Ehh, how about no?
20% fuel savings is about 2/3 of the allocated cost of the airframe on the type of segment those planes fly. Fuel is >30% of CASM, and this quarter its going to be even worse. The airframe is 10% of CASM. do the math.
for the 777s:
50k for new seats * 50 seats/ac *20 a/c is $50 million. That's a non-trivial amount of money up front, but if CO can get just another $100/leg out of them, and they fly 1.5 legs a day, that cost is recouped within a year.

CO could charge more for a better business class product. As it is, CO's product is cheaper than United's inferior product. Business Class seats are much more price inelastic than Y. Biz Travelers are often tied to the carrier in many ways: corporate agreements, FFP and network/schedule.

The seat may be ageing but its good enough for now. I don't think they want to introduce a new product and have the 787 be a 'me too', they want to launch it with the 787. They could however, (and I think this may have been implied with the timing of the announcement), install it without fanfare on the 777 fleet so they are ready at the same time as the 787 comes out.

At the same time, CO's inattention to certain parts of the soft product will start to eat away at them. The wine selections are pathetically bad. And the heavily touted concierge product is a joke. And the pclub isn't up to int'l J standards (though I understand that is being looked at). Those are issues that can be fixed QUICKLY.

The concierges should be checking on pax and making sure that their arrangements are fine for the other side, to see if they need transportation or a shower when they arrive. Right now they just seek out the non-OP members and sign them up.

[QUOTE=The concierges should be checking on pax and making sure that their arrangements are fine for the other side, to see if they need transportation or a shower when they arrive. Right now they just seek out the non-OP members and sign them up.[/QUOTE]


I totally agree. I have never had any requests that I placed with the cncierges at EWR ever actioned when I landed in Europe, no matter if it be LGW, CDG, MAD or FCO...though they all seemed very nice

I think any reasonable observer will agree that an improved CO BF (both hard & soft product) would easily net a higher yield, because, as you write, the market is inelastic, and CO BF tends to price at the low end of the market currently.

Regarding your calculations: The 20% increase in fuel efficiency on the 787 would result in a 6% savings on CASM. On the other hand, refurbishing all the 777's with a new BF (assuming the figures are correct) would cost less than acquiring one new 787. If CO can raise its average BF fares more than 6% on average, then refurbishing makes better sense than buying the new planes.

On an average EWR-LGW, if the average fare is about $5,000 rt now, this would mean the new fare average fare would be $5,300, most likely still cheaper than VS or BA.

Of course, the answer is that CO ought to do both, reduce its variable cost and improve its product in the premium class so that it can generate more revenue as well.

I understand why it has to wait 3 years for the new planes (they're not ready yet) but I really don't see the rationale for delaying the implementation of a new BF, unless the plans for this new product are, in fact, not yet finalized.

Spot on comments IMHO. Just a few dollars more/bottle for wine and they would see dramatic improvements. Based on the premium wine selection at the hub PCs, someone on Smith St. knows about wine. I don't expect the same wine on-board, but there is huge room for improvement.

Some of the concierges do better than what you describe, but not many and if you want anything you have to specifically ask. Also, most of the time they don't even make it on-board until half of the BF pax are already on the jetway. Thus, they provide pretty much zero assistance at the (non-hub) destination. Why can't the departure concierges arrange the arrival lounge passes ? A couple of times the arrival concierge was nowhere to be found I ended up going to the arrival airport ticket counter to find information on the arrivals facility.

I suppose these are all topics for another thread...

Maybe the concierges or better at IAH than EWR, or maybe I've just been lucky, but every time I've flown BF out of IAH to Europe, the concierge has come by my seat after I boarded and asked me if I wanted to make arrangements to use the arrivals lounge after landing at LGW or CDG. And more than once I've also been asked if I needed assistance with ground transportation after arrival. As a result, when I've arrived at LGW the arrivals lounge had me on a list of passengers to expect, based on the requests made by the departure concierge at IAH.

I agree that upon arrival at the non-hub location, the concierges usually aren't on board the plane (although I have had a couple of occasions where they were there as soon as the door opened), so they aren't as much help as they could be. But I've never had a problem with the departure concierges at IAH not providing arrival lounge passes and information to anyone who wanted it.

when did this become an XOR? They need new seats AND new planes. They serve different needs.

