LCC Growth Forcing European Regionals to Buy E-Jets
Tough cost battles in the market segment where regional airlines and low-cost carriers converge are driving demand for Embraer’s E-Jet series, according to the Brazilian airframer. At a “round-table” panel discussion with some of Embraer’s leading European operators, Simon Newitt, the company’s vice president for Europe, said that new sales continue to accumulate as airlines “right-size” their operations and exploit the E-Jets’ efficiencies to open new routes.
As of late October, Embraer’s firm order backlog for the E-Jet series (consisting of the E170, E175, E190 and E195 twinjets) amounted to 1,018. Including options, the total rises to almost 2,000. To date it has delivered some 770 of the jetliners.
Since January 2010, when Western economies at least remained in the grips of the financial crisis (and to varying degrees still are), Embraer has collected orders for more than 200 E-Jets, 91 of them destined for European carriers. The European E-Jet fleet consists of 172 aircraft flown by 21 operators on 458 different routes to and from 165 airports.
But there remain key regions of the world that Embraer has yet to penetrate, most notably Africa, Eastern Europe and the Commonwealth of Independent States. One notable breakthrough came in the form of the recent first delivery of an E190 to Air Astana of Kazakhstan.
“[We’re] trying our best to get into northern areas–as the E-Jet is good for cold-weather operations,” said Newitt. Russia stands as a prime target market in this respect, but Newitt noted that political considerations–namely, pressure on local carriers to favor Russia’s new Superjet–undoubtedly compromise its ability to access the market.
According to Newitt, so-called ‘right-sizing’ of airline fleet capacity accounts for roughly half of all new E-Jet deliveries, as airlines replace larger, less-efficient aircraft to boost load factors and yields. “Airlines are also using them as a low-risk way to tap new markets and to test market acceptance,” Newitt said. He added that mounting pressure from the environmental lobby in Europe also has driven carriers to dispose of older aircraft.
Examples of right-sizing airline business models include Alitalia’s deployment of E-Jets on the Milan-Rome route, where the flag carrier faces plenty of new competition. Lufthansa (through its regional subsidiary Cirrus) and Air France (through its Régional division) have both switched from older Fokker 100s to E170s. “[Avro] RJs and Fokkers are being replaced by E-Jets, giving 25- to 30-percent savings on a cash-operating basis,” said Newitt. Flybe UK managing director Andrew Strong reported that London City Airport has noticed a marked reduction in fuel sales since BA Cityflyer exchanged its Avro RJ fleet for E170/190s.
Some low-cost carriers (LCCs) have adopted E-Jets, including JetBlue in the U.S. and Austria’s Niki, which operates a mix of 14 Airbus A320s and seven E190s. Some carriers have expanded upwards in aircraft size through the Embraer jet range. For example, Poland’s Lot started running the smaller, 50-seat ERJ 145s on its Frankfurt-Gdansk route and then upsized to E170/175s this year. France’s Régional made a similar move with its Marseille-Toulouse route.
E-Jets, said Newitt, average five to six cycles per day and have recorded a 99.3-percent on-time schedule reliability rate to date (and a 99.8-percent completion rate). Embraer now hopes to boost reliability by another one percent, largely through its Ahead health-monitoring systems.
Air Europa’s Feed Strategy
Air Europa, the round-table’s host at its headquarters near Palma on the Mediterranean island of Mallorca, has also taken the E-Jet path. The airline operates domestically in Spain and within Europe, largely to feed its long-haul flights to Latin America.
Mateo Sanchez, director of fleet management, said that since the airline received its first Embraer in 2006 it has replaced Boeing 737s and now operates a fleet of 11 E-Jets. It also flies to Africa and has resumed service to London Gatwick, “feeding flights to South America using an E195,” said Sanchez. “It’s working… it’s not making big profits but it helps our long-haul. Our core business is the long-haul…all other island and domestic routes are [operated] to feed this as they’re the most profitable routes.”
Air Europa is now transitioning its fleet to three aircraft types, consisting of the E195s, Boeing 737-800s and Boeing 787 widebodies (beginning around 2016). The aggressive growth of UK-based LCC Ryanair in the Spanish market presents Air Europa with its biggest threat. “This is the reason why we are moving to E-Jets,” concluded Sanchez.
Jean-Yves Grosse, Régional’s president and CEO, said that the Air France subsidiary also has experienced a tough time due to the growth of low-cost carriers. “We have no problem filling our aircraft, and have an average load factor of 73 percent,” he explained. “The problem is that the price on the market is low so that even with the E-Jets we only break even. The price is set by Ryanair, EasyJet and so on even when they have only limited frequency on the route.”
The situation has prompted Régional to experiment. “We’ll never be an LCC, but we can learn how to improve productivity, for example with crew,” said Grosse. “So from May next year we plan to base E-Jets at Bordeaux with four round trips a day and turnaround times reduced from 35 to 25 minutes, with the first flight just after 6 a.m. and the last flight just before 11 p.m.”
One crew will fly the two morning rotations on any particular route, and another will fly the two evening ones. “So we will increase to 4,000 flight hours per aircraft [per year] from around 3,200 now,” explained Grosse. “For us this will be a test case and we will rely on the quality of the aircraft.” He added that the French airline will use both E170s and E190s in the trial, on “a mixture of domestic and European routes,” and eventually extend the new operating model to other hubs.
Flybe Readies for E175s
Flybe, which lays claim to the mantle of Europe’s largest regional airline with its recent acquisition of Finnish Commuter Airlines (Finncomm), flies 84 aircraft (including 53 Bombardier Q400s, 16 E195s and, now, 15 ATRs from Finncomm) on more than 180 routes to some 75 airports in the UK and Europe. It operates around 49 percent of its routes four or more times a day and 10 percent of its passengers fly 20 or more flights a year. Strong claims it enjoys much higher levels of customer retention than LCC rivals Ryanair and EasyJet. Competition from other transport modes is minimal, he added, because 80 percent of Flybe’s routes cross water.
Shedding light on the airline’s fleet renewal decision last year, when it placed an order with Embraer for 35 E175s, Strong said that commonality with its existing fleet played a big factor, along with Flybe’s “excellent experience with the 195’s reliability.”
Flybe also looked at Bombardier’s proposed C Series but decided against it, said Strong, because it is “too heavy and flies too far” for Flybe. The airline’s evaluation found the Canadian airframer’s existing CRJ less expensive to operate than the E-Jets but “the smaller cabin was a drawback,” said Strong. The UK-based carrier also considered the Mitsubishi MRJ but ruled out the Japanese jet due to the longer time frame for service entry and lack of commonality with the existing fleet.
In opting for the 35 E175s, along with 65 options and purchase rights on a further 40, Flybe proved a tough negotiator, making it clear to Embraer that it wouldn’t pay anything resembling the sticker price and demanding a stipulation that the jets cost no more to operate per trip than the Bombardier Q400 turboprop. “It actually confirmed to us how good the Q400 economics are,” said Strong, who underscored that the airline will keep Bombardier turboprops in its fleet mix “until 2020 at least,” notwithstanding its sale of seven to South African airline SA Airlink.
At the time it placed the order for the Embraers, $90 per barrel fuel prices allowed the E175 to match the trip costs of the Q400. However, admitted Strong, “now, with fuel at $110 we have to fill one of those extra ten seats, and we feel strongly that we can as the E-Jet is the right design for such flights.” Flybe has agreed to serve as the launch customer for the new biofuel option Embraer has been pioneering in Brazil using sugarcane.
Strong concluded by calling on Embraer to optimize its next jet for routes of between 600 and 700 nm, rather than 2,000 nm. “It doesn’t have to be fast; it just has to be economical, including helping to reduce weight-related charges,” he said.