On the up?

Firm orders for the A380 currently stand at 202, including the 28 delivered to five airlines to date, well short of the estimated 450 aircraft Airbus needs to sell in order to realise a return on the program which continues to suffer from industrial issues. Additionally, only 13 new sales have been logged since it entered service in 2007 – the latest being four all-economy configured A380s to French leisure carrier Air Austral in 2009 – while more than 3000 widebody airliners have been sold in the decade since the A380 program was launched in 2000.

In the early days of the program, Airbus officials revealed they needed to sell between 250 and 270 A380s to break even on the program, and this was later revised upwards to just under 400 after the two and a half years of industrial problems and delivery delays between 2005 and 2007. But with the production ramp up delays ongoing, a fluctuating US dollar, discounting for initial and follow-on orders for launch customers, compensation for the delays, several order cancellations and deferrals before and during the GFC, and a lack of new orders (and deposits) in recent years, that number may now be well above 450.

But while Airbus officials would not be drawn on a revised break-even point at Broughton, the company’s most recent 20-year market forecast still optimistically predicts a market for 1300 new aircraft in the ultra-large aircraft category which also includes Boeing’s 747-8I and large freighters, of which Airbus expects to capture as many as 1000 sales with the current A380-800, and the postponed A380F freighter and the planned A380-900 stretch. Conversely, and in one of the few areas where the two manufacturers’ forecasts diverge, Boeing is predicting a total market of only 740 passenger and freight aircraft in that category.

“It’s just too bad we can’t build it efficiently, but we’re getting there,” Leahy lamented. “Passengers go out of their way to fly on this airplane.” He added that continuing positive feedback from the aircraft’s launch airlines – Singapore Airlines, Emirates and Qantas – was being noticed by prospective customers, and that a rebound in passenger traffic meant airlines would again be focussing on renewing their fleets, particularly in the US and in the developing world.

No doubt the GFC hurt A380 sales, with finance difficult to come by and airlines retiring or mothballing large portions of their fleets as they consolidated their operations. IATA says the GFC wiped out six years of premium travel growth, a process not helped by the debacle which saw US ‘Motown’ executives drive from Detroit to Washington to plead their cases before Congress at the height of the GFC rather than fly, and to many airlines it must seem unlikely to ever fully recover. Unfortunately many A380s delivered to date and many on order have been specified with unwieldy and inflexible high-end cabin products, dealing their owners the double whammy of operating with empty premium seats and thus low yields, but also meaning these aircraft are difficult to reconfigure at short notice and thus difficult to deploy efficiently.

“It’s just too bad we can’t build it efficiently, but we’re getting there,” Leahy lamented. “Passengers go out of their way to fly on this airplane.”

Realising this, Qantas has already signalled its intention to take the last eight of its 20 A380s on order with a revised interior, deleting First Class and adding additional Economy and Premium Economy seats for a total seat count of 550. But its first 12 aircraft will only see their current 450-seat four class layouts re-jigged with a reduction in Business Class and increase in Premium Economy, and these will likely be employed mainly on the airline’s ‘blue-chip’ services to London and Los Angeles in the medium to long term where the higher yielding premium seats still attract demand.

The other problem for the A380 was in its timing – at a list price of US$320m (A$386m) each, it’s an expensive aircraft and a major long term investment for any airline to commit to, at a time where volatile fuel prices and world economies mean airlines can barely predict what will happen next week! “There’s only a handful of routes you can use the A380 on, and if traffic drops on that route you’re stuck,” Richard Aboulafia, vice president of aerospace analysis company, Teal Group told Bloomberg in early May. “The A380 is best regarded as a $25 billion write-off and an act of industrial irresponsibility.” Whilst this prediction may seem a little harsh if not premature, the Bloomberg report also claimed that passengers’ desires to fly more direct ‘city pair’ routes rather than having to change at major hubs will see them gravitate more towards those airlines who operate long range twins such as the 777, 787 and A350 at higher frequencies.

But Airbus challenged these claims at Broughton, with Leahy in particular taking direct aim at the perceived bias of the Bloomberg report and its author. Leahy said the aircraft now regularly serves 17 cities, and claimed the number of city-pair routes the A380 could be utilised on would continue to grow as emerging world markets such as China, India, Southeast Asia and South America become increasingly urbanised. He pointed out there are currently 37 ‘mega-cities’ worldwide as described in terms of more than 10,000 international long haul passengers departing daily, with that number expected to more than double to 82 by 2030.

Leahy also predicted that, as the number of cities into which the A380 operates continues to grow, large airlines based in those cities which are yet to order the aircraft will see the benefits of doing so and get on board. Airlines such as Asiana and ANA, and possibly even the previously recalcitrant Cathay Pacific have been anecdotally mentioned as possible future customers as they have all seen A380 services debut and operating with high loads into their Seoul (Emirates), Tokyo (Singapore) and Hong Kong (Singapore) home bases respectively in recent months, although Cathay continues to stick to its previously stated line that it prefers to offer its customers the convenience of frequency rather than capacity.

And while the manufacturer’s main focus appears to be on marketing the A380 to airlines who require capacity on key routes, part of this strategy is that it either frees up slots at already congested airports or allows airlines to grow markets at these airports. “Its size is the only right answer to the congestion at the overflowing airports around the world,” EADS CEO Louis Gallois told German newspaper Bild-Zeitung on May 4.

One analyst suggested that, had London Heathrow not already been at slot capacity already, airlines like Qantas and Singapore Airlines which both see London as their key entry point into Europe may not have gone down the A380 path. The A380 gives those airlines an opportunity to continue to grow this market without the need for additional landing slots.

But at airports like Sydney where landing slot availability is not yet a problem, albeit increasingly in network-unfriendly off-peak times, many are close to capacity in terms of their infrastructure such as baggage handling, border control and quarantine, security, and ground transport being able to handle additional passengers at peak times. So, while substituting 400-seat 747s, or 300-seat A340s and 777s with higher capacity A380s may not adversely impact the airport airside, the experience for the one or two hundred extra arriving passengers arriving is likely to be less pleasant one. Many of these older airports still have sufficient space to upgrade and enhance their infrastructure, but this costs millions of dollars, the costs of which will be passed on to the airlines via handling and landing fees and ultimately, to the passenger.

On the delivery side, Airbus had previously planned to deliver 20 A380s this year, and despite recent reports claiming this target would not be realised, particularly after it fell well short of its target with only 10 deliveries in 2009, the company says it may actually exceed this number due to sharp drops in recent months in the key areas of outstanding work required, production drawing backlogs and query resolution times at the aircraft’s final assembly line (FAL) in Toulouse.

So despite persistent rumours of airlines including Qantas wanting to further defer or slow deliveries, Airbus appears more confident than ever of being able to reach its delivery goals. “We’re now on the right track,” Airbus executive vice president programs, Tom Williams said. “We’re more confident in what we’re going to achieve this year.”