Orders of Magnitude: U.S. airlines, with a history of over- and under-buying planes, assess their current fleet needs

Twenty years ago, with oil prices low and profits at their peak, U.S. airlines went shopping for airplanes. In one memorable deal from the late 1990s, Delta ordered up to 644 Boeing jets. US Airways became the largest Airbus customer in the world with an order for up to 400 jets. And so on. But in retrospect, with firm contracts for well in excess of 1,000 Airbus and Boeing planes from 1995 to 2000, U.S. airlines had grossly over-ordered. This became evident a decade later, when oil prices were high and bankruptcy filings rampant. Chronically short of cash, U.S. airlines—from 2005 to 2010— ordered roughly half the number of jets they had ordered a decade earlier. This time, in retrospect, U.S. airlines had grossly underordered. This became evident in the early 2010s, when carriers had to place large catch-up orders as their existing fleets aged and competitors elsewhere in the world gained service and cost advantages flying more modern fleets. The poster-child for this catch-up buying was American, which alone bought up to 925 jets (460 firm) from both Airbus and Boeing in 2011. And that was just for narrowbodies. Today, oil is cheap again, and profits never more plentiful. And U.S. airlines are trying to get their fleet strategies right: not too many new planes but not too few. Over-ordering, they remember all too well, can lead to overstretched balance sheets and yield-depressing over-capacity. Under-ordering, they also learned, can result in unhappy customers, lost market share, higher costs, messy operations and revenue deficits to rivals. Fleet planning today, however, requires recognition of new realities that didn’t exist 10 or 20 years ago, most of them more favorable to airlines. Chief among them is consolidation, which changes the way carriers think about plane ordering. When there were seven big fullservice airlines slugging it out across the U.S. two decades ago, or still six as recently as one decade ago, the industry’s finances were less stable, and margins for error in fleet planning smaller. With just three giant airlines today, or four if you include Southwest, fleets are so large that concentrating all orders with one manufacturer no longer carries great advantages. Having large subfleets of both Boeing and Airbus planes comes with little cost penalty thanks to scale—having 10 of one and 10…

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