Monday, October 29, 2012

What do the Long Haul Pull Backs Mean For Spirit and the 787?

High fuel prices and fewer people paying premium fares persuaded Singapore Airlines to cut back on ultra long-haul flights. The WSJ's Jeffery Ng explains why airlines may be better off aiming for the lower end of the market:

Mammon Among Friends wonders if this is bad news for Spirit.  Spirit is a major partner in the production of the Boeing 787, which is the premier aircraft for such routes.  

 Boeing has made a strategic choice in building the 787 about how its customers, the world's airlines, will deal with passenger growth:  "As the busiest airports get more and more congested, the airlines will either have to fly bigger planes with more seats into those hubs or fly longer point-to-point routes to relieve pressure on the hubs. Airbus in the A380 bet on the former, while Boeing in the 787 bet on the latter."

In the Asian Wall Street Journal, Jeffery Ng reports "The cuts were caused by a combination of economics and physics. Amid the sluggish global economy, fewer fliers were willing to pay premium fares, which can be more than five times the standard coach fare. The rise of discount carriers in Asia has also put additional pressure on the regional operations of premium carriers."  

The 787 goes a long way toward dealing with the challenge of higher fuel prices.  Yet the fundamentals may still have weakened.   Investment banking has been shrinking since the financial crisis and many firms may be less willing to pay for fancy flights in less profitable economic times.


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