Pardon my ignorance, but can someone explain “options” for me in simple terms?

What are they?
Why do they exist?
What are the pros/cons?
Why don’t I hear this term in other industries?
Anything else important to know about the concept?

I’m sure it’s a stupid question to most of you here, but I honestly have no idea. Thanks.

 

Keeps your place in the manufacturing queue.

Allows you to decide to convert to firm order later (flexibility, price, market events growth etc) or not.

No such thing as a stupid question.

 

https://en.wikipedia.org/wiki/Option...aft_purchasing)

Kinda like however many years ago when you could "reserve" your place in line for a Cybertruck once they start being built for a deposit of like $100. You'd be locked into the early delivery queue (you get your shot before others that didn't reserve a spot), but you wouldn't get your $100 back if you didn't buy the truckk.

These options probably have a bit more skin in the game than $100 though....

Another way to think of it is a type of insurance... you pay premium(s) to have the ability to quickly ramp up your fleet if you need to at a later date (rather than having to wait years/decades from the back of the line of the delivery schedule once you finally decide to pull the trigger), and if you don't you're just out the premiums you paid.

 

Think of it in the consumer mindset of booking a hotel or resort a year in advance and it's reserve now pay later or cheaper today to pay now but a cancellation fee. It might be worth the flexibility to wait.

For airlines, you reserve your spot in line for orders, and at some point in the supply chain, the manufacturer requires a firm go-no go to start getting started on building your airplane, and you'll need to firm up that option. It's usually a few years lead time.

Since 9-11, I can only find 1 time we didn't exercise options, and it wasnt just the options but the whole thing... legacy NWA 787 deal which had firm & options. But it was a unique scenario, new type, inherited, etc. Recent history we have firmed all options over time. We've had 50 options on 220s, and firmed them in like 4 separate batches. We've had options on 10 350s from Latam that were firmed, as well as 10 yesterday, and we have firmed 30 of our 100 321neos options. I expect the remaining 70 321neos to be firmed, as well as the 30 737MAX. Listened to fleet folks talk about how they usually wait to inside 5 years on firm commitments, for flexibility. . However, as a company we ARE planning on taking the options, it's definitely the plan A, not just some 'maybe' or backup plan.

I'll skew in the optimistic direction on the WB options. Adding them all makes strategic sense for the timing of steady deliveries for fleet replacement and marginal growth. Not taking them only makes sense for things going very much sideways. Under that same umbrella, I expect a firming of at least some of the 70 321neo options in the next 18 months, as we are halfway through the order, and Airbus will need to know soon.

 

"Just stupid people who ask questions." -Jack Handy probably

 

there are, however, inquisitive idiots

 

It’s absurdly cheap to place orders with a Boeing or Airbus. Generally to get an option you do however need to tie it to a firm order. Firm orders spots can be secured for as little as 10,000.00. That’s why they get canceled often or even swapped with a different manufacturer like Hawaiian did a few years back. You don’t need to put up any real money until you reach the point where long lead items need to be ordered by the aircraft manufacturer. Thats typically two years before delivery. Adding options to an order is virtually no cost.

 

Only 10k? I feel like I should buy delivery options. No chance I’ll want or be able to afford a plane but I’d hate to miss a slot just in case, you know?

 

Back when delta first ordered the lower mtow a339s and a359s it still had 777-200ERs/LRs so at the time it felt it didn’t need the extra range from higher mtow. Now with the 777s gone and delta interested in expanding to Asia South Pacific Middle East India and Africa what are the odds delta does higher mtow a339s.

https://www.flyertalk.com/forum/delt...ar-future.html

https://www.flyertalk.com/forum/delt...-2026-a-2.html

In the threads above at the delta one lounge jfk opening someone asked delta executives if jfk to Tokyo was ever coming back and was told at the time delta was worried about losing a lot of money on that route from cost to fly the route, intense competition, and lack of a JV partner. He was also told at the time delta didn’t want to operate a350 flights out of JFK and would only do so if it launched a route necessitating its range (I have no idea how delta benefits from not operating a350 flights out of jfk for the sake of not doing so). The higher MTOW A339 with maximum range could enable JFK-ICN without the need to operate A350 flights out of JFK.

 

With all the new WB orders what do we think is the outlook for a SLC wb category? Would any of the new planes fix the summer performance issues?