Why did Air New Zealand order 8 787-10?

Hello All,

Air New Zealand finally announced today that it would replace its 8 strong 777-200ER fleet with the same number of 787-10. Deliveries will stretch from 2022 until 2027. The order includes options for up to 12 more 787s. The airline also has the option to swap the order to the smaller -9 variant and adjust delivery schedules according to market demand. It is also worth noting that the Kiwi flag carrier chose the GEnx to power those new aircraft, in spite of the fact its current Dreamliner fleet has Rolls Royce Trent 1000 engines. An earlier post on this blog predicted that the carrier would order more 787-9s. In this blog post we will discuss the reasons why Air New Zealand did not order the A350 or 777X and the largest Dreamliner variant prevailed.

The 777X was an option for the Kiwi carrier. The re engined Boeing best seller comes into 2 variants: the 777-8 and 777-9. The 777-9 can seat more than 400 passengers in a 2 class configuration and has a similar range to the 787-9. The 777-8 seats as many passengers as the 777-300ER but can fly an extra 1,200 nautical miles (8,700). The 777-8 would easily reach New York and Rio de Janeiro from Auckland. The 777X also has pilot commonality with the 787. Why did the Kiwi carrier pass on the 777X?

It has to do with the passenger demand on the busiest routes in the carrier’s network. If we assume the 777-9 seats 400 passengers, a daily flight would have 292,000 available seats. To reach an acceptable 80% load factor the demand needs to be 233,600 annually. As it turns out only the following routes have at least that amount of demand:

Asia – Oceania 2018 Passengers Other Airlines
Hong Kong 591,001 Cathay Pacific
Singapore 439,051 Singapore Airlines
Los Angeles 370,525 American
Shanghai 314,895 China Eastern
San Francisco 233,125 United

All those routes have another airline operating either as a competitor or in codesharing / joint venture. Demand to New Zealand is also very seasonal, favoring smaller aircraft other things equal. Air New Zealand currently operates consistently its largest aircraft, the 777-300ER, to San Francisco and Los Angeles. The airline indicated in a previous presentation that load factors plummeted on those routes lately. This is partially due to the fact Air New Zealand launched new routes to other US cities, including Houston and Chicago. If the airline struggles to fill the 777-300ER one one of its busiest routes, what about the even larger 777-9? The fact Air New Zealand has options for 12 more 787s means that the 777-300ERs will almost certainly be entirely replaced by Dreamliners when they are due for retirement.

The 777-8 only makes sense on ultra long haul flights (it is too heavy to be efficient on shorter flights). 2 or 3 new ultra long haul destinations would be viable at most in Air New Zealand’s network (New York, Toronto and Rio de Janeiro) to justify such aircraft. But there wouldn’t be anywhere near enough demand to fill an aircraft the size of the 777-300ER.

Now that we explained the reasons for not ordering the 777X, why did Air New Zealand pass on the A350-900? After all the A350-900 is the latest generation aircraft with the closest payload range capacities to the 777-200ER. The A350-900 also has larger fuel tanks that allow a bigger payload than the 787-9 on an ultra long haul flight such as Auckland to New York. There are a couple of reasons why the Airbus aircraft did not win the day.

The most important one is fleet commonality. The Kiwi flag carrier is still relatively small, currently operating 28 widebody aircraft (13 787-9, 8 777-200ER and 7 777-300ER, excluding the 2 777s on wet lease to cover Trent 1000 engine issues). Adding a second widebody type, especially from a different manufacturer, is hard to justify unless it brings something special to the table.

As it turns out the 787-10, the other aircraft closest in capacity to the 777-200ER, can cover most of the latter’s missions. The 787-10 can comfortably fly all of the carrier’s Asian routes with decent cargo capabilities. The US West Coast destinations (Los Angeles and San Francisco) are also reachable carrying only passengers. Now that the 787-10 entered operations there is real world data to confirm the aircraft performs as expected. For flight deeper into the USA the Kiwi carrier is happy to operate the 787-9 and 777-300ER. On flights within its range the 787-10 has better unit costs than the A350-900.

If Air New Zealand wishes to start flights to New York, its CEO stated today that the 787-9 could do the job in a premium heavy configuration (in the blog post mentioned above we estimated a Qantas style 236 seats configuration would make flights to New York viable without maximum takeoff weight increase). The airline also announced that it isn’t planning to start flights to the Big Apple until 2022-2023 and is currently working with United Airlines on that. This means the carrier hasn’t closed the business case that would justify launching the route yet. It does not make sense for Air New Zealand to order an entirely new aircraft family for 1 to 3 routes, especially if profitability is far from assured.

While not explicitly stated in Air New Zealand’s news release, it is understood that Boeing tweaked the 787 design slightly. A combination of increased maximum takeoff weight and fuel burn improvement on the GEnx should give the 787-9 and 787-10 a bit extra range (a few 100s of nautical miles). Depending on the magnitude of the MTOW increase and aircraft configuration this might allow direct flights from Auckland to Vancouver on the 787-10. For the 787-9 this would make direct flights to New York feasible with more payload, potentially not needing a dedicated reduced seating configuration.

After ruling out the 777X and A350, Air New Zealand concluded that a new Dreamliner order made the most sense. The carrier decided to order the -10 variant because it has the closest seating capacity to the 777-200ER but is far more fuel efficient (the airline claims up to 25% lower fuel burn per passenger). The airline prefers to keep aircraft with similar capacity at much lower costs rather than substantially decrease or increase aircraft size. The 787-10 can carry around 15% more passengers and 15% more cargo volume than the 787-9. The order emphasizes the fact the Kiwi flag carrier wants continuity and efficiency in a market where growth moderated recently.

