(Qatar Airways Airbus A350-900 at the 2014 Farnborough Air Show.AP)
For Airbus and Boeing, the Farnborough Air Show marks the halfway point of the sales calendar.
Over the past few years, Farnborough, along with other midsummer air shows such as Paris and Berlin, has been a hotbed of sales activity.
It's where deals ranging from the two-to-200-plane variety are announced.
But this year, buzz has been quiet. And rumors of potential megadeals have been virtually nonexistent.
At a time when airlines are experiencing great profitability and with air travel expanding rapidly, it looks like sales of Airbus' and Boeing's next generation of airliners are facing two significant headwinds.
Fuel
The airline industry is a capital-intensive, high-cost, low-margin business. Airlines try to do whatever they can to cut costs. Generally, that means saving on their most significant expense — fuel. With state-of-the-art aerodynamics and fuel-sipping, high-bypass-ratio turbofan engines, Airbus and Boeing's next generation jets, such as the A320neo and the 737MAX offer airlines a way to do this.
However, they also require the airlines to make a significant financial commitment.
Boeing's most affordable next-generation jet — the 737MAX 7 — carries a list price of $90 million, while the top-of-the-line 777-9X wide-body lists at $400 million. Airbus' low-end A319neo comes with a $98.5 million sticker price, while the top-end A350-1000 twin-aisle jet $355.7 million.
Even with significant bulk-order discounts common in major orders, the investment for an airline still runs in the billions of dollars.
Unfortunately for airplane makers, at just over $46 a barrel, oil is the cheapest it's been in years. All of the sudden, Airbus and Boeing's most important customers are reporting 40% to 50% reductions in fuel costs — much more than the roughly 20% improvement its planes could deliver.
(Southwest Airlines Boeing 737MAX.Southwest)
As a result, customers are shying away from booking new orders for the pricey, but more efficient jets. Instead, airlines are gravitating t0 less efficient, but more cost-effective, current-generation jets: the Boeing 737NG and the Airbus A330.
Last month, Southwest Airlines, the Boeing 737's largest and most important customer, pushed back the delivery of 67 737MAX jets by as long as six years — allowing the airline to delay spending $1.9 billion. At the same time, Southwest bumped up the delivery date of six current-generation 737-800 from 2018 to 2017.
Although Southwest will remain the 737MAX's launch customer when it enters service next year, the airline's decision is indicative of the hurdles airplane-makers face.