Southeast Asia A321neo fleet: upgauging trend accelerates; limited long haul opportunities
VietJet took delivery of its first A321neo at the end of 2017, becoming the tenth airline to operate the new type. This marked the first A321neo delivery to Southeast Asia.
Southeast Asian airlines have orders for more than 300 A321neos. Southeast Asian airlines will use the new aircraft type almost entirely to upgauge regional routes, and particularly to slot-constrained airports.
The deployment patterns are very different for European and North American airlines, which are planning to use A321neos to operate long haul services. In Southeast Asia, long haul narrowbody is a much more challenging proposition.
Summary
- VietJet has taken delivery of its first A321neo, marking the first delivery to a Southeast Asian customer
- There are now 19 A321neos in service at 10 operators
- Southeast Asian airline groups have more than 300 A321neos on order, and account for nearly 20% of the total order book
- Most of the orders in Southeast Asia have been placed by LCCs that plan to use the A321neo to upgauge existing regional routes, enabling a reduction in unit costs and a more efficient use of airport slots
- Philippine Airlines plans to operate a small sub-fleet of A321neos for long haul routes, but this is the exception, and very few new generation narrowbody aircraft in Southeast Asia are expected to be used for long haul operations
VietJet becomes latest A321neo operator
Airbus delivered the first A321neo in Apr-2017, to Virgin America. In 2017 Airbus delivered 19 A321neos to 10 operators, according to the CAPA Fleet Database. The last two of these aircraft were delivered in the last few days of 2017 - to VietJet and Kazakhstan's Air Astana.
VietJet and Air Astana are customers of the Pratt & Whitney powered A321neo, which has been set back by multiple delays. Of the 19 A321neos now in service, only six are Pratt & Whitney powered and 13 are CFM56 powered.
Pratt & Whitney powered A321neo deliveries were initially slated to begin in late 2016, before the CFM powered aircraft. However, CFM powered aircraft ended up being delivered first, as the first Pratt & Whitney powered aircraft were delayed until Sep-2017.
Virgin America, a subsidiary of Alaska Airlines and a CFM customer, is now the largest operator of the A321neo, with four aircraft. SriLankan, another CFM customer, is the only other operator with at least three aircraft.
A321neo in service fleet: as of 3-Jan-2018
| Airline | Country | Engine | Number of aircraft |
| Virgin America | United States | CFM56-LEAP | 4 |
| SriLankan Airlines | Sri Lanka | CFM56-LEAP | 3 |
| All Nippon Airways | Japan | PW1100G | 2 |
| Avianca | Colombia | CFM56-LEAP | 2 |
| Hawaiian Airlines | United States | PW1100G | 2 |
| Novair | Sweden | CFM56-LEAP | 2 |
| Air Astana | Kazakhstan | PW1100G | 1 |
| SATA International | Portugal | CFM56-LEAP | 1 |
| VietJet Air | Vietnam | PW1100G | 1 |
| WOW air | Iceland | CFM56-LEAP | 1 |
VietJet is the first airline to operate the A321neo in the current maximum configuration of 230 seats (an increase to 240 seats is planned from 2019).
Novair and WOW also operate A321neos in all-economy configuration, but with 221 and 220 seats respectively, according to the CAPA Fleet Database. The other seven A321neo operators are using a two-class configuration, with 151 to 186 total seats.
Southeast Asia accounts for 17% of A321neo orders
Airbus has 1,786 outstanding orders for the A321neo, along with more than 107 outstanding orders for the A321neoLR, according to the CAPA Fleet Database. Southeast Asia accounts for 309, or 17%, of all A321neo orders, but none of the orders for the A321neoLR, which is slated to enter service in 2019.
VietJet is one of six Southeast Asian airline groups with A321neos on order, along with AirAsia, Cebu Pacific, Lion, Vietnam Airlines and Philippine Airlines (PAL).
Cebu Pacific, Lion Group, Vietnam Airlines and PAL all plan to take delivery of their first A321neo by the end of 2018, while AirAsia's first delivery is slated for 2019. The full service airline Batik is expected to operate Lion Group's A321neo fleet, while the AirAsia Group plans to allocate its future A321neo fleet to several of its LCC affiliates.
AirAsia is the largest A321neo customer in Southeast Asia, with 100 aircraft on order. VietJet is now the second largest customer, following its 2-Jan-2017 announcement that it had converted all 42 of its A320neo orders to A321neos.
Southeast Asia A321neo orders by airline group: as of 3-Jan-2017
| Airline Group | Number of aircraft ordered |
| AirAsia | 100 |
| VietJet | 73 |
| Lion | 65 |
| Cebu Pacific | 32 |
| Philippine Airlines | 21 |
| Vietnam Airlines | 18 |
VietJet stated that it had 73 A321neos on order, along with 11 additional A321ceos. The VietJet Group currently operates 26 A321ceos and 28 A320ceos (includes three A320ceos at its affiliate, Thai VietJet). VietJet has focused entirely on the larger A321ceo since taking its last A320ceo in mid-2016, starting an upgauging trend. In 2017 the group took 16 A321ceos before the arrival of the first A321neo.
A321neo provides airlines with a long haul narrowbody option
The A321neo is capable of operating routes of up to 6850km, but with a few exceptions, the 300 aircraft for Southeast Asia will not be used for long haul routes. The A321neoLR will add approximately another 500km of range, enabling routes of up to 7400km.
In other regions, A321neos and A321neoLR operators are planning long haul narrowbody operations. The trans-Atlantic market is particularly attractive for both low cost and full service airlines operating new generation narrowbody aircraft. However, route dynamics in Asia are different, with lower average yields and thicker routes.
