Qantas CEO would like to order 45 more Boeing 787s if the first ones prove their worth

By David Flynn, September 1 2016
Qantas CEO would like to order 45 more Boeing 787s if the first ones prove their worth

While Qantas remains bullish on the prospects of the Boeing 787, it won't be rushing to order more until the first red-tailed Dreamliners have taken wing – and proved they can turn a clear profit for the airline.

That could mean a second tranche of the next-gen jets won't be inked until at least mid-2018, by which time Qantas will have its first four Boeing 787s darting around the globe, with four more joining them over the following 12 months.

Also read: Qantas Boeing 787 Dreamliner flights on sale by year's end

But those subsequent orders could big ones, with as many as 45 Dreamliners available should Qantas choose.

"The 45 options and purchase rights are phenomenal for us, and this aircraft we believe is a game changer (so) we absolutely would like more of them" Qantas CEO Alan Joyce told Australian Business Traveller following the airline's reveal of a record $1.53 billion in pretax profit.

"We have to demonstrate that we can make money out of the eight we have – but once we’ve done that, we’ll be comfortable in ordering more."

"I'd like to order all of them if I can make a good return out of them," Joyce later expanded.

Boosting the Boeing 787 fleet

Qantas has the option to buy 15 more Dreamliners with a staggered delivery schedule through to 2020, while an additional 30 Boeing 787s are pencilled in as 'purchase rights' – without fixed delivery timeframe – to 2025.

The airline has locked in a very low purchase price for the Boeing 787s stemming from its initial 2005 order rather than the current $US265 million (A$345m) list price – although airlines rarely ever pay the sticker prices, and discounts can be as deep as 40%.

"As always with fleet, flexibility is the keyword" a Qantas spokesman told Australian Business Traveller with regard to future Boeing 787 purchases. 

"We have a very good relationship with various manufactures and that has enabled us to adjust our orders as required. In Boeing's case, our relationship stretches back more than 250 aircraft across 60 years.”

Qantas' long-term plan is for the Boeing 787 to replace not only the ageing and fuel-thirsty Boeing 747 jumbo jets but also its international and domestic Airbus A330 fleet.

This would see the Dreamliners flying Australia's east-west transcontinental routes in addition to the bulk of international services but for the flagship Airbus A380 and either the Boeing 777X or Airbus A350, both of which Qantas is eyeing for the mid-2020s.

Read more: Here's what we know about the Qantas Boeing 787 Dreamliner

Follow Australian Business Traveller on Twitter: we're @AusBT

David

David Flynn is the Editor-in-Chief of Executive Traveller and a bit of a travel tragic with a weakness for good coffee, shopping and lychee martinis.

Qantas - Qantas Frequent Flyer

31 Aug 2015

Total posts 126

I think this is the right move. Controlled growth is better than just blindly ordering large quantities of aircraft and opening routes. Though I reckon Qantas won't just stop with 8 787's.

10 Aug 2015

Total posts 130

The 787-8's will be better for BNE,MEL,SYD-PER route and could even be used on tasman-trans routes from BNE,MEL,SYD.

AJW
AJW

16 Nov 2011

Total posts 581

If you recall when Qantas first ordered the 787 the plan was for Jetstar to get the -8's, then when the -9's arrived they would go to Jetstar with the Jetstar -8's then transfering to Qantas domesitc for that very reason.

Qantas - Qantas Frequent Flyer

17 May 2013

Total posts 8

And PER-SIN

Air New Zealand - Airpoints

21 Jan 2016

Total posts 195

Air NZ, like their 789's as they are very cost effective if used on flights 5 hours or more in duration. This is also confirmed by other carriers who use 787's for medium to long haul flights. Since the A350 is a late entrant and currently being used by a small number of airlines, perfomance data is not currently available but it wont be long, as more carriers start using them, their perfomance data pans out over short, medium and long haul operations.  Qantas, know the cost effectiveness of the 787, from the performance data of Jetstar 788's. I would say, Qantas is planning a big order and is in the process of what bulk discount that Boeing is going to give them.

31 Mar 2016

Total posts 644

@ Chris McKellar:

"Air NZ, like their 789's as they are very cost effective if used on flights 5 hours or more....also confirmed by other carriers who use 787's for medium to long haul flights."

