Airbus Makes a Bold Move Into the Boeing 757's Territory

By Markets Fool.com

For the past three decades, the Boeing 757 has occupied a unique spot among commercial aircraft. It is by far the largest and longest-range narrow-body jet. It is the only single-aisle plane capable of crossing the Atlantic. Being smaller than wide bodies, the 757 can profitably serve routes with lighter traffic.

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Numerous airlines use the Boeing 757 to fly "long and thin" routes. Photo: The Motley Fool.

However, Boeing stopped building the 757 more than a decade ago and has no near-term plans to build a direct successor.Meanwhile,Airbus Group is stepping in with a Boeing 757 replacement: a long-range version of its popular A321neo model.

Airbus makes its move
On Tuesday, Airbus officially launched a long-range version of the A321neo. This new version will have a higher maximum takeoff weight and extra fuel tanks, allowing it to travel up to 4,000 nautical miles.

Airbus claims it will be able to carry up to 206 passengers in a two-class layout. This calculation is somewhat mysterious, though: A typical two-class layout for the current A321 -- which is the exact same size -- has only 185 seats. In any case, this new version of the A321 will be a reasonable replacement for 757s plying longer routes.

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Airbus will offer an upgraded version of its next-generation A321 with extra range. Photo: The Motley Fool.

The long-range A321neo has already drawn interest from some of the top global aircraft leasing companies. Airbus thinks the total market could be 1,000 aircraft: 500 Boeing 757 replacements and 500 aircraft for new market opportunities.

Where is this replacement demand?
Airbus might be exaggerating the extent of replacement demand -- a fact that Boeing was quick to point out. A top Boeing executive said only about 50 to 60 757s are flying long routes that require more range than a regular 737 MAX 9 or A321neo.

Indeed, cargo carriers operate more than a quarterof the roughly 750 Boeing 757s still in service. Cargo airlines generally don't need the Boeing 757's full range, and they also don't tend to buy state-of-the-art planes, preferring cheaper used or end-of-production models.

Of the passenger 757s still in service, about 60% are operated by the three big U.S. legacy carriers. While they each use some 757s on long-range trans-Atlantic or Latin American routes, the vast majority of their 757s fly domestic routes that are well within the range of every next-generation narrow-body model.

Icelandair has already committed to the Boeing 737 MAX program to replace some of its 757s. Photo: Boeing.

Outside the U.S., Icelandair is one of the top Boeing 757 operators, with about two dozen of the type. It uses the 757 extensively for trans-Atlantic service, but since Iceland is closer to North America than continental Europe, it only needs the 757's full range for a few routes. Thus, it has already placed a firm order for 16 737 MAX aircraft to be used for growth and replacement.

Boeing seems to be correct in arguing that Airbus has overestimated 757 replacement demand. While the replacement market might be larger than Boeing's estimate of 50-60 planes, it probably falls far short of Airbus' target of 500 planes.

New operators will be the key
Fortunately for Airbus, light replacement demand is not a deal breaker. The introduction of a longer-range A321neo could open up many new market opportunities. That's because it will be 25%-30% more fuel-efficient than the Boeing 757 (a 1980s-technology airplane). It will also share a type rating with the rest of the A320 family, one of the most popular airplanes in history.

The A321neo's superior fuel consumption could encourage existing 757 operators to start new trans-Atlantic flights on routes that could noteven be profitable on a 757. Airlines trying to appeal to business travelers also might substitute A321neos for wide bodies on some routes to offer more schedule choices. (That said, many top airports for trans-Atlantic business travel are slot-constrained.)

Meanwhile, the long-range A321neo could appeal to airlines that don't operate the 757 but do have fleets of A320 family aircraft. For example, JetBlue Airways mainly flies A320-series planes. It could use the long-range A321neo to fly deeper into South America from its base in Fort Lauderdale, Fla. It could even open a trans-Atlantic hub in Boston, where it is the largest carrier.

JetBlue could be interested in a longer-range A321 to open new markets. Photo: JetBlue Airways.

Hawaiian Holdingsmight also be interested in the long-range A321neo. Hawaiian Airlines already plans to add the A321neo to its fleet in 2017 for flights between the West Coast and Hawaii. A longer-range version might allow it to open new routes to the central U.S. that would not have enough demand for a wide-body plane.

These are just a few examples of how U.S. airlines might use a longer-range A321neo to develop new routes. There could be plenty of other opportunities elsewhere in the world. Airlines' creativity in finding new potential markets will be the key sales driver for long-range A321neos.

The article Airbus Makes a Bold Move Into the Boeing 757's Territory originally appeared on Fool.com.

Adam Levine-Weinberg owns shares of The Boeing Company, Hawaiian Holdings,, and JetBlue Airways. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.