Manufacturers
Embraer’s new jet will build markets in the region
Embraer believes its new series of jets will appeal to Asia-Pacific budget carriers as they expand their networks beyond large city pairs.
April 1st 2016
It’s the regional jet that’s not a regional jet, Embraer said when it rolled out its E190-E2 jet at the company’s headquarters in Brazil on February 25. And the Brazilian manufacturer believes it could win big sales in the Asia-Pacific. Read More »
To date, Embraer’s Irish-born chief commercial officer, John Slattery, told Orient Aviation, budget airlines have remained true to single aircraft type fleets of either Airbus or Boeing planes.
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Slattery agreed it would be a hard sell to alter this traditional fleet acquisition model, but said a new trend would emerge in Asia’s aviation market. Full service network carriers and budget airlines alike would begin to add smaller narrow body jets to their fleets. Embraer calls it “right-sizing”.
There is a shift away from that thinking, said Slattery on the day the company rolled out its E190-E2 jet at its San Jose dos Campos headquarters, midway between Rio de Janeiro and Sao Paulo.
At a list price of US$58.2 million, the E190-E2 is the first of three new generation jets that offer big fuel and maintenance cost savings to customers. The 97-seat aircraft, with a two class configuration, and 106 in single class, has a range of 2,800 nautical miles. It will make its first flight later this year and enter into service in 2018.
The E190-E2 will be followed a year later by the $65.5 million E195-E2. It seats 120 in two-classes or 132 in a single class and will enter service in 2019. The third member of the new family, the E175-E2, costs $50.8 million. It will have 80 seats in two classes and 88 in a single class and will be available to airlines from 2020.
All three of the new jets will be powered by Pratt & Whitney’s new geared turbofan (GTF) engine: the 175-E2 with the PW1700G (equipped with a 56 inch (1.4 m) fan blade and the two larger planes with the PW1900G, which has a 73 inch (1.9 m) fan blade.
On the face of it, the argument that budget carriers such as AirAsia, Jetstar, Lion Air, Tigerair and other Asia-Pacific LCCs would introduce a second, smaller aircraft type into their fleets seems unlikely.
Embraer thinks differently. “It’s fair to say our penetration of the LCC market has not been as robust as we might have liked,” admitted Slattery. “However, with the capabilities of the E2 platform, particularly the 190 and 195, I believe the economics of these aircraft will be very attractive to LCCs.”
Why is that? “I am not advocating that LCCs operating A320s today move to 195s,” said Slattery. “As these LCCs grow, I am seeing trends where they are looking at joining city pairs outside the larger cosmopolitan areas. In some cases, they are operating very successfully with B737s or A320s on these routes.
“But if you go to a secondary city and you want to join two smaller cosmopolitan areas, which the LCCs would want to do to grow, you can only serve those smaller city pairs profitably with smaller gauge equipment.
“This is why we think, over the next five, 10 to 15 years, there will be an enormous amount of growth at these LCCs to join city pairs that would not be city pairs if the traditional one aircraft type only strategy was applied. We want to be there to address that with our 190 and 195.”
Embraer’s argument is that Asia-Pacific LCCs will make their money from these secondary and tertiary cities. “For sure it’s a hard sell, said Slattery. “But there are a lot of LCCs in Asia and the profitability of some of them is not as robust as they would like it to be. They have to right-size to profitability.”
It is a message pressed home by Embraer president and chief executive, Paulo Cesar Silva. “The Asia-Pacific market will become more affluent, competitive and open, further stimulating airlines to seek system efficiencies, brand differentiation and improved service levels,” he said. “In this context, the 70 to 130-seat jet segment will play a key role in supporting the intra-regional development in Asia-Pacific. We are showing airlines the benefit of moving from ‘red oceans’ to ‘blue oceans’. That is to move away from a crowded marketplace and seek opportunities in markets that are currently underserved or not served at all and where yields are moving from single to double digits.”
Silva said there are “untapped opportunities” in Asia-Pacific, where more than 250 markets, or 30% of narrow-body exclusive markets, are served with less than one daily frequency. These markets would be better served with 70 to 130-seat jets, the manufacturer said, based on the average number of passengers per departure.
At the Singapore Air Show in February, Embraer forecast Asia-Pacific carriers would take delivery of 1,570 new jets, valued at US$75 billion, in the 70 to 130-seat range in the next 20 years, which represents 25% of the global demand for the market sector.