Given the right cabin density/seat count, I'd argue that the 788 & 789 are also @ least ok for shorthaul down to 1.5-2hrs duration in terms of cost effectiveness.  Why?  Just look @ how 788+789 hv been deployed by NH - the largest 787 operator in the world by far(Also longest op experience...nearly 5yrs).  They've already got 50 frames in service(i.e. more than double the 787 fleet size of NZ+JQ combined) and 13 of them in hi-density cabin config are deployed purely for multiple daily domestic duties where no route is over 3hrs.

"..A350 is a late entrant...data is not currrently available but it won't be long...their performance data pans out over short....haul operations."

It may but will take a long time to determine if ever at all.  So far no 350 operators hv planned to deploy any on 3hrs or shorter sectors @ multiple daily frequencies(I'm talking about 20-30 cycles or more per day fleet wide).  In sharp contrast, NH has been doing exactly that with 787 for 5yrs accumulating loads of shorthaul op performance data.

Tech-wise fundamentally, the 350 platform is a slightly more heavy-duty design(Also why AIrbus can develop 359ULR relatively cheap+quick) than the 787 platform.  The 359 is a heavier+larger airframe than 789(let alone 788) while both use turbofan designs fm a similar fuel efficiency tech generation.  In shorthaul ops, airframe weight is typically a bigger driver for fuel efficiency than any advantage(Tiny diff between 787 vs 350 families anyway) in engine+aero design factors.

"..Qantas...is in the process of what bulk discount that Boeing is going to give them."

No, it is not.  QF doesn't hv to.  The hefty discount price(Commonly known as program launch discount by the industry) for those 45 options+purchase rights hv been negotiated, inked and signed by Boeing and QF on the 787 contract 11yrs ago and remain valid today.

Yup, AJ being able to buy 787 @ extremely low price today is essentially a windfall /gift /inheritance fm Geoff Dixon.

On the other hand, I recall Geoff Dixon did go absolutely wild with 787 a decade ago when he committed QF for upto 115 units(Firm+Options+Purchase rights) for a design in which the 1st prototype had not even been built yet @ that time..... 

Air New Zealand - Airpoints

21 Jan 2016

Total posts 195

Air NZ as the launch customer of the 789, has being working closely with Boeing on the 789 performance.  As mentioned, Air NZ's own satistics have shown, the 789 is a cost effective aircraft on short,  medium and long flights but is more cost effective on medium to long haul routes as oppose to short haul routes like between NZ and Oz, hence Air NZ's deployment  of the 789's to medium to long haul routes, as these routes have low take off/landing cycles, compared to high take off/landing cycles that ANA 788/789's are doing on domestic and short haul routes.

Qantas - Qantas Frequent Flyer

21 Aug 2014

Total posts 513

You also do have to factor in that Japan is around 1.5x the size of Victoria with 6x all of Australia's population (Tokyo alone has more people than Australia and Canada). Surely they can make a few 787s work (Coast 2 Coast and Trans-Tasman) but I don't think overall they'll be a better fit for Oz domestic market.

31 Mar 2016

Total posts 644

@Rishi:

"...they can make a few 787s work...but I don't think overall they'll be a better fit fit for Oz domestic market."

Fully agree and not limited to the 787...e.g. 350 will be in the same shoes.  In fact, few domestic markets worldwide can sustain extensive widebody ops like in Japan.

In terms of op econ or fuel burn per seat, a narrowbody(Especially those looong ones like 321Neo or Max9) always beats a widebody on any route within narrowbody payload/range envelope.

However in shorthaul ops, the 787 is equal to(Or even better than) any other widebody types in terms of fuel burn by virtue of having the latest tech(e.g. superior to any 330Ceo or 767) OR the lightest airframe design(i.e. superior to any 350 or 777).  For the most fuel efficient widebody type in shorthaul ops in the future, I believe the 339Neo(338Neo is still too heavy for its size) will be the only widebody competitor that can come close to the 787.

Qantas - Qantas Frequent Flyer

10 Apr 2013

Total posts 388

Surely Qantas know the economics of the 787 on Jetstars network how much money they will make?

Qantas - Qantas Frequent Flyer

10 Apr 2013

Total posts 388

Although I'm not saying they should order all 45 at once though. Also with the 15 options do they have to be ordered or delivered by 2020. Cause if it's the second wouldn't they have to add more to the second 4 on order in the FY19 timeframe? Does that make sense?

31 Mar 2016

Total posts 644

@ Christopher:

"...the 15 options do they have to be ordered or delivered by 2020."

