The Fight for the Asian Narrow Body Market

Asia is the fastest growing aviation market in the world with passenger numbers and aircraft sales growing dramatically. At the core of the boom is the narrow body market that features two major competitors: the Airbus A320 and the Boeing 737. These two companies are in the thick of a battle for market supremacy in Asia. With enormous stakes on the line, who will win this massive market?

Airbus predicts that in the next 20 years, airlines in the Asia-Pacific region will need 10,940 new planes. Boeing is predicting a whopping 12,820 planes. More than half of these expected orders will be for narrow body planes as airlines add more short and medium haul flights. So far Airbus has the upper hand in the battle for narrow body supremacy. Airbus’ A320 family of aircraft (A319, A320, and A321 ceo and neo) has been very popular in Asia (and around the globe for that matter), especially with low cost carriers. Around the globe, the A320neo has outsold the 737 MAX by about 1000 planes (3600 orders for the A320neo, 2600 orders for the 737MAX). The A320neo has done even better in the Asia/Pacific region by outselling the 737 MAX by roughly 500 planes (1052 orders for the A320neo, 506 orders for the 737 MAX).

Growing low cost carriers such as Air Asia, IndiGo, and Jetstar Asia all use the A320 family for the majority of their short and medium haul flights. Low cost carriers in Asia are growing extremely fast and need planes immediately to continue growth. The Airbus A320neo, a re-engined variant of the A320 family, is expected to enter service in late 2015, a full two years ahead of Boeing’s 737MAX. Boeing’s late decision to re-engine the 737 has hurt them as airlines who are looking for rapid growth have ordered the A320neo. While The A320 and 737 families have almost identical operating economics, the difference maker between the two has been the A321. The A321 has absolutely dominated the 737-900 because of its increased efficiency compared to the 737-900. The A321neo so far has acquired 755 orders compared to the 737 MAX’s 217. However, it will be interesting to see how the introduction of the 737 MAX 200, a high density version of the 737 MAX-9 designed specifically for low cost airlines, will be received by Asian low cost carriers.

Airlines in the Asia/Pacific region are on an ordering spree, with more orders expected. IndiGo, an Indian low cost carrier, recently placed an order for 250 A320 family aircraft with options for 100 more. This is on top of an order for 180 A320 family aircraft placed by IndiGo back in 2011. Lion Air, a low cost carrier based in Indonesia, ordered 230 737 family aircraft back in 2012. Then in 2013, Lion Air ordered 234 A320 family aircraft. While Asia/Pacific airlines have shown a voracious appetite for new aircraft, there are fears about the sustainability of these massive orders. Many of the airlines, such as Lion Air and IndiGo, ordered more airplanes than the number of planes currently in their fleets. The Asia/Pacific region is one of the most competitive and least profitable in the world. This leads to concerns about airlines failing with hundreds of orders still on the books of the major manufacturers. While multiple analysts have speculated about the presence of an aircraft order bubble, Airbus and Boeing have continued to deny its presence.

The high stakes nature of the Asia/Pacific region has led to confrontations and controversies between Airbus and Boeing. Both manufacturers are known to hand out steep discounts on big orders. Boeing however has accused the EU of giving Airbus subsidies so that they can undercut Boeing’s prices, thus giving Airbus the price advantage. Airbus has vehemently denied the claims (Note: Boeing has received more than its fair share of tax incentives and infrastructure support). Not to be outdone by Boeing, Airbus has accused the White House of meddling in the Lion Air-Boeing 737 deal back in 2011. However, Airbus ultimately got their payback by striking their own massive deal with Lion Air in 2013. As the battle intensifies, expect to see more controversies and confrontations between the two behemoths.

Part of Airbus’ success in the Asia-Pacific region is due to the amount of money resources Airbus has invested in the region. In 2013, Airbus opened an A320 assembly plant in Tianjin China. Airbus has also invested in the development of commercial aviation in China and India. While Boeing has put a major emphasis on the Asia/Pacific region, they haven’t made as many major investments (such as a final assembly line) as Airbus has.

While Boeing has continued to fight Airbus in the Asian narrow body market, Airbus so far has a major advantage over Boeing. With steep discounts, the 737 MAX’s late entry into service, and the appealing economics of the A320 and the A320neo, Airbus should ultimately defeat Boeing for market supremacy in the Asian narrow body market.

Editor’s Note: This article was written by Guest Author Theo Nichols. Theo is the founder of DCA Aviation. Want to be a Guest Author? Look below for more details.

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