How Will The New Airbus A330neo Impact Boeing?
Last week, Airbus received the first firm order of 25 aircraft for its recently launched A330neo from Delta Air Lines (NYSE:DAL). [1] The A330neo is Airbus’ answer to Boeing‘s (NYSE:BA) hugely successful 787 Dreamliner. The European airplane maker launched the A330neo in July, with commitments for 121 aircraft from three airlines and three leasing companies. This airplane, featuring Rolls-Royce Trent 7000 engines and curved extensions at wing tips, has been promised by Airbus to be 14% more fuel efficient than A330 – Airbus’ current offering in the small wide-body airplane segment. [2] Airbus plans to bring the A330neo into service by late 2017 – six years after the first 787 was delivered by Boeing. Despite this late entry, we figure the A330neo could weigh on Boeing 787’s pricing and market share.
We currently have a stock price estimate of $136 for Boeing, approximately in line with its current market price.
See our complete analysis of Boeing here
Boeing Could Discount 787 Price To Avoid Losing Market Share
The A330neo will come in two models – A330-800neo and A330-900neo. The letters neo stand for New Engine Option, indicating the fact that the Rolls-Royce engines in A330neo are the key factor behind the airplane’s higher fuel efficiency. With a seating capacity for 250-310 passengers in a three-class seating, the A330neo will directly compete with Boeing’s 787 Dreamliner, which seats around 240-320 passengers in a similar cabin configuration. The range of the Boeing 787 Dreamliner is higher than that of the Airbus A330neo, however. The largest Dreamliner, 787-10, can fly a distance of over 7,000 nautical miles, compared with the larger -900neo, which will likely have a range of about 6,200 nautical miles. [3] [4] However, despite 787’s higher range, many airlines could buy the A330neo. For example, airlines in Asia that are focused on serving the fast-growing intra-Asia market would be fine with the range of A330neo. Though the 787’s higher range would offer airlines flexibility in network expansion in the long term, this advantage comes at an additional price that has to be paid upfront by airlines while purchasing the airplane. So, airlines that need to buy airplanes only for shorter trips could go for the A330neo. This could take market share away from Boeing’s 787 in the small wide-body airplane segment.
Boeing currently dominates this segment with its 787 Dreamliner. So, the company would not want to give significant market share to Airbus, especially after is has lost market share to Airbus in the narrow-body airplane segment. To prevent customers from moving towards Airbus’ A330neo, Boeing could discount 787’s price. Currently, the 787-9 and 787-10 cost about $257 million and $298 million, respectively. [5] Airbus, in comparison, has priced the -800neo and -900neo at $242 million and $276 million, respectively. [6] So, the lower price points of Airbus’ A330neo will create pricing pressure on Boeing. However, what remains to be seen is if A330neo gets steady orders from airlines. If it does, then Boeing could to forced to slash prices of the 787 to avoid losing significant market share. This price cut would weigh on Boeing’s margins.
In addition, Boeing’s ability to discount 787 prices would be limited by the fact that it has invested several billions in developing the airplane. In comparison, the A330neo is basically an upgrade of an existing model, A330, so its development through 2017 will likely not cost as much. So Airbus’ ability to discount A330neo’s price is likely greater than Boeing’s ability to discount the 787’s price. Also, Boeing would likely want to sell the 787 – a completely new airplane and not an upgrade of an existing model – on the merits of its technical advancement, as opposed to through discounting. So there is likely a limit to how much Boeing can discount 787’s price.
All in all, the new A330neo could dent Boeing’s margins and market share if it begins to receive steady orders. The Boeing 787 has since its launch in 2004 received orders for more than 1,000 aircraft. [7]
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- Delta adds A350-900, A330-900neo to its fleet plan, November 26 2014, www.delta.com [↩]
- Airbus launched the A330neo, July 14 2014, www.airbus.com [↩]
- Boeing 787-10 technical specifications, November 26 2014, www.boeing.com [↩]
- Airbus A330neo specifications, July 14 2014, www.flightglobal.com [↩]
- Boeing’s commercial airplane price list, November 26 2014, www.boeing.com [↩]
- Airbus A330neo to debut in 2017, July 14 2014, www.ausbt.com [↩]
- Boeing’s unfilled orders through October 2014, November 26 2014, www.boeing.com [↩]