Basically yes.  Regardless of customer, every option has a fixed delivery period for an airframe usually in a specific quarter(or even month) in a specific year.  If QF convert all 15options into firm orders, delivery of these 15airframes will start most likely right after delivery of airframe #8(i.e. the final one scheduled to arrive sometime before mid-2019) on QF's existing firm order.

The only trick is that QF must confirm with Boeing(Along with progress payment) to convert any or all 15 options into firm order typically @ least 1.5yr prior to delivery.  This is the minimum delivery lead time for Boeing production planning(e.g to order certain parts or config on a 787 specific to QF but not other customers, plan whether Everett or Charleston will build them, etc.).  Otherwise, each option held by QF, in turn, will lapse /expire and the production slot reassigned to other customers.

If AJ wants 787 airframe #9 to arrive shortly after mid-2019, converting his options into firm in mid-2018 will actually be too late per industry norm.  He must make that decision by early 2018 @ the latest....when QF will be operating just 1 or 2 airframes of 789 @ that time. 

Qantas - Qantas Frequent Flyer

31 Aug 2015

Total posts 126

True, but it also might have something to do with the differing cost bases and service standards of Qantas vs. Jetstar.

Qantas - Qantas Frequent Flyer

10 Apr 2013

Total posts 388

That's true, although they know without a doubt they will make considerable more money than the 747s. 

12 Dec 2012

Total posts 1000

They likely would also be getting data from their partners already using 787s such as LAN, JAL and AA.

Qantas - Qantas Frequent Flyer

25 Jun 2015

Total posts 25

I think they've learnt from their A380 order. This time they're making sure that it's going to work for them rather than make a huge investment into something that isn't necessarily right for the airline. 

31 Mar 2016

Total posts 644

@ Harry:

"I think they've learnt from their A380 order."

Ahhh..that other huge part(literally too) of QF fleet legacy once again left by Geoff Dixon....

I think it's more about adapting to the evolving global mkt than learning.  To be fair, the Gulf Big3 & their networks were much much smaller potatoes while UA was the only real competitor in nonstop Trans-Pcfwhen Geoff believed QF needed 380-size machines and committed to 12firm+12options 16yrs ago. 

A right decision made 16yrs ago could easily become a wrong decision today in a highly volatile industry such as the airline sector.

Ironically, Goeff's original decision in 2000 to firmly commit to 380 x12 for QF is still right for today......QF currently has no problem to fully utilize its 380 x12 fleet @ reasonable or even favorable R.o.I.

Qantas - Qantas Frequent Flyer

11 Oct 2014

Total posts 551

AJ may just be being .. err, "considerably more prudent" than many give him credit for.

With ANA's overnight announcement that they will scrap all RR engines on their B787-9 fleet - due to corrosion on fan blades - and replace them with GenX equivalents, it will be fascinating to see how this plays out. At USD $25m per engine, it is not a trivial decision and will take approximately 3 years to complete.

Indeed, QF has gained considerble insight in the operation of the JQ B787-8 fleet but the new B787-9's represent a similar - but new - challenge.

My bet is that these first 8 QF B787-9 frames will be watched in performance mode very carefully indeed.

asw
asw

Singapore Airlines - KrisFlyer

08 Aug 2012

Total posts 34

Do you have a URL that exposes the scrapping of RR and GEnx replacement?  Bloomberg only highlights that RR will replace the blades on all 100 engines (which I assume for nix as they are under TotalCare) - the cost of such a transition is market moving for GE and RR..

 

https://www.bloomberg.com/news/articles/2016-08-30/ana-to-replace-some-rolls-royce-engines-on-boeing-dreamliners

 

 

Qantas - Qantas Frequent Flyer

11 Oct 2014

Total posts 551

Hi ASW,

Wish I had included the original link in my post. It appeared on Yahoo Finance approx 8 hrs ago, but appears to have been redacted and re-edited to indicate that 'ANA is working with RR to "replace" fan blades.'

This is now in-line with later reports being carried on sites such as Reuters, Bloomberg and Business Insider.

Irrespective of ANA 'working with RR', the mere fact that RR is committed to repacing ALL engines on ANA's entire B787-9 fleet should still raise some red flags - given ANA's prominence as the largest operator of the type .. and the 3 reported engine failures.

