Aug 142014
 
The lovely A380 has been slow to be accepted by most of the world's traditional airlines.

The lovely A380 has been slow to be accepted by most of the world’s traditional 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.

  9 Responses to “The A380 – A Failure by Airbus, or the Airlines?”

  1. Have the Airbus folks thought of selling the A380 to the armed forces? It could make quite the airlifter or VIP passenger transport–one that would rival the Lockheed C-5A or the Boeing 747.

    • Hi, Joe

      That’s an interesting concept for sure. However, my sense is that our military procurement process has to always start with the military identifying a need, and their unique definition of the need, rather than their responding to an unexpected proposal.

      There is a welcome trend in some parts of the military to start sourcing COTS gear – ‘civilian off the shelf’ gear. The military finally discovered that rather than pay $500 for a hammer, they can buy one from Home Depot for $5. Or, rather than ending up with electronics gear that is ten years out of date and ten times overpriced, they can buy generic gear from regular suppliers and use that instead.

      Whether this will extend to planes is anyone’s bet. 🙂

  2. Is ‘lesserly’ a word in American English?

    Two nations separated by a common language 😉

    • Hi, Peter

      In all seriousness, one of the reasons English has risen to such all-encompassing prominence in the world is due to its flexibility and adaptability.

      If ‘lesserly’ isn’t a word, it should be, because I suspect you already know what it means. 🙂

  3. […] If the OP ever was interested in the discussion, this blog post has some interesting points to raise and succintly summarises many of the issues raised in this thread – especially viable long-haul business models: https://blog.thetravelinsider.info/20…-airlines.html […]

  4. The airlines in the US have, cumulatively, lost money from day one. They are enjoying better times today largely because they are not overproducing. Few people are concerned when farmers limit their production to what they hope will be profitable. Airlines should operate accordingly.
    The last thing that our fragile airlines (most of which have been bankrupt at least once) need is to borrow $1billion+ to try out a new plane because it might possibly be slightly more profitable than the 747s they operate now. Puting a new plane into service requires a huge investment in infrastructure and training before the first plane flies. There has to be a very firm profit case for a prudent airline to make that change.

    • Hi Bruce

      The claim that the US airlines have cumulatively lost money from day one is an irrelevant and inaccurate canard that proves nothing about anything.

      How can you compare the profits of a tiny airline in the 1920s with the losses of the now mega-carrier in the 2000s? How can you even compare 1920s era dollars with 2010s era dollars? And, in any case, what is the point of making this claim? What does it prove? I’m not even sure how accurate it is, and I’ll wager you don’t know, either.

      You also say few people are concerned when farmers limit their production. Well, yet again, it seems I’m in the minority. I’m appalled when I see the price of beef in the supermarkets today! I’ve yet to meet anyone who is unconcerned when the cost of any staple food item increases, but I know plenty who rejoice when they drop.

      But, those two irrelevant points to one side, who is disagreeing with you that airlines should create firm profit cases prior to investing in new planes? I think everyone everywhere totally accepts that point.

  5. The A380 was and is only a vanity project to help build the ego of European tec. image of Airbus.

    Every U.S. carrier jumped for JOY when allowed to use two engine aircraft over the ocean, what a novel idea and a money making deal. The 747 was great but now lets make money. Why do you think there was three engine airplanes, they just look cool ! No U.S. air carrier would ever buy a four engine gas hog when there is a two engine gas hog available.

    I love airbus and it can build terrific aircraft , however the A380 was just one bad Idea as a commercial event that should have never been built, as a 4 burner, as a double decker, as a ramp hog, and as a white elephant. I am sorry but that is the short and skinny.

    • Hi, Terry

      Thanks for writing and your comments about four engines vs two, and big planes vs small planes, etc.

      There are more factors at play than the cost per passenger mile to operate a plane. The big shift in carrier thinking was the desire for a greater frequency of services, which requires smaller planes operated more often, rather than bigger planes. Couple that with liberalizations in ETOPS rules allowing twin engine planes to fly further, and that caused a surge of interest in twin engined planes.

      These days, modern engine designs are such that four engined planes are no longer much more costly to operate than twin engined planes, and they don’t have to be nearly as over-powered, so the cost argument no longer applies.

      And, in general, let me ask you : What is the world’s fastest growing, most profitable, and by some measures, largest airline? And what is the primary model aircraft they operate? Answers = Emirates and the A380. Are you suggesting that the management of, eg, United Airlines, is cleverer than that of Emirates!? 🙂

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