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Which Airlines Are Interested in Boeing's Latest Idea?

As airlines try to pack more passengers into their planes, ordinary travelers are feeling the squeeze. Now, Boeing (NYSE: BA  ) is releasing an even more densely packed version of its most popular plane, the Boeing 737. I'll examine why Boeing is launching this model, what it means for airlines, and how soon you could be flying in one.

Target market
Remember, unless you're personally in the market for a private jet, you're not Boeing's target market. Airlines are most of the market and, right now, airlines are looking to boost revenue per aircraft which allows them to increase revenue without major cost increases.

This has led to slimmer seat backs at American Airlines (NASDAQ: AAL  ) , Delta Air Lines (NYSE: DAL  ) , United Continental (NYSE: UAL  ) , and Southwest Airlines (NYSE: LUV  ) in efforts to put more seats on each plane. The high-density trend has even become a core part of fast-growing Spirit Airlines (NASDAQ: SAVE  ) and its effort to make airfares competitive with bus fares.

But, as airlines continue to look for ways to lower their cost per available seat mile, or CASM, Boeing wants to have a high-density version of its most popular aircraft available for purchase. The Wall Street Journal notes that reducing CASM is a major goal for this high-density 737 with Boeing targeting a 5% increase in per-seat efficiency.

Will you be flying one?
Not anytime soon. Boeing is targeting 2017 for the first deliveries of this model. But after that, it really comes down to how much airlines want to adopt this model of the 737.

Southwest Airlines, which operates an all-737 fleet, has already been set up as the launch customer for the 737-8 which carries the additional emergency exit door. However, Southwest notes that it has no plans to take delivery of a 200-seat version of the 737.

Ultra-discount carriers, like Spirit Airlines, may give the plane a look, although Spirit currently operates an all-Airbus fleet, and having a more diverse fleet could lead to increased maintenance costs. But for airlines like Ireland's Ryanair, this high-density 737 would go well with their existing low-fare model and current 737 fleet.

Mainline legacy carriers are less likely to adopt this configuration, but not necessarily because of the decrease in passenger comfort. Unlike discount carriers which try to offer the cheapest fares possible by driving down CASM, carriers like American Airlines, Delta, and United have a select number of economy seats with more legroom on board their 737 aircraft, which they sell, or give to elite travelers as upgrades. Not only are these major carriers using the upgrades to boost ancillary revenue, but being able to offer these seats to elite status travelers encourages customer loyalty and can attract more higher paying travelers.

Since an all-economy-class, 200-seat layout would hurt the multi-tiered pricing strategy of mainline carriers, American, Delta, and United are less likely to adopt this layout, as it would remove their ability to sell and market upgrades. 

Regulatory issues
When it comes to aircraft safety, regulatory agencies in both North America and Europe pose another series of challenges for aircraft manufacturers. Among the biggest concerns of these agencies is the ability to quickly evacuate an aircraft in the event of an emergency. With the requirement for this being set at 90 seconds to get all passengers off the aircraft, Boeing is adding another emergency exit door to the 200-seat version of the 737 to meet this regulation.

Safety regulations are also likely to result in many North American and European carriers choosing to order the high-density 737 with one less seat for a 199-seat layout rather than the full 200 seats. This is due to a minimum ratio of one flight attendant for every 50 passengers for U.S. and European flights. Canada is an exception to this rule requiring one flight attendant for every 40 passengers although the country's two largest airlines, Air Canada and WestJet, have both received exemptions allowing them to operate under the one attendant per 50 passengers rule.

While the 199-seat layout would mean fewer passengers on the plane, passengers would not get any more legroom than the 200-seat version since increasing legroom would require removing an entire row of seats.

Airline trends
Boeing is responding to growth among discount and ultra-discount airlines by creating a more densely packed version of its popular 737 aircraft. Although Southwest has been lined up as a customer for the 737-8, the airline is likely to side with the mainline carriers in not adopting the high-density model. However, other discount and ultra-discount carriers are likely to seriously consider the aircraft for its reduction in CASM.

That works out fine for Boeing. Discount and ultra-discount carriers are growing, and mainline carriers are still looking toward other versions of the 737 as core parts of their fleets.

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Alexander MacLennan

Alexander MacLennan is a Fool contributor covering Industrials, Airlines, and Financial companies. He is always ready for a good growth or turnaround story and tries to find them before the market does.

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