Apologies .. but just reporting in-situ. Regrettably, in a fast-paced world, redactions and re-writes do happen.

asw
asw

Singapore Airlines - KrisFlyer

08 Aug 2012

Total posts 34

Agree - better to have fast reporting with an occasional redaction than wait for perfection..  

Qantas - Qantas Frequent Flyer

21 Aug 2014

Total posts 513

My first reaction to the whole 787 order was "Only eight planes?!" Now I know why they didn't start with a big order.

Qantas

19 Apr 2012

Total posts 1124

Rishi the full order has been public for ten years or more. They reduced it slightly a couple of years back but they have locked in (low) price for 45 (I think), so they will be taking 4-5 a year for quite some time. Maybe a few more a year after the first 8 but it will probably be only one every couple of months just for logistical reasons.

Qantas - Qantas Frequent Flyer

21 Aug 2014

Total posts 513

Yes I knew that they had 40+ purchase rights that's why I was wondering why they didn't order more than 8 since they were already very profitable and had the capacity to order more. I was thinking perhaps they'll convert to 777-9x orders.

Qantas - Qantas Frequent Flyer

10 Apr 2013

Total posts 388

The B777X only has the X when you when you mean as the airline 777X family. There is no X when you say B777-9 or B777-8. 

 

Boeing changed the naming of the B777X family earlier this year.,

Qantas - Qantas Frequent Flyer

21 Aug 2014

Total posts 513

Apologies, last time I checked Boeing they were throwing around 777-8x and stuff, wasn't aware they changed it.

31 Mar 2016

Total posts 644

@ Rishi:

But U've forgotten that QF was NOT profitable before 2014/15.  In fact, it made 1 of the biggest lost in QF history in 2013/14.  The order for eight 789s was placed in mid-2015 right after the 1st yr when QF returned fm deep red to black ink.  To convince the QF board+major shareholders to commit to significantly more 787 than that, I imagine any rational CEO like AJ would like to see 2-3yrs of consecutive solid profitability before asking....which will take us to right around end-2017.....

If I was QF CEO and not as gutsy as AJ, I might hv only ordered 5-6 back in 2015 just in case the global air travel or oil mkt do funny things again to my airline's P&L/income statement in the nex few yrs.....

12 Dec 2012

Total posts 1000

The original order, in 2004, was for 115 787s with 65 firm orders and the rest a mix of options (20) and rights (30).

In 2009, 15 firm orders were cancelled. In 2008 another 35 were cancelled, leaving 15 orders.

11 of those remaining orders were taken as 787-8s for JQ. Another 1 was cancelled and the remaining 3 converted to the first QF 787-9s with 5 of the options firmed, leaving the current book of 8 orders, 15 options and 30 rights.

Thus, of the original firm order, 11 have arrived for JQ, 51 have been cancelled and the last 3 arrive next year. Everything QF has now, without a new order (and likely different prices to the current book) are the original options and rights made in 2004.

12 Dec 2012

Total posts 1000

*In 2012 another 35... ^^;;

31 Mar 2016

Total posts 644

@ Himeno:

Excellent summary of 787 commitment history by QF Group across  the last 11-12yrs.

Qantas - Qantas Frequent Flyer

11 Oct 2014

Total posts 551

I'd suggest that the 4 year late delivery (planned for 2007, delivered by Boeing finally 2010-2011) might have been the first hint. Add in the issues over exploding batteries and grounding of worldwide B787-8 fleets - and there's the 2nd hint.

Mind you, those 'delayed delivery compensation payments' which QF received from both Boeing - and Airbus for the less delayed A380's - did prove to be more than fortuitous for the bottom line, at the time.

For all of QF's faults, it is still a 'safety-conscious' carrier - and by definition, always respectably cautious.

21 Aug 2015

Total posts 90

Playing catch up again. Have a look at the AB350......its a great aircraft. 

31 Mar 2016

Total posts 644

@ zoomzoom:

It is a great aircraft but unfortunately, won't be available @ a great price for [email protected] least nowhere near the price level all of us can   imagine being stated on QF's 787 contract signed 11yrs ago.

That ship for QF to get deep launch discount for 350 has sailed a long time gone when Geoff Dixon betted on 787 instead.

11 Feb 2016

Total posts 15

Seems crazy to me to wait. The 747s are beyond their time and to me they are unpleasant to fly when compared to other options available today, especially when not all of them have been refurbished. Qantas is on the verge of losing a customer in me; I'm opting to fly United to SFO these days, which is served by a 787.


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