Printed headline: All-in Package?
Low-cost carriers (LCC) are gaining market share in nearly every corner of the globe, with both short-haul and long-haul operators finding success. Among the many strategic traits that most LCCs share: operating simplified fleets of often- new aircraft.
While the idea of paying for new equipment may seem counter to a low-cost philosophy, in fact the strategy has many benefits. Operating only one or two aircraft types means stocking fewer parts, for example. In the bigger picture, the newest-generation aircraft are specifically designed with low lifecycle costs in mind—and that means lower maintenance costs. Mix in the natural maintenance honeymoon that comes with new aircraft, and it is easier to see why so many operators are opting for new metal.
“New aircraft need less maintenance partly by design, but also because they haven’t yet built up the hours to need heavy checks,” says John Strickland, director of JLS Consulting.
Keeping maintenance costs in check is particularly important for long-haul LCCs, which must keep their cost bases lower than their legacy counterparts but have less margin. A typical long-haul LCC targets costs 15-20% below legacy carriers, whereas short-haul LCCs can push this to 40%.
But long-haul LCCs have one aftermarket-related advantage over short-haul LCCs, says Strickland. “There is more pressure on short-haul operators because, by their very nature, short-cycle operations are more maintenance-intensive. For example, there’s more wear and tear on landing gear and engines for an aircraft that is flying multiple short flights per day.”
For operators such as Norwegian Air Shuttle that have a young fleet, maintenance costs will inevitably build as their aircraft age, says Strickland. “The question is whether long-haul LCCs such as Norwegian will start to cycle in and out of aircraft more quickly [as short-haul LCCs do],” he explains. “Ryanair, for example, replaces aircraft before they get close to needing heavier checks. Whether Norwegian and others will do that we don’t yet know—but it will be a possibility.”
Aircraft OEMs, cognizant of operators’ increasing focus on reducing operating costs, are increasingly promoting all-in maintenance packages that guarantee the airworthiness of aircraft for a set, recurring fee. Airlines, and LCCs in particular, embrace the predictability that such long-term agreements offer. The OEMs see such moves as prudent, because taking a more service-oriented role with their customers sets up long-term revenue opportunities.
While undoubtedly more expensive than the maintenance honeymoon—in which the first major checks are not done for 8-10 years on newer aircraft and engines—a manufacturer-provided package can still work out to be cost-effective. During the honeymoon period, benefits include guaranteed fleet availability, driving down costs tied to unscheduled downtime. In worst-case scenarios—such as a major fleet-wide issue that grounds aircraft—operators with long-term care agreements are likely to be entitled to compensation.
“On a new aircraft type, there can be glitches, as we’ve seen with some Rolls-Royce-powered Boeing 787s,” Strickland says. “If an airline has the maximum manufacturer cover, that’s going to help.”
“With all the challenges we’ve had with the [Boeing] 787, operators that have subscribed to the service don’t see any change in their flight hours or any issues with that,” he adds. “If there are costs to bear, we bear that as the OEM.”
Long-haul LCC Norwegian is signed up for Boeing’s Global Fleet Care package for its fleet of Boeing 787s and 737 MAXs. The program offers an integrated product, taking in all the parts requirements. Boeing offers various options, ranging from a full package that may suit a smaller airline with limited maintenance and inventory resources of its own to simply managing components in a way that would suit a larger airline with a maintenance infrastructure in place, Clark says.
“When Norwegian decided to venture into the long-haul business, they didn’t have a long-haul division as part of their company,” he notes. “They had a very successful short-haul, low- cost model, and we came in and basically gave them an entire infrastructure where they had set costs and operational flexibility. We were able to tap into our global network and give them advantages that they wouldn’t be able to get on their own.”
Boeing’s global reach can be reassuring for any airline, but particularly for one that does not have its own long-established network to fall back on.
“Ground damage happens,” says Clark. “Things happen to airplanes that nobody anticipates. But when that happens, I’m able to operationalize any resource at the Boeing Co.—engineering resources, manufacturing, supply base. We’re able to really pull what looks like a challenging situation and turn it into a real opportunity for both of us to get that airplane back in the air as fast as possible.”
The flexibility offered by Global Fleet Care also comes in handy for a long-haul LCC that needs the ability to stop and start routes based on seasonal demand—or simply when economics dictate a change.
“The real questions for long-haul LCCs are, ‘What is the customer experience they are looking at? What is the cost envelope that they’re looking to achieve? And where does MRO fit into that?’” says Brian Kushner, senior managing director and co-leader of the aerospace and defense practice at FTI Consulting.
He agrees that a manufacturer-provided maintenance program can buy budget operators peace of mind and is increasingly the best option for low-cost operators with young fleets–even if it is not the cheapest option upfront.
That plays to the growing trend of aircraft and engine manufacturers’ offering to take responsibility for maintaining newer aircraft themselves, which, in turn, leads to life-cycle cost considerations during the design stages.
Another emerging trend that can help budget airlines is the rise in connectivity and inflight monitoring, which can open new possibilities for MRO, an area Boeing is exploring with the 737 MAX and the 787.
“It’s all about the ability to add the right level of monitoring without over-bearing the operation with challenging nuisance messages,” says Clark. “We’re coming to the point in the near-term with the computing capabilities that have been coming online around analytics and data sciences that we can [use to] structure the data that comes off the aircraft, so that we are able to use our design knowledge of how the systems were supposed to perform and build a significant number of algorithms and a significant number of predictive and proactive maintenance actions.”
Ideally, that means detecting a fault inflight, so the airline knows what options it has before the aircraft arrives at its destination.
“[Real-time monitoring] provides a much higher level of understanding for the flight crew as well as for maintenance checks, so that when a plane lands they can understand what is working, which areas are seeing some wear, and a good schedule as to what needs to be repaired,” Kushner says.
Such services, while costly, will eventually pay off—even for LCCs.
“If low-cost airlines are interested in keeping more of their fleet in the air flying, and at higher reliability and availability, then real-time monitoring makes sense,” he says.