Asian LCCs do not believe long haul narrowbody operations would be viable, although some Asian full service airlines plan to operate a small number of their new generation narrowbody aircraft on long haul routes.
Southeast Asian LCCs to use A321neo as an upgauge platform
AirAsia, Cebu Pacific and VietJet all plan to use the A321neo to upgauge existing regional routes within Asia, particularly those routes that connect slot-constrained airports. More LCCs in Southeast Asia are likely to order A321neos - mainly by converting existing A320neo orders - in order to maximise the use of precious slots.
See related report: SE Asian LCCs: up-gauging to high density narrowbody aircraft will impact capacity - and order books
The AirAsia and Cebu Pacific groups have widebody aircraft, which are generally a better fit than narrowbody aircraft for Southeast Asia routes exceeding four or five hours. While the A321neo will have lower costs per seat than widebody aircraft on routes of up to four or five hours, a widebody will maintain a CASK advantage on longer sectors. In Asia's highly competitive environment, it is crucial to keep unit costs as low as possible.
VietJet does not yet have any widebody aircraft, but is expected to acquire widebodies in the future. Therefore, the A321neo could provide VietJet with an opportunity to launch longer routes before it expands into widebody operations.
However, VietJet has no intentions of operating Southeast Asia's longest A321neo route. VietJet's longest A321neo route will likely be approximately six hours, connecting Ho Chi Minh with Japan.
Philippine Airlines to be Southeast Asia's first long haul narrowbody operator
The longest A321neo route from Southeast Asia will be operated by PAL. As CAPA has previously highlighted, PAL is planning to use its first six A321neos on routes of up to eight hours, connecting Manila with Australia and India.
See related report: Philippine Airlines plans Australia and India expansion using A321neos with auxiliary fuel tanks
PAL president Jamie Bautista told CAPA in Oct-2017 that Manila-Brisbane will likely be PAL's first long haul narrowbody route. The new nonstop route is expected to be launched in Mar-2017, following delivery of PAL's first A321neo. PAL currently uses A320ceos to serve Brisbane via Darwin. Nonstop, the nearly 6000km route is too long for A320ceos or A321ceos.
Mr Bautista said that after Manila-Brisbane PAL plans to introduce the A321neo on the slightly longer Manila-Sydney and Manila-Melbourne routes, which are currently served with A330-300s. Manila-Delhi is the last route planned for the six A321neos, which are slated to be delivered to PAL in 2018.
PAL has 21 A321neos on order, but only the first six aircraft will be used for long haul operations. The remaining 15 aircraft will be used on regional routes, and be delivered in a higher density configuration. PAL's first six A321neos will be in a low density 176-seat configuration, and feature lie-flat sets in business class.
Vietnam Airlines and Batik Air to begin A321neo operations in 2018
Vietnam Airlines is the only other Southeast Asian flag carrier that has ordered A321neos. However, Vietnam Airlines plans to configure all its A321neos in a high density 203-seat configuration, with only eight business class seats. The airline plans to use its new A321neo fleet to increase capacity on regional routes within East Asia - following a similar strategy as the LCC operators.
See related report: Vietnam Airlines to accelerate international expansion in 2018, with focus on North Asia
Batik Air, a full service subsidiary of the Lion Group, is evaluating the use of A321neos for longer routes, including from Bali to Australia and North Asia. However, the potential Batik routes are shorter than the routes being planned by PAL, and under some definitions will not be considered long haul. For example, Manila-Melbourne has a scheduled block time of slightly more than eight hours, compared to approximately six hours for Bali-Melbourne.
Ultimately, long haul narrowbody operations by Southeast Asian airlines could be limited to four routes from PAL and a small number of routes from Batik.
Southeast Asia not the right environment for long haul narrowbody operations
The reality is that most long haul routes from Southeast Asia do not have the yields to support narrowbody operations, even with the improved fuel economics of new generation aircraft. Besides the four PAL routes and the potential Batik routes, the only likely A321neo long haul routes from Southeast Asia are niche routes to Central Asia operated by Air Astana.
Air Astana is planning to deploy its future fleet of A321neoLRs to replace 757s across its long haul network. In Southeast Asia Air Astana has three long haul destinations - Bangkok, Kuala Lumpur and Ho Chi Minh - and could launch one or two more with the new A321neoLR fleet.
Air Astana, similarly to PAL, has opted for a low density configuration with lie-flat business class seats. Air Astana will have 166 seats on its A321neoLR, matching the configuration in its 757. The 757, prior to the recent arrival of the A320neo and 737 MAX families, was the only long haul narrowbody aircraft.
The A320neo entered service in early 2016, followed by the 737 MAX 8 in 2Q2017. Southeast Asian airlines currently operate 27 A320neos and 12 737 MAX 8s, according to the CAPA Fleet Database. However, there are currently no 737 MAX 8 or A320neo routes over seven hours - and there are currently no plans for any route over seven hours. SilkAir's Singapore-Hiroshima route is currently the longest narrowbody route from Southeast Asia, at slightly over six hours, and was launched in Oct-2017 using the 737 MAX 8.
There is no Asian equivalent of a route such as Dublin-Newburgh (New York), one of several seven hour trans-Atlantic routes launched in 2017 by Norwegian, using the 737 MAX 8. (Norwegian will launch even longer trans-Atlantic narrowbody routes in 2019, as it takes delivery of A321neoLRs.)
Asia generally does not have the secondary airports or the yield environment to make long haul narrowbody LCC routes viable. In Southeast Asia, fierce competition and airport constraints make long haul narrowbody a challenging proposition.
Even PAL's experiment with four long haul narrowbody routes is high risk, given the price sensitive nature of the Philippines market and how precious slots are at Manila.