Monday, February 8, 2016

Analysis of Gulf Air's major Airbus and Boeing order

Gulf Air has officially announced at the recently concluded Bahrain 2016 air show that it has placed a significant order with both Boeing and Airbus to fully replace its current fleet of narrow and wide bodied aircraft going into the next decade. This order is expected to see the airline through to 2030 at least. The breakdown is as follows:

a) 16 previously ordered B788s have been converted to the larger B789s that will in turn replace 6 A332s. According to an interview published in Flight Global magazine, GF CEO stated that these B789s will seat 280 pax in a dual class configuration.

b) 17 A321NEOs to replace the current 6 A321-200s (1ACT) as well as to cater for expansion + capacity upgrade of currently operated A320 routes

c) 12 A320s to replace the current 16 A320s (4 of which have 1ACT used for European flights)


Like many large and significant orders placed by carriers worldwide, each have their unique positive and negative aspects. Over here, they are as follows:


a) Ordering 17 A321NEOs - the best aircraft in GF's current fleet ideally suited to the high density regional + Indian subcontinent labor market segment. For GF to order 17 it means plans are in place to hopefully make all ISC routes operated exclusively by the A321NEO as well as provide growth to reintroduce previously suspended markets (DAC/CMB) in a less risky manner by using this aircraft type rather than a wide body. The A321NEO can also in turn be used to upgrade GF's current FRA/CDG services from the A320 (1ACT) as there is no way commercially the airline can continue to operate this small aircraft type well into the next decade on these two routes and claim to be competitive.

b) Converting the original B788 order to the larger B789 - this was another excellent move as the B789 offers more range, on board capacity (pax + cargo) and lastly commands a better resale value in the market place down the road. As CEO Maher stated, the configuration calls for 280 seats in a dual class layout which means it is likely to have 30-36 seats in business class + 244-250 in economy! However, one strong suggestion that I have for GF is to consider configuring at least 4 of these B789s into a high density layout designed specifically for high volume routes (that do not see great J class demand) which offer very good return margins + for the high yielding Hajj/Arafa/Arabeen/Umrah/Teachers movement season. The configuration of the high density B789 should be 12 business class (flat beds) + 315 economy (3-3-3 layout) giving a total of 327 seats approximately. Such a configuration is ideal for routes to MNL, ISB, LHE, JED, COK and CAI as well as in the future to operate to DAC and KTM on a single daily basis only rather than multiple daily on an A320/A321 which would see fog related payload capacity restrictions out of KTM/DAC into BAH. 


16 B789s in the fleet - what has enabled GF to significantly reduce its losses over the past two years has been its move away from the low yielding EU-Asia market segment + reduce its wide body fleet from nearly 15 A343s/A332s to only 6 A332s. When the order conversion was announced at the BAH air show, it was stated that these B789s would also be used to relaunch nonstop flights to USA in 2019 for which a minimum of 3 units are required for a daily BAH-JFK-BAH service to be sustained. If oil jumps back up to $70-90 per barrel, it will be extremely difficult for GF to sustain such a large scale wide body operation as it has shown in the past it is unable to do so commercially at sustainable yields as the Bahrain Govt does not have the large cash flow of Qatar and UAE to absorb the losses. If all 16 B789s get delivered and fly for GF, it will result in GF going back to the old strategy of wanting to connect EU via BAH to Asia against the competition who would by 2020 be operating at least triple daily nonstop A380s/B77Ws from all major EU cities (bare minimum).

Yes Boeing must have played hard ball with GF by not allowing an outright cancellation nor another reduction of the original order placed in 2008.   

Ideally speaking, GF can manage with 10 B789s in the long term but not 16. Maybe it can lease or sell the remaining 6 to its franchise carrier Saudi Gulf to be used on high volume regional flights from JED/RUH airports respectively.  

No comments: