Southwest Airlines’ evaluation of the 737-800 comes as little surprise. If the airline decides to convert its options or places new orders, the significance for Boeing’s evaluation of either an updated 737 or a completely new successor takes on a whole new meaning.

If the airline manages to successfully negotiate staffing requirements with its unions on the bigger jet, what does that mean for Boeing in the long run?

More importantly, if Southwest Airlines can come to an agreement with unions before December 1st, it allows the airline to buy any replacement 737 which has more seats than its current 737-700 fleet with virtually no headaches and thats the prize the airline wants, not least because it has been wanting a new airplane for a number of years now.

Looking at the majority of low cost carriers in every geographic region of the world, with the notable exception of Lion Air and its fleet of 737-900ERs, virtually every such operator bases its fleet around the 737-800. By default, seat counts are much higher than in contrast to Southwest Airlines’ current 737 variants.

Boeing 737-800 during final assembly in Renton, WA

Image copyright/owned by FleetBuzz Editorial.com

The 737-800 by far and away remains the most popular version in production today and with new CFM56-7BE engines due to arrive next year, its appeal and value will rise yet further.
 
A strategic win aside, validation of the 737-800 at Southwest Airlines would certainly convince Boeing that many low cost airlines are continuing to scale up their airplane sizes and that would certainly give pause for thought when sizing a possible all new replacement. Given Jim McNerney’s recent remarks during the second quarter earnings call, dusting off the 737RS (Replacement Studies) has provided more impetus towards opting for a clean sheet solution ahead of a re-engined model.

The problem with a re-engined 737 is only when the Pratt & Whitney PurePower GTF engine is thrown into the mix. Given the lack of confidence buyers have in it and the unproven claims of lowering maintenance costs by 20%, Boeing isn’t convinced either and see little merit beyond offering the rival CFM International LEAP-X engine if it does opt to re-engine the 737 – not least because the latter can be installed without any wing changes and because the costs of doing so are now much less than first envisaged.

Yet despite the obvious business case for re-engining using LEAP-X, Boeing favours a new design and through its Advanced 737 Product Development Team (in the 737X) and is more likely to size an eventual successor based on the newest market entrant - the COMAC C919 which seats between 168-198 passengers.

Electing to go down the new 737X route, but starting at a size bigger than the current 737-700, would leave the likes of the failed Bombardier CSeries in no-mans land and a strategic seat gap that it could never hope to plug. 
 
The CSeries cannot be stretched without sacrificing range. Even if a bigger wing is developed, new higher thrust rated engines are needed, new landing gear and systems are needed and that all bumps up costs and production time. More than six long years after its initial launch with a comical backlog (which Airbus and Boeing combined could complete in less than two months) to show for its efforts and so-called “market traction”, any new 737 would spur Airbus to follow in its footsteps as well.
 
Is Southwest’s evaluation going to be the game changing moment for the narrowbody industry?
 
Whether it does or doesn’t isn’t as nearly as important as the direction in which the whole re-engine/replacement argument is heading.

Airbus remains firm in its belief that if it launches the A320 re-engine program then Boeing will follow suit, yet at every opportunity through 2010, Boeing has continued to talk down the prospect and instead talk up replacement models. Why hasn’t Boeing launched a re-engined 737 with the LEAP-X engine to get ahead of Airbus?

The costs of adding a new engine only as an option to the existing model line up makes little sense when these newer generation engines are clearly optimised for newer airplanes – fuel burn reduction may not be the same as on the C919 and then there is the other question of whether airlines would bother paying a premium.

Compounding the conundrum even further is CFM International. Delivering the CFM56-7BE with a 1.5% fuel burn cut, along with a 1% reduction from the current 737 fuselage enhancements could continue to eat into the double-digit fuel burn savings from newer engines – the CFM56-7BE will become the standard production engine for the Next Generation 737 and customers will benefit without even having parted with any money for the privilege.

Even if Southwest Airlines doesn’t order the 737-800, that doesn’t take away the importance for Boeing and its desire to launch something all new because the more and more you look at the competitive landscape, it makes sense to deliver something new because the technology that can be leveraged from the 787 is one that needs to be exploited if Boeing wants to capture significant orders. In its current guise, the 737 is not going to be around forever.
 
The risk of order churn to the current 737 line up will always be there, but if Boeing increases rates again on the 737, closing the business case for a replacement model becomes easier because the company has been so lukewarm about the merits of the re-engine strategy while airlines continue to expedite their current deliveries at a faster rate.
 
By the same token, Airbus will have to think very hard about sinking billions into revamping the A320 with just new engines if Boeing leapfrogs their ambitions with something new. 
 
They did it with the 777 over the A330/A340 and they did it with the 787 when Airbus dangled it’s the A330-derived A350 in front of displeased customers.
 
There is more chance than not that Boeing will do it for a third time with the 737 against the A320.