The A380 – A Failure by Airbus, or the Airlines?

Try as those of us who like the A380 might, we cannot pretend the A380 has been an outstanding commercial success.

In terms of passenger comfort, most people agree it is wonderful – quiet, smooth, and generally well equipped with the latest inflight entertainment equipment.  At airports that offer two or three jetways connecting to the plane, boarding and deplaning is also quicker than most smaller planes.  While some of us have airplanes we hate, it seems everyone likes and many people love to fly on the A380.

But, commercially, the plane has been very disappointing.  Indeed, it seems that Airbus has yet to breakeven and recoup its development costs – and some analysts doubt it ever will.

The plane was announced and first offered for sale in 2000, first flew in commercial service in 2007 (on Singapore Airlines, with their special flight numbered SQ380 between Singapore and Sydney), and now, seven years later, there are only 138 planes in service, with orders for about another 180 and very few new orders coming in.  Originally it was thought that many airlines were sitting back and waiting to see the plane prove itself before choosing to order them, but even though the plane has now had seven generally good years of service, there has been no rush of new orders from new airlines.

Emirates has pretty much single-handedly saved the plane, with 50 currently in service and another 90 on order.  While other airlines have been delaying or cancelling their A380 orders, Emirates has been continuing to add to its orders, and while some airlines use the ‘its too big’ justification for not buying the plane, Emirates is attempting to persuade Airbus to develop a stretched still larger version, promising many more orders if Airbus will do so.

The level of A380 sales is dismal.  Compare it to other Airbus planes such as the A350 (went on sale in 2006, 748 ordered so far) or Boeing’s 787 (on sale since 2004, 1,057 sold).  On the other hand, compare it also to Boeing’s somewhat similar 747-8, which has received only 51 passenger version orders and 69 freighter version orders since being first offered in 2005 (Airbus does not offer a freight version of the A380).

Airbus critics have gleefully seized on the lack of A380 sales as proof that Airbus ‘misread the market’ and was ill-advised to develop the A380.  On the face of it, this would seem correct, and part of the rush to criticize is due to the ill-will that was generated during what was a ten-year period of prevarication by both Airbus and Boeing as to if either would develop a successor to the 747.

The Development History of the A380

Back at the start of the 1990s, the 747 had just turned 21, and while still a fine plane, it sort of seemed logical that a successor, and possibly larger plane, be developed.  But both Airbus and Boeing sensed that the market for a 747 replacement would be limited in scope, while the development costs would be huge.  They worried that while there might be enough market potential for one airplane from one manufacturer, there would not be enough market size for two, and so, in the finest spirit of free market competition, for a while they joined forces to co-develop a new plane.

Unsurprisingly, that joint effort fell through, and the two companies both then tried to publicly dissuade the other company from proceeding to develop a plane on their own, while quietly pushing their own development program.

Boeing played around with several new versions of the 747, while Airbus first started off looking at the concept of having two A340 fuselages merged together, side by side, before deciding to create a new design with a full second deck above the first deck.

Airbus felt it was essential to develop a very large plane, because Boeing otherwise ‘owned’ the market for large passenger jets.  The largest Airbus plane prior to the A380 was its four engined A340, a plane that was never a particularly successful plane.  This was not due to any bad problems with the A340.  It was simply because the new generation of twin-engined wide-body jets – in particular, the 777, and lesserly theA330, were being granted longer and longer ETOPS operating approvals, which left the A340 with the greater operating costs associated with four engines rather than two, and no countervailing advantages.  So Airbus had nothing larger than its A330 (holding 250 – 350 passengers) to offer against the 777 and 747 that Boeing had.

This marketplace imperative saw Airbus decide to proceed with its own super-jumbo, the A380, which it formally announced at the end of 2000.  Boeing promptly launched into attack mode, claiming there was no possible market for such a large plane, but eventually, five years later, announced plans to come up with a slightly stretched new 747 model, the 747-8.

Meanwhile some of the less rational (or more Boeing-aligned) airline commentators suggested that such a huge enormous plane as the A380 would create impossible airport congestion, and if it were ever to crash, would create human tragedy of an incomprehensible magnitude.  In reality, A380s don’t carry many more passengers than the largest 747s (about 20% – 25% more), and happily none have yet crashed.

So Airbus had to face strident criticism from the time it first committed to the project, criticism which continues unabated to this day.

As regards the more recent criticism, it is easy to be wise when you have the benefit of hindsight.  Few people would have anticipated, when the A380 was announced in 2000, the changes to the world that happened in the decade that followed.  9/11 massively upset the air industry a year later, and then just when the world was recovering from that, along came the global financial crisis and another collapse in air travel.  Oh yes, let’s also not forget other negative events such as SARS and occasional runaway hikes in jetfuel costs, all of which had their own substantial impacts on the world’s airlines, their operations and their profits.

