Is The Boeing 787-9 Really Going To Help Air France-KLM? (Part 1)

| About: The Boeing (BA)
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Summary

Boeing 787-9 should aid Air France-KLM in achieving higher load factors.

At higher fuel prices the fuel savings offset the higher lease rate.

At lower fuel prices the higher lease rates are not offset by lower fuel costs.

In one of my previous articles I treated the deferral of the Boeing (NYSE:BA) 777-300ER deliveries and concluded that the deferral itself, from a financial point of view, is not a bad decision.

KLM Royal Dutch Airlines will take delivery of its first Boeing 787-9 Dreamliner this year. The Dreamliner should actively lower fuel costs and will be replacing the Airbus (OTCPK:EADSF) A330-300 and the Boeing 777-200ER. With the 294-seat Boeing 787-9 replacing the 316-seat Boeing 777-200ER on some routes the capacity is lowered, which should result in a higher load factor.

In this analysis I will consider 2 flights:

  1. Part 1: Amsterdam-Xiamen, typically operated by a Boeing 777-200ER
  2. Part 2: Amsterdam-Vancouver, typically operated by an Airbus A330-300

For each analysis I will add a comparison with a 100% load factor, as well as a comparison with average load factors for both aircraft. A third comparison will be made assuming a higher load factor on the Boeing 787 (due to its lower capacity).

Mission outline:

  • Flight from Amsterdam to Xiamen, trip distance 5030 nm
  • 10% reserve fuel; jet fuel price of $3 per gallon
  • No landing or take off fees have been taken into account
  • Passenger weight of 100 kg, which includes carry-on baggage

Class

Boeing 777-200ER

Boeing 787-9

Ticket price [$]

Baggage allowance in kg

Business

34

30

3945

64

Premium

40

48

2020

23

Economy

242

216

1845

23

Total

316

294

 

Airframe efficiency

Figure 1: Efficiency changes Boeing 787-9 versus Boeing 777-200ER (Source: Dhierin-Perkash Bechai)

Figure 1 shows that the Boeing 787-9 is a leap forward. The airframe is about 9% lighter, while having a 5% higher aerodynamic efficiency and 12% higher propulsive efficiency. The capacity is 7% lower, but is not a bad thing since it should enable Air France-KLM to have higher load factors on their long haul fleet.

Replacement Boeing 777-200ER by Boeing 787-9

First of all it is worth looking at both aircraft with 100% load factors (all seats are occupied).

For our mission flight we obtain the following results:

The Boeing 787-9 generates 7% lower revenue and has 25% lower fuel costs, resulting in a 4% lower profit. Figure 2 shows a visualization of the per seat results. The fuel consumption per seat is 19.2% lower. The fuel consumption per 100 passenger-km is 2.71 L for the Boeing 787 and 3.36 L for the Boeing 777-200ER.

Figure 2: Per seat figures for the Boeing 787-9 (Source: Dhierin-Perkash Bechai)

Figure 2 shows that the revenue per seat is 0.3% lower. Aided by 19% lower fuel costs per seat the profit per seat rises 3%. This shows that when the Air France-KLM (OTCPK:AFRAF/OTCPK:AFLYY) is not able to fill the Boeing 777-200ER the Boeing 787-9 might be a better option to achieve a higher absolute profit.

Figure 3: Per seat fuel efficiency for Boeing 787-9 and Boeing 777-200ER (Source: Dhierin-Perkash Bechai)

The figure clearly shows that the Boeing 787-9 has a significant fuel advantage over the Boeing 777-200ER.

One of the things that has to be noted is that the load factors are never 100%. Air France-KLM has an average load factor of 85.6%.

The higher profit per seat for the Boeing 787-9 could indicate that in terms of absolute profit the Boeing 787-9 might be more profitable than the Boeing 777-200ER.

Replacement Boeing 777-200ER by Boeing 787-9 at load factor of 85.6%

The load factor of 85.6% for both airframes shows that the profit is almost 3.5% lower. However, the Boeing 787-9, having less seats, should be able to have a higher load factor. Using the numbers of passengers on board of the Boeing 777-200ER and use those for the Boeing 787-9 gives a load factor of 91.8%

Replacement Boeing 777-200ER (85.6% load factor) by Boeing 787-9 (91.8% load factor)

At higher load factor the following seat counts are obtained:

When the Boeing 787-9 is indeed able to transport the same number of passengers as the Boeing 777-200ER the following results are obtained:

The revenue will be slightly lower for the Boeing 787-9, but aided by 23.7% lower fuel costs the Boeing 787-9 should be able to generate a 4.4% higher profit. So the Boeing 787-9 should be able to generate higher profit with a smaller airframe that has a higher load factor. Additionally the Boeing 787 should have lower costs related to take off of and landing fees.

Figure 3: Per seat figures for the Boeing 787-9 adjusted for load factor (Source: Dhierin-Perkash Bechai)

When taking the load factor into account the load factor, fuel costs per seat are 24% lower (instead of 19%) and the profit per seat is 4% higher (instead of 3%)

Lease rates

Capacity and fuel costs are 2 important factors that determine the profit, but what should also be taken into account are the lease rates of the aircraft. If profit on operation are completely offset by the higher lease rates the rush to attract fuel efficient aircraft mitigates.

The lease rate for a Boeing 787-9 is about $1.35 mln per month, for the Boeing 777-200ER this is about $0.765 mln. Per month the Boeing 787-9 is approximately $585000 more expensive to operate. Per year leasing the Boeing 787-9 instead of the Boeing 777-200ER is almost $7 mln more expensive. Assuming that the route is operated 3 times per week or (6 flights including return flight), gives an advantage of $0.5 mln for the Boeing 777-200ER. However, on the days that the route is not being flown both aircraft can operate other flights. Assuming those flights are somewhat similar in stage length and the aircraft operate 95% of the year leads to the conclusion that the Boeing 787-9 is bringing Air France-KLM $0.2 mln more profit per year.

Conclusion

  • The Boeing 787-9 aids Air France-KLM in reducing fuel burn by 24%
  • Per flight the Boeing 787-9 generates 4.4% higher profit
  • Taking into account lease rates the Boeing 787-9 generates about $0.2 higher profit
  • The Boeing 787-9 should help Air France-KLM trimming down capacity where needed, while simultaneously increasing the load factor of their long haul fleet.

In Part 2 I will compare the Boeing 787-9 and Airbus A330-300 on a typical KLM route.

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