With permission from Aerotime
Is it too early to bury the A380?
Published on: May, 19, 2017
Source and image:Oleg Volkov
Airbus A380 is big, beautiful, and notoriously problematic when it comes to airport availability and – most importantly – profitability. For some, like Emirates, it is still a signature aircraft that is only spoken about in superlative terms. For others, like Malaysian Airlines, the superjumbo is more of a headache, with the South East Asian carrier soon to test out Hajj flights on the otherwise hard-to-use planes. There is no definitive answer concerning the A380’s future but it might be not as dark as some paint it.
Niches for giants
“Low demand for A380 is due to airlines being afraid of not filling the seats on the aircraft,” Tomas Chlumecky, a Canadian aviation consultant, told AeroTime in an email.
One of the possible solutions to this might be exploiting seasonal surges in demand seen on certain niche routes. In November 2016, Malaysian announced deploying its A380s for Hajj (Muslim pilgrimage) journeys. Niche as it might be, the predictability of seasonal travel demand in case of religious travel is able to support the operations of A380 aircraft.
“Airlines may have one or two routes that can support regular A380 operations, perhaps these are only seasonal or even shorter seasons and would not support the costs associated with flying the aircraft themselves,” Richard Maslen, a UK-based aviation consultant, told AeroTime. “I believe that this would support the formation of a leasing vehicle as being suggested by Malaysia Airlines that can provide aircraft on short- or medium-term wet-lease deals to support demand peaks”.
The cargo route
Freighter conversion, having potential in case of other wide-body aircraft, is not likely to become the route operators take with the A380, the common principle being that an aircraft would be feasible convert only after 20 to 25 years of operation, when maintenance costs become higher. Be it for sentimental reasons alone, it would be a pity to see an aircraft that accumulated around $25 billion in R&D costs to fly cargo after just a decade in service.
The A380 freighter program secured initial interest from the likes of FedEx and UPS Airlines thanks to its 150-ton payload promise, but the aircraft was not designed with cargo in mind and thus could not deliver economically against other aircraft.
“Unless hull prices fall to rock-bottom in a suppressed second-hand market, I can’t realistically see a freighter conversion program as their will be no return on investment,” Richard Maslen suggests.
Too large to handle?
Such large aircraft as the A380 require large hub airports – which are not as common as you might think – to operate, thus their operations are limited geographically.
“The superjumbo’s operations are restricted to connect Europe to Australia via Dubai and perhaps between Melbourne and the US,” Ziad Haddad, an aviation analyst based in Amman, Jordan, told AeroTime.
Surely, the UAE is investing more than $30 billion to expand Al -Maktoum International Airport at Dubai World Center (DWC) which could eventually have the capacity to park 100 A380s simultaneously (we would definitely pay good money to take a snap of that!), but only a handful of governments have the cash to handle an investment of such scale.
Another important aspect is the reign of more efficient long-range wide-body aircraft such as the A350 and the B787 Dreamliner.
“At a time when the A380 was thought to make a breakthrough in fuel efficiency some operators expressed dissatisfaction as fuel efficiency was not as predicted earlier, it merely competed with other newly advanced aircraft available in the market, let alone to speak about the four engines vs two engines aircraft,” Ziad Haddad explains. “In addition, the B787 aircraft contained a more advanced technology – particularly electrical; therefore despite that the B747-8i and the A380 are new and advanced, they were just not meeting the very high expectations by potential operators.”
Every seat counts
“The market has gone to twins, and they offer good economics, a B767-300 basically matches an A380 per seat when just 48 to 517 seats are installed (Emirates), yet Emirates also has a few high density 615 seat A380s in 2 class for VFR (visiting friends and family) and leisure destinations,” Canada-based aviation specialist Tomas Chlumecky explains.
At 615 seats, understandably, the A380 has a rather low CASM (cost per available seat mile), which why it makes sense to use it on leisure routes where frequency is not of high priority. This explains the decision of All Nippon Airways (ANA) to switch from two daily routes operated on B767s to one operated on the A380.