The Ideal Role for the A380

There are two mutually-exclusive strategies for long-haul airlines – either to funnel regional flights into major hubs, operate concentrated flights between hubs, and then parcel passengers out from the far-away hub and fly them to their ultimate destinations; or to have point to point services between secondary airports without any hubbing.

As a semi-compromise, there’s also the approach of flying from a secondary airport to a major hub and then to a secondary airport again, without any core hub-to-hub travel.  A one-stop itinerary instead of two.

Clearly, the concept of transporting people ‘in bulk’ between hubs definitely calls out for the largest planes possible on the hub to hub sectors, whereas flights between secondary airports call for smaller planes.

Back in the late 1990s, with the steady growth of air passenger numbers, and the growing congestion at many of the world’s airports, and a general airline preference for hubbed operations, the sensible and obvious solution seemed to be to increase airport capacity by simply growing the size of the planes that took off and landed.  If you have a limited number of take-off and landing ‘slots’, and all are in use, an easy and quick way to increase capacity is to increase the size of the planes.

It didn’t quite work out that way, however.  The latest generation of twin-engined planes, and their extended ETOPS ranges, proved to be very economical and ideally suited for taking smaller numbers of passengers long distances between secondary airports.  Doing this could bypass the congested hubs entirely.  In addition, the diminished levels of travel in general took some of the pressure off some of the capacity constrained airports.

The Different Approach of the American and the ‘Super’ Airlines

In developing a strategy to recover from the problems of the 2000s, and to optimize profit into the future, American airlines in particular (none of which have ordered any A380s) have adopted a mantra of ‘less is more’ – meaning that lesser numbers of flights and even lesser numbers of passengers is the best path to more profit.  It is certainly true that by creating artificial limits on available seats, the airlines have been able to push fares up and fly their planes more full, but it is a funny sort of industry where the path to profitability involves cutting back on the amount of product you sell, rather than increasing it.

15 of the 20 largest (in terms of passenger numbers) long-haul routes in the world remain slot-constrained at either or both airports, but few airlines are choosing the A380 as a solution to these constraints.

Of course, as passengers, it is vastly preferable to take just one flight rather than two or three.  But when did the airlines ever consider passenger preferences as they formulate their operational strategies?

It is interesting to contrast the strategy of the new crop of rapidly growing and profitable super carriers, many of which seem to be based in the Middle East, and the rest of which are in Asia.  Emirates in particular – the poster child of this new group of carriers, has been enthusiastically adding A380s to its fleet pretty much as fast as it can take delivery of them.

On the other hand, the US carriers seem to have an unofficial pact to jointly boycott the plane and avoid upsetting the semi-stable situation they compete work together within.  Their fear might possibly be that if one of them were to add A380s to their fleet, they’d all have to respond similarly, and their preference clearly is to avoid any unessential change to their aging fleets and operational patterns.

Unlike the American carriers, the super carriers feel no such constraints, and neither do they seem to have accepted the mantra of shrinking being the best way to optimize their future profit, either.

It already seems totally obvious which strategy is leading to greater success.

What if the Airlines Had Responded the Same Way to the 747?

The A380 wasn’t and isn’t a revolutionary airplane.  Even though its naysayers played up its size as if it were a problem rather than a benefit, in truth it is an evolutionary plane and typically carrying only perhaps 25% more passengers than the 747s that were already operating.

On the other hand, when the 747 came out, it truly was revolutionary.  The previous long-haul plane was typically the 707, which carried only one-third as many passengers.

What would have happened, when Boeing was developing the 747, if the US airlines had responded by saying they didn’t want to open air travel to the masses, choosing instead to keep it ‘exclusive’ and costly, available only to a limited number of passengers?  It is true that the 747 helped massively reduce the cost of international travel – something the airlines today seem to fear, but did it not also help the airlines to grow and expand in every respect and to become more profitable, too?

In actual fact, in the mid 1960s, Boeing was pressured by Pan Am in particular to develop a new larger plane, to be at least twice the size of the then fantastically successful 707.  The airlines pushed Boeing towards developing the 747, but now decry the A380 as being ‘too big’.

So, did Airbus come up with the wrong plane, or are the airlines too stupid to perceive the A380 and the potential it offers them?

And, a last question, particularly uncomfortable for us as Americans.  Has the industry leadership once enjoyed by Pan Am and other US airlines now passed to the new breed of super carriers?  You know – the airlines keenly and profitably operating their new fleets of A380s.