Sometimes, you have to spend money in order to save money. And passing those savings on to your customers might just keep them coming back.
Despite the economic challenges, American recently placed what it calls the largest single aircraft order in history: 460 narrow-body airliners, including 200 Boeing 737 and 260 Airbus A-320 NEOs (New Engine Option), at a cost of $35 to $40 million each. This just shortly after purchasing 42 long-range Boeing 787’s—also known as Dreamliners—which can carry 290 passengers up to 8,500 nautical miles, while burning 20 percent less fuel than a similar aircraft.
“Reduced fuel consumption was the key for us.”
Why would a struggling airline make such a major investment? Two words: energy efficiency.
American blames part of its financial trouble on its fleet of ancient, fuel-sucking airliners such as the McDonnell-Douglas MD-80s and its Boeing 757s and 767s, which not only require additional fuel, but also more maintenance.
Less fuel = less pollution, less cost
By retiring the inefficient aircrafts and replacing them with updated versions, American says it could save up to 35 percent on fuel. This, in part, is due to the refined aerodynamics featured on newer planes, including fuel-saving winglets and more efficient engines.
But along with the reduced fuel costs, burning less fuel creates a happy accident: less CO2—the dominant greenhouse gas—and less nitrogen oxide is released into the atmosphere.
Although environmental consciousness wasn’t the driving force behind American’s decision to purchase the new fleet, it’s certainly a welcomed byproduct. “We’re happy to lower our environmental footprint,” American spokesman Ed Martelle says, “but reduced fuel consumption was the key for us.”
Saving money on fuel cost is a savings American can pass on to the customer.
American will take delivery of the first airliner in 2013, with the final aircraft scheduled for completion by 2024. These new vehicles, they anticipate, will help save money on fuel cost—a savings they can pass along to the customer.
“Since the U.S. airline market is characterized by older fleets, weak demand, and razor-thin profit margins, any customer that suddenly enjoys a 10 to 12 percent discount on a very expensive fuel price has a large advantage,” says Richard Aboulafia, vice president of analysis at aerospace and defense consultant Teal Group.
Europe’s new airline regulations
In 2007 the European Union placed new regulations on airlines that operate in Europe: By January 1, 2013, all must meet tough pollution standards or join the EU’s Emissions Trading Scheme (or ETS) and pay a tariff. The Air Transport Association of America, the industry trade organization that represents most U.S. airlines, is fighting this legislation tooth and nail.
Recently the ATA filed suit in the European Court of Justice, claiming the EU regulations cannot legally tax U.S. airlines for emissions over the U.S. and high seas, calling the EU regulations illegal under international laws.
U.S. airlines will likely be forced to update their fleets or die trying.
In July the U.S. House of Representatives proposed a bipartisan bill that declared the ETS inconsistent with international laws. According to the bill, the ETS undercuts the efforts of the International Civil Aviation Organization (the ICAO, a global trade organization) to develop a global approach to reducing airliner emissions. The House demanded that the EU withdraw its scheme and cooperate with the ICAO to develop a new, global approach while directing the Department of Transportation to refuse to allow U.S. airlines to participate.
The future of flight
If the ATA and Congress lose their fight against the EU, other U.S. airlines will likely be forced to update their fleets or die trying. United, Delta-Northwest, and Continental—the so-called “legacy airlines”—have already purchased the more efficient 787s.
No matter how you look at it, airlines face many challenges. But the first airline that can find a way to reduce pollution, as well as overall cost, will be positioned for a top spot in the industry.