Airbus has stopped publishing list prices, according to a recent article by FlightGlobal. Although a seemingly mundane change, this deviation from a long-founded industry tradition may be consequential for the manufacturer. Here, we explore why list prices are both irrelevant, and yet, still have their uses.
Sales, discounts, and other reductions
Airlines rarely pay the list price for a given aircraft, with many factors affecting their final bill. As stated in the final findings of the United States International Trade Commission’s (USITC) inquiry on 100-150 seat aircraft from Canada (the Boeing v. Bombardier C-Series dispute), negotiated prices are dependent on market variables, order size, and other variables.
Indeed, the USTIC findings outline two key types of discounts; launch and marquee sales. In the case of launch sales, airlines willing to take a relatively new and unproven aircraft type, or sub-type, are generally given, and expect, a discount between anywhere between 20 to 30 percent lower then the price of subsequent sales.
Likewise, manufacturers offer ‘marquee’ discounts to prominent airlines, particularly when an aircraft is new to a given market. Marquee discounts were exemplified with Delta’s entry of the A220, formerly C-Series, to the U.S. market.
Yet, there are other reasons, other than launch and marquee reductions, for aircraft discounts. For example, an airline might look to purchase two types in a ‘bundled’ order, or engage in simultaneous discussions for both narrow and wide body types. Similarly, airline and order size can come in to play, as would presumably the case with Lufthansa’s speculated 100+ unit 737 MAX order.
Confidentiality is key
Aircraft purchase deals, like many other commercial agreements, are confidential by nature. Every airline and aircraft lessor have a dedicated negotiating team who strive to meet fleet and operational needs while optimizing costs.
A 2013 article by French business magazine, Challenges, does provide some key insights to the range of discounts. According to the publication, small airlines can expect to receive 35-40% off the list price of an aircraft. Large airlines, on the other hand, can obtain reductions of up to 60%.
Video of the day:
History between the aircraft manufacturer and airline are also key factors in determining discount prices, as is the given airline’s fleet. An airline like Ryanair, which exclusively operates the 737, would presumably receive significant discounts to fuel its growth.
A question of benchmarking and flexibility
Although aircraft list prices are relatively useless in determining the value of an aircraft order, they do have some uses. According to the FlightGlobal article, list prices have traditionally been used as a starting point for negotiations and to calculate pre-delivery fees.
Moreover, list prices can help identify an aircraft’s hypothetical base value, from which aircraft traders may determine a reasonable market value for lease or purchase.
Yet, for those very same traders who engage in negotiations and have privileged information, Airbus’ announcement will likely have little effect. Both Boeing and Airbus have long discounted the importance of list values. In this industry every sale, negotiation, and deal is unique.
With this announcement however, Airbus will henceforth be presumably unconstrained from any, albeit largely meaningless, price points it itself has set. Thus, perhaps allowing the aircraft manufacture more negotiation flexibility with any given airline.