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Excellent encapsulation. I'm far from an expert, and this is pure, naive speculation, but on a philosophical level, I wonder if the issue is that we've not yet

Excellent encapsulation. I'm far from an expert, and this is pure, naive speculation, but on a philosophical level, I wonder if the issue is that we've not yet really mastered the technology of air travel. By that I mean we seem incapable of building and managing aircraft at a sustainable, "MVP" level, operating on a fuel consumption minimal enough to withstand the vagaries of commodity prices. Perhaps Boeing and Airbus are overengineering their aircraft and baking in economic rent to a degree that makes the airlines fundamentally incapable of sustaining a profitable business model. Perhaps this industry can't actually survive with current technology and design methods absent some sort of government backstop or subsidy. Not sure. But the supply-side theory of this business seems like the most compelling (if not wholly complete) theory I've heard. Maybe we need a firm to come along and build the AK-47 or Toyota Prius of commercial aircraft, so to speak: cheap, reliable, efficient, elegantly engineered, and innovative in its use of parts and fuel. I also wonder if there is a correlation between airline profitability and the airlines using the oldest aircraft. Seems to me (again, naively) that aircraft from back in the day were more purpose-built and simpler, with less complex global supply chains. Sort of a similar situation to the military's concerns about phasing out the old, reliable A-10s and F-16s in favor of the massive, modern boondoggle that is the F-35.

nerfhammer 11y ago
The 787 was supposed to be a much more efficient aircraft, though it's not cheap and it's had several reliability issues
nether 11y ago
Aeroflot opted for the 787 but has ordered some Sukhoi Superjet 100s. I think "simple, rugged" philosophy is difficult to maintain for massive projects with huge part counts. Most Russian airliners have not had much success in the global market. I think the biggest cost saving in aircraft development will come from cheaper engineers, mainly in China. It would be interesting to see if development costs plummet if we were all willing to accept auto traffic rates of accidents and deaths in air travel.
saosebastiao 11y ago
I think the aircraft has only a tiny effect on profitability. In general, aircraft total cost of ownership and operations is proportional to size. There are some outliers, but the purchase price and/or leasing costs are negotiated up or down based off of perception of costs, so if there are any issues with aircraft costs they are short lived and go away after a while because those cost differences are eventually negotiated away. Similarly, any aircraft with lower than normal operational costs will have its price bid up until it breaks even with the cost levels of inferior aircraft (scarcity of production capacity for aircraft ensures that higher bidders get first dibs). The real issue is flight capacity utilization. Airline cost structures follow what accountants would call a step-fixed cost. In other words, the marginal cost per person is negligible until you fill the aircraft and then the marginal cost per person is the cost of a whole new flight. This also means that once you fill a plane past its break-even load factor, every additional seat sold is pure profit. The airline industry as a whole is operating on load factors between 82% and 84%, and it is net neutral in terms of profitability. That would lead me to believe that at current fuel prices (really the only source of variability in operational cost), that 83% load factors represent the zero-profit scenario. Now if Airline A can achieve 85% load factors, they will have a positive EBIT. If Airline B can acheive 87% load factors, they will roughly double the EBIT of Airline A. Some airlines make money. They do it using the same exact planes and technology as other airlines that do not make money. The difference is that they have higher load factors. They are better at selling seats.
ju-st 11y ago
I don't see a correlation [1] Basically any airline which can handle the aquisition cost of new airplanes buys brand-new airplanes. 1: http://www.statista.com/statistics/269285/most-profitable-airlines/ http://www.statista.com/statistics/269285/most-profitable-ai...
sliverstorm 11y ago
Fuel represents 25-30% of most airline's OPEX, while capital (planes) is something like 15%. I would suggest this means we are actually doing pretty well. In a hypothetical ideal market, an airline would directly convert consumables to travel with zero other expenses. This is the most efficient (in the market sense) an airline could be. As for "if we mastered air travel, we could remove fuel from the equation"- I don't think that's true. Jets are already 20-40% efficient[1], so even with a perfect plane we could only quarter to halve fuel requirements. [1]: http://www.ipcc.ch/ipccreports/sres/aviation/index.php?idp=97 http://www.ipcc.ch/ipccreports/sres/aviation/index.php?idp=9...
PinguTS 11y ago
> Perhaps Boeing and Airbus are overengineering their aircraft and baking in economic rent to a degree that makes the airlines fundamentally incapable of sustaining a profitable business model. Perhaps this industry can't actually survive with current technology and design methods absent some sort of government backstop or subsidy. Not sure. But the supply-side theory of this business seems like the most compelling (if not wholly complete) theory I've heard. It sounds like you were never in enigneering. You never had to deal with building reliable system in regards of safety and high availability. And you even don't know what is really happening in that industry. Just a small example Rollce Royce revolutionized that business years before IT invented the Cloud and XaaS (X as a service). RR is proving flying as a service since years. As an airline, you don't buy an airplane with engines. You as an airline decide and tell either Airbus or Boing what engines you like. Then RR (and others these days) don't sell you the engine. They sell you flight time. So RR is reponsible that the engines runs without downtimes. RR provide service staff at all major and many minor airports to be able to provide service. RR inventend the Internet of Things way before IT came even close to those ideas. Because to be able to sell airtime, RR needs to know about the status and diagnostics of those engines. Competitors to RR are doing the same since years. Then, a modern aircraft is stuffed with electronics to replace mechanics, like your car. Because mechanics are wheigt. With electronics this weight can be reduced. It also allowed "services" like autonomous flying. Different to the car industry, almost any modern airplane from Airbus and Boing is able to completely fly on its own inclusive take-off and landing. Only taxiing is not possible. But electronics have to problem of requiring redundancy to build highly available systems and all that with limited ressources. All way before IT has their 99.999 SAL and with much higher rates. We talk in these industries with undetected errors with a probability of 10^-15 and less.