I realize you're a big fan of TWA... they're dead now.

If the market is truly inelastic and CO is at the low end of the range, why not just raise the fares and not bother with the improved seats? Surely that is more profitable than also updating the seats in conjunction with the price hike.

I am surprised to see people advocating the increase of fares in exchange for nicer seats; I didn't expect that at all. Are you paying for the BF seats out of your own pocket??

Maybe I've been unlucky. Maybe I seemed like I knew what I was doing. Maybe I said something to put them off. I have no idea. They've certainly shown up and spoken to me every time. The biggest problem with this IMHO is the arrivals concierge. Their job isn't made any easier by the fact that by the time the door is opened the pax are lined up and ready to go. Pax then race to the immigration hall to be in the front of the queue.

So you need a reservation to use the arrivals lounge? Did they save you a seat? Did they prepare your breakfast for you so it would be ready as soon as you got there?

I agree that the concierge is just window dressing. They sit around and don't do much of anything, acting all important with their gray suit, carnation, and clipboard.

They don't get your drycleaning done, no show tickets, nothing. The regular GA can help me with a seat assignment just as easily, thanks.

Or get your kid to do it!

Spot on. Put another way, if we assume that CO will depreciate the seats over 5 years, then the impact to the P&L is $10k per year per seat. Breaking this down means that CO need only see revenue increases of $27 per seat per day. I'll let others get into the vaguaries of the number of turns per day and the number of days out of service, but I think the point is made effectively enough.

I guess we will agree to disagree on this one. I guess I don't really understand the magic of the 787 in terms of timing, and why risking a reputation of having a lagging product is worth waiting so that they might have the news cycle to themselves. It isn't like they can be assured someone else won't be announcing an improved product in 3 years. As for launching the new service without fanfare... I will be shocked if CO plays this low-key. They will be shouting it from the rooftops, just like everyone else.

True and true. The wine is so bad that it makes my stomach hurt just thinking about it. As for the lounges, compare the typical PC with my lounge experience this weekend with BA:

CPH: Sandwiches were available, along with some sort of potato cake thing. The potato cake thing was surprisingly good. I think I ate 4 and didn't need to bother with the terminal for lunch. Booze was plentiful and the lounge, though small, was right-sized and didn't feel crowded at all.

LHR (T4): Head to the Gate 1 lounge. Again, it was lunchtime, and I have a hard time choosing between pre-made sandwiches, the cold cut station, the various tuna salads and the like, the Asian noodle dish, and the veggie pasta. I opt for the Asian noodles, a pre-made sandwich, and some cheese. The noodles weren't gourmet, but were as good as anything else in the airport, and free is always good. Cooked while you wait. Again plentiful booze, along with more than enough internet terminals and a well-designed space. Free wifi is the only thing obviously missing.

And this was for a short flight, accessing the lounge as an elite. When in J, you can throw in spa treatments and when in F, you can avail yourself of JW Blue and Champagne. So, no, the PCs do not measure up.

Sort of, but I think there is something missing here. First, why assume that having some airplanes with an improved product while some don't will lead to a drop in revenue? I can understand an argument that the new product will be discounted by consumers to the value of the old, but not that people will stop flying CO just because they may not get the new product on their particular flight. I mean, unless the new product is worse, then I can still be assured of a product that is at least as good as what I got before, right? So why will I now pay less?

And, more importantly, how is delaying the refit of the other planes going to prevent this from happening at the time of the 787 rollout? Indeed, if the risk is as you suggest, then now is precisely the time for CO to do the refit. With loads as high as they are, CO should be able to sell the seats no matter what the product differential is. There is no guarantee that, in three years time, the market will be as forgiving.

The market is inelastic not foolish. Better quality = higher price. I always pay for all my own travel and, yes, I would be willing to be a 6% premium (referring to my example) for an improved BF product, much as I am currently often paying a premium to fly B6 Y vs the cheapest available option.

Entropy: I take it you didn't read all the way through my post.

Here's an excerpt:

Of course, the answer is that CO ought to do both, reduce its variable cost (i.e., buy the new planes) and improve its product in the premium class so that it can generate more revenue as well.

But isn't that (i.e. not knowing what the world will look like in three years) always the case in the airline (and lots of other) business?

There's an inherent tension between the immediacy of selling plane tickets for flights today versus making long-term investment decisions for years down the road.