Plane economics: If oil is dirt cheap, do fuel-efficient aircraft still matter?

Airbus this week delivered the first of its long-anticipated narrowbody A320neo, its most advanced product to date that is at least 15 per cent more fuel-efficient than current generation of planes, just as oil prices sunk to a nearly 13-year low.

Cathay Pacific Airways will receive its first A350 in the next few months, Airbus’ newest product in the widebody category.

For the past decade Airbus and Boeing have been racing to develop these next-generation, more efficient aircraft, with Boeing’s 737MAX yet to enter service in 2017. Strong demand for these aircraft was in part fulled by the meteoric rise of oil prices after 9/11 in 2001. But as oil prices have now plunged more than 70 per cent from their mid-2014 highs of over US$100 per barrel to under US$30, airlines may be less willing to pay the premium for new aircraft and want to keep the less efficient ones in service for longer.

“Including ownership cost, there is a break-even point,” said aviation consultancy Ascend’s Hong Kong-based analyst Thomas Kaplan.

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The list prices of A320neo and B737MAX are around 10 per cent higher than their current-generation versions. “But when you choose an aircraft, you are looking at an economic life of at least 20, 25 years. No one knows where oil price will be in the long run, and airlines plan fleet for growth. Excluding ownership cost, the new-generation aircraft will always be more efficient to operate, even at US$20 per barrel,” Kaplan said.

“You may not be saving as much money, but you are still saving money,” he said.