nerfhammer 11y ago

The 787 was supposed to be a much more efficient aircraft, though it's not cheap and it's had several reliability issues

nether 11y ago

Aeroflot opted for the 787 but has ordered some Sukhoi Superjet 100s. I think "simple, rugged" philosophy is difficult to maintain for massive projects with huge part counts. Most Russian airliners have not had much success in the global market. I think the biggest cost saving in aircraft development will come from cheaper engineers, mainly in China. It would be interesting to see if development costs plummet if we were all willing to accept auto traffic rates of accidents and deaths in air travel.

saosebastiao 11y ago

I think the aircraft has only a tiny effect on profitability. In general, aircraft total cost of ownership and operations is proportional to size. There are some outliers, but the purchase price and/or leasing costs are negotiated up or down based off of perception of costs, so if there are any issues with aircraft costs they are short lived and go away after a while because those cost differences are eventually negotiated away. Similarly, any aircraft with lower than normal operational costs will have its price bid up until it breaks even with the cost levels of inferior aircraft (scarcity of production capacity for aircraft ensures that higher bidders get first dibs). The real issue is flight capacity utilization. Airline cost structures follow what accountants would call a step-fixed cost. In other words, the marginal cost per person is negligible until you fill the aircraft and then the marginal cost per person is the cost of a whole new flight. This also means that once you fill a plane past its break-even load factor, every additional seat sold is pure profit. The airline industry as a whole is operating on load factors between 82% and 84%, and it is net neutral in terms of profitability. That would lead me to believe that at current fuel prices (really the only source of variability in operational cost), that 83% load factors represent the zero-profit scenario. Now if Airline A can achieve 85% load factors, they will have a positive EBIT. If Airline B can acheive 87% load factors, they will roughly double the EBIT of Airline A. Some airlines make money. They do it using the same exact planes and technology as other airlines that do not make money. The difference is that they have higher load factors. They are better at selling seats.

ju-st 11y ago

I don't see a correlation [1] Basically any airline which can handle the aquisition cost of new airplanes buys brand-new airplanes. 1: http://www.statista.com/statistics/269285/most-profitable-airlines/ http://www.statista.com/statistics/269285/most-profitable-ai...

sliverstorm 11y ago

Fuel represents 25-30% of most airline's OPEX, while capital (planes) is something like 15%. I would suggest this means we are actually doing pretty well. In a hypothetical ideal market, an airline would directly convert consumables to travel with zero other expenses. This is the most efficient (in the market sense) an airline could be. As for "if we mastered air travel, we could remove fuel from the equation"- I don't think that's true. Jets are already 20-40% efficient[1], so even with a perfect plane we could only quarter to halve fuel requirements. [1]: http://www.ipcc.ch/ipccreports/sres/aviation/index.php?idp=97 http://www.ipcc.ch/ipccreports/sres/aviation/index.php?idp=9...

PinguTS 11y ago

> Perhaps Boeing and Airbus are overengineering their aircraft and baking in economic rent to a degree that makes the airlines fundamentally incapable of sustaining a profitable business model. Perhaps this industry can't actually survive with current technology and design methods absent some sort of government backstop or subsidy. Not sure. But the supply-side theory of this business seems like the most compelling (if not wholly complete) theory I've heard. It sounds like you were never in enigneering. You never had to deal with building reliable system in regards of safety and high availability. And you even don't know what is really happening in that industry. Just a small example Rollce Royce revolutionized that business years before IT invented the Cloud and XaaS (X as a service). RR is proving flying as a service since years. As an airline, you don't buy an airplane with engines. You as an airline decide and tell either Airbus or Boing what engines you like. Then RR (and others these days) don't sell you the engine. They sell you flight time. So RR is reponsible that the engines runs without downtimes. RR provide service staff at all major and many minor airports to be able to provide service. RR inventend the Internet of Things way before IT came even close to those ideas. Because to be able to sell airtime, RR needs to know about the status and diagnostics of those engines. Competitors to RR are doing the same since years. Then, a modern aircraft is stuffed with electronics to replace mechanics, like your car. Because mechanics are wheigt. With electronics this weight can be reduced. It also allowed "services" like autonomous flying. Different to the car industry, almost any modern airplane from Airbus and Boing is able to completely fly on its own inclusive take-off and landing. Only taxiing is not possible. But electronics have to problem of requiring redundancy to build highly available systems and all that with limited ressources. All way before IT has their 99.999 SAL and with much higher rates. We talk in these industries with undetected errors with a probability of 10^-15 and less.