ANALYSIS: Small steps to success for A380

Ten years after the A380’s quietly impressive airborne choreography wowed the crowds at its Le Bourget debut, Airbus continues to insist that a commercial breakthrough for the world’s largest airliner is on the horizon, even if it now concedes its flagship is not going to transform long-haul flying in the way the world’s first jumbo jet, the Boeing 747, did in the 1980s. However, with airlines and passengers having had plenty time to get used to the ultra-large airliner and no orders for the type for many months, even Airbus’s modest targets could be ambitious.

Although A380 operators number blue-chip carriers such as Air France, Singapore Airlines, Qatar Airways and Qantas, only one airline has put the superjumbo at the core of its route strategy. With 60 in its fleet and 80 on order, Emirates represents 45% of the A380’s total orderbook and half its backlog. Therein lies Airbus’s problem. The Dubai airline wants Airbus to develop a new generation A380. But with the programme only edging into breakeven on a unit basis this year, even Toulouse’s most bullish salesmen are unconvinced about launching an A380neo for one customer.

Another looming concern for Airbus – although its executives were presenting it as an opportunity at a pre-Paris briefing in Toulouse in late May – are the A380s that will start to filter onto the secondhand market when Emirates and other early customers such as Singapore begin to replace 10-year-old examples. With demand for new A380s soft, and lessors still to find customers, even a modest number arriving on the market is likely to depress residual values, warns Rob Morris, head of consultancy for Flightglobal’s Ascend.

Airbus’s top salesman John Leahy hints at more A380 sales this year. However, with several of the biggest operators of 747-400s seemingly uninterested in the double-deck airliner (or its Boeing rival, the 747-8I, for that matter), and the biggest 747-400 customer, British Airways, happy to stick with its modest commitment for 12, it is difficult to see where demand for an ultra-large transport is going to come from. This is despite projected rising numbers of what Airbus calls mega-cities – whose airports serve more than 10,000 long-haul passengers a day – from 42 to 91 – by 2033.

Emirates’ move to switch A380 engine-provider from Engine Alliance to Rolls-Royce has also it seems quashed any early Airbus decision on an A380neo. Emirates’ boss Sir Tim Clark had originally said 25 of the 50 aircraft ordered at the 2013 Dubai air show – due for delivery after 2020 – were earmarked as Neos, with the prospect of further orders of a re-engined A380. The announcement that all 50 will now be Trent 900-powered looks to have punctured immediate prospects of a Neo, although Clark still offers the prospect of equipping later deliveries with a new version of the Trent.

Rolls-Royce’s chief operating officer for large civil engines, Simon Burr, says that, for its part, the engine maker is prepared to work with Airbus on plans for a neo. “We’re aware of discussions and we will be there with them,” he says. In some ways, it is the UK company – as the most likely source of an exclusive engine for an A380neo – that would carry most of the cost of any development. While the new aircraft would likely incorporate additions such as sharklets and an aerodynamic “clean-up” to achieve a mooted 10% efficiency improvement, Rolls-Royce would bear most of the risk.

However, analysts such as Richard Aboulafia of Teal Group remain sceptical Airbus leaders will agree to a re-engining. Even with the prospect of additional orders from Emirates, the programme – from its early production crisis that forced Airbus to restructure its entire business to its continuing flagging sales – has left deep scars in the Toulouse boardroom, even leading to hints last year that the entire programme may be axed at the end of the decade. “I say it doesn’t happen [an A380neo], because I have faith in Airbus,” said Aboulafia at a conference earlier this year.

The prospect of the first used A380s entering the market make the prospect of an A380neo even more unlikely, argues Aboulafia. It is a view backed up by Flightglobal Ascend’s senior consultant Richard Evans. "It is very difficult to see a secondary market for a 500-seat aircraft," he says. "There were a reasonable number of 747-400s transitioned to other passenger airlines, including some major operators, but nobody seems very enthusiastic about A380s. It will be a very expensive aircraft for a second-tier airline to absorb and operate."

Airbus executives disagree. Used A380s are a “unique opportunity for operators who have never considered an A380 before,” particularly in markets such as Asia, says Leahy. The aircraft could allow airlines flying mid-haul routes to upscale capacity, he says.

The new watchword for Airbus now with the A380 is flexibility. While Etihad’s decision to equip its first superjumbos with its enclosed Residence suite – the ultimate VIP cabin, complete with personal butler – hearkens back to early visions of interiors complete with casinos and communal lounges, A380 marketing today is more about higher-density payloads and options to experiment with different passenger offerings. “Focusing on increased cabin segmentation is key to maximising yields on the A380,” says Airbus’s executive vice-president in charge of programmes, Didier Evrard.

 

One of Airbus’s plans is a combined crew rest for the A380 that increases seating capacity. By combining the forward flightdeck crew rest area, behind the cockpit, with the aft underfloor cabin crew rest station, the airframer believes it can free sufficient space to install six premium-economy passenger seats. Use of premium-economy seating and 11-abreast layouts are among Airbus’s strategies to strengthen the A380’s cabin economics, suggesting that a 291-seat Boeing 777 would have a 23% higher per-seat cash operating cost as a 544-seat A380 – with similar comfort levels.

Last year, after signing for 20 A380s at the Singapore air show, Amedeo chief executive Mark Lapidus said creating higher-density A380s was key to unlocking demand, suggesting Airbus originally mis-sold the superjumbo as a luxury airliner, allowing airlines too much flexibility in determining where galleys and other monuments were positioned, and distracting from its main unique selling point, which was superior seat-cost economics. Amedeo, which will take deliveries of its A380s from late next year through to 2020, has still not announced any customers, however.

Emirates, which has pioneered innovations such as on-board showers in its first-class cabins, is also moving towards higher-density operation, with plans to introduce a two-class, 615-seat A380 on services to Copenhagen in December. The Dubai airline initially configured its A380s with 489 seats and subsequently introduced a 517-seat version. Although revenue from premium customers remains crucial for most long-haul airlines, the importance of seat-mile costs in an era of fluctuating fuel prices could be the factor that eventually convinces more airlines of the A380’s appeal.

Airbus finished 2014 with just 13 net orders for the A380, and says its priority is securing more sales as a result of incremental improvements to the type. Although last year saw the welcome Amedeo order, there were also cancelled aircraft, including six from bankrupt Japanese carrier Skymark, now the subject of a lawsuit filed by Airbus in Tokyo. This year also brought news that Transaero is in talks to reschedule it four Engine Alliance GP7200-powered A380 deliveries with the Russian airline industry in crisis.

Equally worrying for Airbus was British Airways’ parent IAG’s admission that it does not need more A380s, despite operating from one of the most slot-constrained hubs in the world. Airbus’s case for the A380 is based on its economics from busy airports and its passenger appeal. Chief executive Willie Walsh said this year that the UK carrier’s nine 469-seat A380s had had a “very positive” performance from “both a customer and a revenue point of view”. Yet, frustratingly for Airbus, he added that there were only a few routes in its network for which the A380 model made sense.

One piece of good news for Airbus is that the programme will hit breakeven this year. That means that every A380 is no longer delivered at a loss. But while that is positive for Airbus Group’s profit and loss figures, it is uncertain if the project will ever recoup the billions spent on its development in the 1990s and early 2000s. Airbus still insists the A380 is an idea ahead of its time that will eventually win converts thanks to the compelling logic of its ability to carry more passengers from one busy airport to another than any competitor. Sceptics think its time may have already passed.