The long-range variant of the A321neo (new engine option) is a game-changer for many airlines, so much so that Airbus – at the request of airlines – refuses to differentiate between the A321neo and its Long-Range (LR) variant when announcing new purchases. These announcements only mention if the A321 is a new engine option.
So why would this aircraft be a game-changer for Air Canada? Recall in a previous post I commented that the Boeing B787 was a game-changer for the Company in its international wide-body operation. For long, thin routes the Airline did not have the
right aircraft. These routes are too thin for the large Boeing B777, an aircraft with the necessary range. On the other hand, the smaller, more suitable Boeing B767 fell short on range. From a passenger’s perspective, going from point A to point C, you first had to travel to B, and then connect, often on another airline. The Boeing B787, meeting both range and capacity requirements, enabled direct flights and became known as a ‘hub-buster.’ The aircraft opened up new routes for Air Canada.
The Airbus A321 LR fills a similar gap in the narrow-body world. The aircraft has similar operating economics as the Boeing B787, and compared to its direct competitor – the Boeing Max 9 – the LR variant has a much greater range capability, 4000 nm vs 3550 nm. Airbus designed the aircraft with the North Atlantic market in mind, operating between secondary airports on both sides of the Atlantic, reducing overall trip costs in the process. Norwegian Air Shuttle, an ultra-low-cost carrier (ULCC), ordered 30-Airbus A321neoLR aircraft in 2016 and is intending to use them between secondary airports in the U.K and the U.S. and Canada, competing directly with Air Canada and Air Transat.
Norwegian has since undergone several financial restructurings, and two of the world’s largest leasing companies have now become the airline’s largest shareholders, converting parts of their lease obligations into shares. Norwegian is planning to cut its long-haul business by 40 percent and will only focus on the most profitable routes. Although international ULCCs are a growing threat, unlike their domestic counterparts, they do not share the same cost advantages and have much thinner operating margins. The international ULCC concept is yet unproven.
For Air Canada, the LR variant would not only enable the Airline to operate more competitively into these secondary European markets (for example, against Norwegian), but also open up more routes within North America such as direct flights from Western Canada into the Caribbean, etc., with aircraft in this seat range category (180-200 seats).
For Air Transat, the Airbus A321neoLR is a key element in its fleet transformation replacing the much older wide-body Airbus A310 fleet. The first two LR variants arrived in 2019, four more this year, and an additional ten will come over the next two years for a total of sixteen. These new-generation aircraft consume 15 percent less fuel than the previous generation of Airbus jets. During summer 2019, Air Transat operated the A321neoLR between Montreal and London, Lisbon and Nice. The aircraft also operated between Quebec City and Paris, and Toronto and London Gatwick. In winter, Air Transat uses these aircraft on Southern routes into Mexico and the Caribbean. The LR is highly versatile.
Early in the Covid-19 crisis, Air Canada cancelled its 11-Boeing 737 Max 9 firm orders (non-performance clause due Max 8 groundings). The cancellation was a clear signal of Air Canada’s intention to remain with the Airbus A321 in the 180-200 seat range. Over the last couple of years, the Airline has been adding early- to mid-life A321s – some with the new engine option – to its current A321 fleet, so this announcement was not unexpected, particularly since the Max 9 failed to meet performance specifications and Air Canada had pushed back delivery of these aircraft. But none of Air Canada’s A321s is the LR variant. With A321neoLR delivery slots tied up until 2024, at the earliest, a merger between Air Canada and Air Transat would bring the LR variant into the Airline much sooner than otherwise possible.
In previous posts I postulated that the Covid-19 crisis created an opportunity for Air Canada to acquire the LR variant now that financially troubled airlines were cancelling orders; and these aircraft could be acquired at significant discounts. Given the high demand for the LR prior to Covid-19, a premium was built into the selling/leasing price. So with the 2019 Transat deal no longer making financial sense, Air Canada with its high liquidity level was now in a position to acquire the LR variant.
Surprisingly, WestJet in its initial order for the Boeing Max aircraft did not even contemplate a stretched variant in its Boeing fleet. Its initial order for 65-Max aircraft, comprised 40-Max 8s and 25 of the shorter version Max 7s with a longer-range capability. It seems that WestJet executives were out-of-step with the industry movement toward larger gauge aircraft and increasing average stage lengths. It was only in the last two years or so, that WestJet converted some of its Max orders into Max 10s, but deliveries for this yet to be introduced (and proven) variant won’t begin before 2023. (Onex may have pushed these deliveries back due to Covid-19.) Although the longer Max 10 will come with greater seating capacity the cost is an even shorter range than the already range limited Max 9 variant (3300 nm vs 3550 nm) when compared to the Airbus A321neoLR (4000 nm).
An important element in achieving healthy ROICs is putting the right aircraft on the right route at the right time.