the Americas justifies flying a larger aircraft than the 787-9.

Another aspect might help the Kiwi carrier for the 777-300ER replacement. In order to better compete with the A350-900 and A350-1000 Boeing will likely launch a 787 MAX in a few years. This would improve the 787-10’s cargo capacities. Air New Zealand’s 777-300ERs are only 7 years old so there is still plenty of time before having to consider a replacement.

Lastly cargo represents around 7% of revenues at Air New Zealand. This is a respectable fraction but far lower than Cathay Pacific or Korean Air. At the two Asian carriers cargo represents more than 20% of revenues. I doubt Air New Zealand sees having high cargo capacity as more critical than fleet commonality.

The combination of 787-9 and 787-10 can operate all Asian routes. The 787-10 can replace the 777-300ER down the line on the Auckland to Los Angeles route. Now we will look whether the 787-9 can open new ultra long haul routes.

Air New Zealand launched flights to Chicago in November 2018. The Dreamliner seats 275 passengers on that route. This is equivalent to 28 metric tons of payload. The distance between the 2 cities is 7112 nautical miles. The 787-9 can carry 28 metric tons of payload up to 7781 nautical miles. There are therefore 669 nautical miles of margin for headwinds and other reserves.

Air New Zealand has a joint venture with United Airlines and applied for one with Air Canada. Assuming the Chicago route works as hoped the carrier will want to launch flights to Toronto and New York. Are those destinations within reach of the 787-9?

Toronto and New York are 7488 and 7671 nautical miles away from Auckland. Accounting for headwinds they are not within reach with a 787-9 seated with 275 passengers. However the 787-9 has one nice property. Range can be traded for payload up to 8200 nautical miles. At this range the 787-9’s payload capacity is 23.9 metric tons. Qantas uses this feature with a 236 seat configuration to make the flight between Perth and London work.

Let’s assume Air New Zealand launches a third seating configuration for those flights with 235 passengers. This gives the 787-9 a 8200 nautical miles range. Accounting for 669 nautical miles of headwinds and reserves Toronto is within reach of Auckland (at 7488 + 669 = 8157 nautical miles). New York still falls a bit short using the same assumption ( 8340 nautical miles).

However Qantas uses only 371 nautical miles for headwinds and reserves on the Perth to London route (distance of 7829 and range of 8200 nautical miles at 23.9 metric tons payload). If we use Qantas’ headwinds and reserves assumption New York becomes reachable from Auckland with a 787-9.

If Air New Zealand uses Qantas’ configuration on the 787-9 new routes are possible from Auckland: Toronto for sure and New York as long as headwinds aren’t too strong. The A350-900 can carry 25 metric tons of payload up to 8500 nautical miles. Reaching Toronto and New York isn’t a problem with premium heavy configurations on the Airbus aircraft.

However is it worth losing fleet commonality for 1 destination? It is a challenge to turn a profit on ultra long haul flights. The Perth to London route works because there is enough year round premium demand. There isn’t anywhere near as much demand on the Auckland to New York route. There would at most be 3 weekly flights during the high season. In my opinion it isn’t worth ordering the A350-900 with so little demand. The financial risks are too high in the first place to justify losing fleet commonality. Changing an entire order for just one route isn’t justified in my opinion. If Air New Zealand can make the Auckland to New York route work that’s great but if not so be it.

Before concluding the article we should also touch a few words on the A321neo (X)LR. Air New Zealand already operates the A321neo. The Kiwi carrier currently operates flights to Perth, Denpasar, Honolulu and some South Pacific Islands with the 777-200ER or 787-9. Perth, Denpasar and Honolulu are 2,888, 3,641 and 3,814 nautical miles away from Auckland. Other pacific islands in the carrier’s network are closer. Those destinations will be within range from Auckland with an A321neo (X)LR (all but Denpasar and Honolulu can be reached with an A321neo LR, the other 2 needing the XLR in premium configuration). Those routes tend to have relatively low demand or have competing airlines operating them. The A321neo (X)LR would allow more frequencies and higher load factors, boosting profitability in the process. This would free up long haul aircraft for more destinations.

To summarize the A350-900 is the closest replacement to the 777-200ER in terms of payload-range capabilities. However there are strong arguments against ordering the Airbus aircraft. Further market fragmentation and new joint ventures mean that the Kiwi flag carrier is probably better served with the smaller 787-9. If needed the 787-10 can fly all the Asian routes and to Los Angeles. The 787-9 can fly to Toronto and probably New York with a Qantas style configuration. All of the above mean that it is probably not worth it for Air New Zealand to lose fleet commonality. Most likely Air New Zealand will order more 787-9s and maybe a few 787-10s. The Kiwi carrier could also decide to replace some 787-9 or 777-200ER operated routes withing the range of the A321neo (X)LR.

Having said that an A350-900 order is still very possible. Airbus could give very good pricing. The Kiwi carrier might want more cargo capacity. The A350-900 is also better suited for ultra long haul flights. Last but not least this would open the door to an A350-1000 order in the future to replace the 777-300ER fleet. This would mean Air New Zealand sees a market that does not fragment further. In a less fragmented market airlines operate larger aircraft other things equal.

 

 

6 thoughts on “How will Air New Zealand replace its 777-200ER fleet?

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