The only major change is the engine. One would be tempted to conclude that Air New Zealand passed on Rolls Royce’s engine because it was so badly affected by the Trent 1000 issues. While this might have played a factor Rolls Royce almost certainly made a very attractive offer not to lose the Kiwi flag carrier. As Air New Zealand stated, it is the GEnx’s superior fuel efficiency that made the difference. Various sources in the industry back that claim, especially for longer flights.

To summarize the 787-10 won the day for several reasons. The 777X is too large to operate profitably in Air New Zealand’s network in light of recent demand developments. Since the 787-10 and 787-9 can operate current and envisioned services the A350 was ruled out for fleet commonality reasons. The -10 was chosen over the -9 because it has the closest capacity to the 777-200ER and provides it at much lower unit costs. The only major change is the switch to the GEnx for fuel efficiency reasons. All eyes Down Under will now be on Qantas’ project sunrise order expected later this year (https://epsilonaviation.wordpress.com/2019/03/09/is-the-a350-1000-ulr-or-777-8-x-favorite-for-qantas-project-sunrise/).

Credit: Air New Zealand

 

AirNewZealand787_10

10 thoughts on “Why did Air New Zealand order 8 787-10?

  1. It would seems like Air NZ decision to go with the B787 instead of the A350 is starting to show its limitations. It most definitely seems like a no brainer decision back then to stick with Boeing and order the B787 many years ago, however on hindsight had Air NZ make the switch to the A350-900, they would have had better growth prospect now, with the ability to launch the AKL-JFK route with some cargo payload rather than having to wait till 2022. (I believe that negotiations with United is only secondary as the primary reason is the B787 is not capable of flying the mission)
    Ultimately the geographical dynamics of Air NZ will see them streamline towards smaller long range aircraft such as the A350-900 or the B787-9 or perhaps even A330-800.

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    1. At the same time, GE pulling off a whopping 4.8% engine efficiency improvement was not foreseen by Airbus and Rolls Royce. As the PIPs keep coming down from the GE9X, GE will stay competitive, even well ahead of the Trent 1000 TEN. Nominally the 787-9 with the TEN engines was rated for 15,700km range at one point, obviously with a premium-heavy layout. If that’s been matched by GE, then when the eventual re-engined 787 NG comes along, every advantage the A350 CEOs had will be gone, and the bet on Boeing will have paid off for ANZ.

      It’s always a gamble. It’s a miracle the Trent XWB hasn’t had any catastrophic failures yet.

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      1. Hello Patrick, thanks for this eye opening comment. I would have a question:

        Do you know whether the GEnx engine improvement will only be available to the 787-10s joining the fleet in a few years; or whether ANZ will be able to retrofit them to the current 787-9s. From what i understand it is possible to swap engine manufacturer on 787s but i wanted to confirm.

        Reason i am asking is that the extra 4.8% fuel efficiency would make an Auckland – New York a lot more viable payload-wise on a 787-9.

        Thanks,

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      2. Yes, 4.8% is a very impressive PIP. it would put its efficiency well ahead of the Trent XWB. However the playing field is due to reset again in a couple of years time when RR introduces the Ultrafan. GE unfortunately isn’t working on their own geared turbo fan. GE finds it more critical to optimise the OPR than maximizing the BPR. We will see in a few years time how each individual strategy pays off for RR & GE.
        Likewise one of the considerations for airlines betting on the A350 is the potential exclusivity of the Ultrafan with Airbus.

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  2. Flying AKL-GIG or AKL-GRU is just a piper’s dream for NZ for decades to come. There are just 16,800 Kiwis going to Brazil per year (with many of them combining their visit with stopovers in Argentina and/or Chile, thus reducing direct traffic), which means 46 per day . Plus 19,000 Brazilians going to NZ also per year, or 52 per day. Both groups would fit snugly in an Embraer E-195 or A220, if they were able to fly the distance. With Australia numbers are not much better, 36,500 Aussies per year to Brazil, or 100 per day, plus 60,000 Brazilians to Australia, or 165 per day. Not to mention the distance, 7,312NM great circle SYD-GIG, somewhat on the uphill camp. A far more interesting option would be SYD-EZE-GRU plus MEL-EZE-GIG, with both planes arriving to Argentina at the same time, enabling passengers to switch city of destination. Both missions are almost exactly the same distance. And NZ could be incorporated to the scheme. Also adding in all cases traffic from Argentina would roughly double all the above figures, enabling 2 daily flights. Pity Aerolineas Argentinas does not have available planes for this route, which takes some 41 hours return including all stopovers, allowing an extraordinary 16h30′ flying time per day per plane.

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  3. Air New Zealand Airlines is Just amazing — they’ve never been late for me, but Air New Zealand’s change flight Policy is a little bit difficult to understand. After searching so much about the modification policy, finally, I got a solution by {Airlinespolicy.com }. They have crisp, short, and relevant information about modification, cancellation, check-in, Baggage, and Pet policy. They helped me a lot during the harsh Covid-19 time. I am very thankful to the team of airline policy. Visit here to know more: https://airlinespolicy.com/flight-change-policy/air-new-zealand-change-flight-policy/

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