Silva said the rise of LCCs in the region was “a direct and natural response to the surge in demand for air travel”, but “the large inflow of capacity has influenced ticket prices and created a new dynamic: a vicious cycle of lower yields forcing lower unit costs. These economics lead to larger aircraft that add capacity, which lowers load factors and promotes more fare discounting. Embraer said smaller, more versatile and economical aircraft will provide the circuit breakers for this profit eroding pattern.
The manufacturer also sees a market for its new jets in fleet replacement. There are more than 250 jets in the 50 to 150-seat category older than 10 years in the Asia-Pacific.
The E-Jet family, both the first generation aircraft launched in 2004 and the latest, next generation models have produced 1,700 orders and more than 1,200 deliveries. The aircraft are in service with 70 customers in 50 countries.
Budget carriers are not Embraer’s only targets. Network carriers in the U.S. and Europe, including British Airways, Air France/KLM, Alitalia and Delta Air Lines, operate Embraer jets in their mainline fleets.
The company predicted the same pattern will emerge in Asia, a proposition gathering some credibility. Philippine Airlines (PAL) president, Jaime Bautista, said he would consider buying smaller planes because demand for regional connectivity is quickly gathering momentum.
He said PAL is in discussions with manufacturers of smaller jets, including Embraer. Garuda Indonesia also is in talks with smaller jet makers and would consider having sub-100 seater planes in its fleet to meet demand for domestic and regional connectivity. Japan Airlines will introduce the E190 into its fleet from next month.
Not surprisingly, Embraer thinks it has the jets to meet demand. Slattery said the E190-E2 and the E195-E2 are not “regional jets”, but smaller narrow bodies. “The E2 is much more than a re-engined plane,” said chief operating officer, Luis Carlos Affonso. “It has new engines, completely redesigned wings, new landing gear to accommodate bigger engines, full fly-by-wire, new empennages and stylish interiors.”
It also offers big operating savings. The E195-E2 has a 24% fuel burn improvement over the first generation E jet. The E190-E2 and the E175-E2 provide a 16% reduction. Maintenance costs on the 195 are 20% lower, 15% on the 190 and 25% on the 175.
Crews can complete the transition course to the new generation jets in three days without any simulator time, said Affonso. “We are improving on a cost-per-seat and cost-per-trip basis. What is really remarkable is that the E195-E2 is about at the same level of cost-per-seat of a much bigger aeroplane like the A320neo.
“How can we do that? Because they are changing only the engine and we are investing much more, such as the wings etc. On a relative basis we have become closer to the narrow bodies because they are investing less in their new generation airplanes,” Affonso said.
By moving up to the 130-seat level is Embraer afraid it may face competition from Boeing and Airbus, which both have jets available below that level?
“It is not our strategy to compete with Boeing and Airbus. Our strategy is to address the market that is below Boeing and Airbus and to maintain a market leading position,” said Slattery. “Our space is clearly defined from 70 seats to 130 seats. So we have an anchor and a hook in that clearly defined space.
“I don’t think Boeing and Airbus consider Embraer a threat and I rarely if ever come across Boeing or Airbus in a (sales) campaign.”
Best of all, pointed out Silva, Embraer has not experienced the delays or modifications that larger manufacturers have had with their new jets and variants. The E2 schedule is precisely as it was announced at the Paris Air Show in 2013.
Embraer is present in 11 countries in the Asia-Pacific, where it has some 20 customers and more than 200 aircraft flying in the region. In the 70 to 130-seat segment, it holds 51% of orders globally and 62% of deliveries since 2004. In Asia, it has an 80% share of all aircraft under 130 seats. Last December, it delivered two of its first generation E195 jets to HNA-group carrier, Tianjin Airlines, the launch customer for the model in China. In 2014, Tianjin ordered 20 E195s and 20 E190-E2s when Chinese President, Xi Jinping, visited Brazil. Ten-month-old Mainland LCC, Colorful Guizhou Airlines, has ordered seven E190s with options for another 10. The first two jets were delivered in December and are in service. “China’s regional aviation industry has taken off. It will be the most robust in the world in the next decade,” said Embraer president and chief executive, Paulo Cesar Silva. |
