Lessors Still See Strong Market for 250- to 350-seat Widebodies

 - August 8, 2017, 10:29 AM
A Norwegian Boeing 787 takes off from Los Angeles International Airport. Growth in low-fare carriers flying routes over the North Atlantic has helped boost projections for the market segment covering smaller widebodies. (Photo: Flickr: Creative Commons (BY-SA) by airlines470)

Despite struggles with programs at the top end of the widebody market, trends point to solid demand for the core segment of smaller twin-aisle aircraft, top leasing executives say.

“We are seeing single-aisle capacity being replaced by the smaller 250- to 300-seat widebody aircraft,” Air Lease Corporation executive chairman Steven Udvar-Hazy said on a recent earnings call. “There’s a large migration in that direction, and part of that is the traffic density on a lot of these city pairs is reaching the point where airlines run out of frequencies with their single-aisle operations.”

International Air Transport Association data shows that global traffic demand rose 7.9 percent for the first six months of 2017, helping push load factors to a record 80.7 percent for the six-month period. As a result, some upgauging has occurred, particularly in competitive markets such as within Asia and over the North Atlantic.

On the North Atlantic, narrowbody aircraft have begun to creep into “secondary markets,” Udvar-Hazy said. “But we're also seeing widebody aircraft replacing, for example, 757s flying where load factors have reached 90 percent-plus levels…The 787s and the A330s are extremely valuable assets to operate on the North Atlantic in markets that are not necessarily the highest-density markets, but city pairs that offer direct service bypassing congested hubs.”

Meanwhile, high-density twins account for the core of rapidly expanding long-haul, low-cost carriers (LCCs). 

“We're seeing more and more shift on the long-haul LCC market, where airlines are utilizing the 787 in high-density configurations...as well as the A330-200s, 300s and the A330-900s,” Udvar-Hazy said.

Rival lessor AerCap broke a 10-year widebody-order hiatus with a 30-aircraft order for 787-9s at this year’s Paris Air Show. CEO Aengus Kelly sees the variant as "the workhorse of the small wide-body fleets of airlines going forward.” 

Kelly also espoused the benefits of high-density 777s in charter markets as well as long-haul LCC operations. “The 777-300ER is a tremendous airplane,” he said. "If an airline can fill that airplane, it will make money. Even at $100 a barrel [of oil], it is the most efficient large twin out there...And so we do see a market evolving in the charter market, where we see airlines looking at putting over 450 passengers on it.”

Executives from both lessors played down worries that slowdowns at each of the three long-haul Gulf carriers—Emirates Airline, Etihad Airways, and Qatar Airways—would undercut strengthening widebody demand. A combination of shifting global demand and political challenges has slowed growth plans at each carrier, leading to changes in aggressive order schedules.

“I don't think that anyone ever expected the three carriers in the Middle East to take delivery of all the airplanes in the time frame they were ordered,” Kelly said. "I do believe the business models are sound and robust for the long term and that over the longer term, those seats will deliver, but not in the original time frame that was envisaged.”

“There's a lot of undue concern about widebodies,” added Air Lease CEO John Plueger. “Yes, we know the Middle Eastern guys are deferring, as well as other carriers,” including American Airlines and Delta Air Lines, both of which have pushed off A350s. “But I think we've given you some color on real uses and pathways for widebodies over the next three to five to seven years. So we just don't share that level of concern.”