Re: Boeing cancels 747-500X/600X?

Date:         21 Feb 97 01:10:39 
From:         Chuanga@cris.com (H Andrew Chuang)
Organization: Concentric Internet Services
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In article <airliners.1997.465@ohare.Chicago.COM> Karl Swartz (kls@ohare.Chicago.COM) wrote:
>
>
> Given the dramatic shift in the trans-Atlantic market from large
> planes flying between major hubs to smaller planes linking far more
> city pairs, overflying the hubs, this shouldn't be too surprising.
> With more liberal aviation agreements in the Asia/Pacific countries
> and planes with sufficient range, the same thing is inevitable in the
> Pacific.

Some market fragmentation will occur in the trans-Pacific market with
the availability of the proposed ultra-long-range planes like the
B777-200X and the A340-500X.  However, I just don't think you will
see the same magnitude of transformation to take place in the Asia/Pacific
market as it did in the trans-Atlantic market.

>
> The answer to congestion at airports like Narita is not bigger planes
> to shove more people through there, it's overflying Narita wherever
> possible.  United's ORD-HKG non-stop service is just a hint of what
> the future will bring just as soon as politics and longer range planes
> like the 777-200X allow it.
>

One thing peculiar of the Asia/Pacific market is the Japanese carriers
have significantly higher operating costs than most other East Asian
carriers.  Furthermore, Japan is unlikely to open up its market to the
extent that the US will like any time soon.  Thus, yields on routes
to/through Japan will remain high.  OTOH, to other parts of Asia, US
carriers don't have that overwhelming cost advantage.  That's why US
carriers are not very interested in non-stop services to places other
than Japan.  Hong Kong is the lone exception with sizable non-stop
services by US carriers: UA has 3 daily non-stop (plus 3 weekly
seasonal service from ORD), NW also has 3 or 4 weekly services from SEA
to HKG.  Seoul is second with 4 weekly NW non-stop service, and one
daily non-stop flight each by UA and DL.  (One may think 18 weekly
flights are not insignificant, but if you compare with what Korean Air
and Asiana have, the US carriers are dwarfed by the Korean
competitors.)  UA also has one daily non-stop service to Taipei, and NW
has 3 weekly services from Detroit to Beijing.  If the two biggest
players are unwilling to change its operation pattern (NW in
particular), what other smaller carriers do will not impact the market
too much.  Case and point: non-stop services between the US and Korea
as well as Taiwan have been significantly increased with new carriers
like Korea's Asiana, Taiwan's EVA Air and fifth-freedom operators like
Singapore, Thai International, and Malaysia.  OTOH, US carriers have
noticeably reduced their presence in these two markets.

Therefore, I believe as long as yields on Japanese routes remain high
and yields on non-Japanese routes remain low, planes like the 777-200X
and A340-500X will not have a significant impact on Trans-Pacific
market.  UA, and NW will remain serving the rest of Asia with the
lucrative Japan-Asian traffic rights.  Even for Asian airlines like
Singapore, they may introduce SIN-LAX non-stop services with planes
like the 777-200X, but do you really think SQ will give up its
profitable US services via Hong Kong, Taipei, Tokyo, Seoul, Amsterdam,
and Frankfurt?  With less than 300,000 people traveling between
Singapore and the US annually, why do you think UA, SQ, and NW can
viably offer nearly eight daily B747 flights between the two countries?
(There are also quite a few airlines carrying six-freedom traffic
between Singapore and the US.)

In contrast, almost all Western European airlines have higher operating
costs than US carriers.  Hence, it made sense economically for some
(big) US carriers to pioneer non-stop services between secondary
trans-Atlantic cities pairs.

Another thing that has not been discussed here is intra-Asian traffic.
Unlike in Europe, surface transportation in East Asia is either poorly
developed or limited due to geographical barriers.  Also, Asian
population centers tend to be more populated than European and American
cities.

Example of poor surface transportation:  One can take an over-night
  train to travel from Amsterdam to Zurich, but it will take at least
  two days to travel from Hong Kong to Beijing by train.

Example of travel between heavily populated cities:  Even in Japan,
  where there are bullet trains, the B747 is still heavily used between
  Osaka and Tokyo.

Examples of geograpical barriers:  To travel from Hong Kong to Tokyo,
  or Taipei to Hong Kong, or Tokyo to Singapore, air travel is
  pratically the only sensible means of transportation.

With four times the population of the US, if people in China or India
are half as affluent as people in the US, the demand for air travel
will be immense.  It will probably takes a long time for India to reach
that goal.  However, I think China may reach that milestone in probably
ten to fifteen years.

With more than half of the B747-400, B777 and nearly half of the
A330/340 being sold to Asian airlines,  I believe many of these Asian
airlines will need some "superjumbos".  Whether there will be enough
demand for Airbus or Boeing to have a profitable program, I don't
know.  Nevertheless, I do see a need for the plane.