And there are plenty leisure long-haul routes out there that (provided with adequate infrastructure on both ends) could be profitably operated on A380s, like Florida – EU or India – UK.
In fact, one might argue that it is the perfect time for long-haul airlines to consider getting hold of second-hand A380s and save as much as 40% per seat. Airbus, for one, professes a positive outlook on a second-hand market for A380s, which is going to arise in the coming decade.
“When the early Singapore Airlines A380s will come off lease, you can get one maybe for $100M,” Chlumecky explains. “At 600 seats, that is just $166,000 per seat versus an A320/B737-800 at $275,000 per seat.”
Having all that in mind, the global travel industry is not going to seize growing anytime soon, and with airport congestion likely to remain as a major constraint on the system, especially in Asia, the future might hold demand for very large aircraft after all. A limited number of slots at major hubs might sway airlines to employ 500- to 700-seat jets over something like the B767-300, which carries 240 passengers.
An increasing number of large capacity hub-to-hub, city-to-city routes could support the superjumbos appetite for fuel and high operational costs. No wonder, that Airbus is keeping its options open and, despite troubling sales numbers, is not likely to stop supporting both new and used A380s.
Now I need to add some more information:
On December 19, 2000 Airbus launched the A3XXX (now A380-800) and as everyone knows, it is a struggling program, as of April 30, 2017 the program had just 317 orders and 210 deliveries for the $436.9M list price per unit, though surely +50% off list price is offered as with any slow selling aircraft, the cost of production of a A380 is probably around $145M per unit.
The A380-800 can seat up to 868 (exit limit), though most between 500 to 600 at this time, but 700 seats is planned for Malaysian Airlines 6 x A380’s for the charter market. The Max. Takeoff Weight is 1,268.000 lbs., Max. Landing Weight is 869,000 lbs., max. range is 8,200 nm (15,170 Km), and takeoff distance (ISA, SL) 9,800 feet, with a cruise speed of 903 Km/hr.
Airbus did forecast a lifetime sales market of 650, and as we approach the 10 years anniversary this October 25th, 2017 of the introduction of the first A380 with Singapore Airlines, only 32% of the forecast deliveries have come to fruition as of today.
The program development cost is estimated to have cost Airbus $+25.0B or $38.5M per unit, though at current 317 orders its $79M per unit.
Today 13 airlines have 210 in service (several cancellations as well, Vietnam Airlines, Skymark, Air Austral, Virgin Atlantic).
- British Airways 12 in service – but possibly interested in used aircraft.
- Air France 10 in service.
- Lufthansa 14 in service.
- Qatar Airways 6 in service + 4 on order + 3 options.
- Emirates 85 in service + 57 on order – uses 615 seat version for high density VFR/leisure destinations
- Etihad 8 in service + 2 on order.
- Asiana 6 in service + 1 on order.
- Thai Airways 6 in service.
- Malaysian 6 in service – setting up new special airline to charter the aircraft out, and then sell the new airline.
- Singapore Airlines 19 in service + 5 on order – 5 early models will leave the fleet starting in October, 2017, the first on the used market.
- Korean Air 10 in service.
- China Southern 5 in service – only Chinese airline till now, hope of Air China, China Eastern ?
- Qantas 12 in service + 8 on order but those are to be cancelled.
- ANA All Nippon Airways 3 on order, not operating any at this time and will fly all 3 to the high demand Hawaiian market.
The A380 could be interesting as a used aircraft, the price is going to be around $100M for the 5 off lease (c/n 3,5,6,8,10) Singaporean A380’s which equates to $166,000 per seat or 40 less per seat than a A320/B737-800.
The lease rate could be around $1,000,000 per month, but then at 350 FH’s per month that is just $2,857 per FH ($0.0056 per ASK) in a 620 seat configuration, and with total operating costs of around $20,000 per FH, that equates to a very low $0.039 per ASK, or $32 per seat per FH, so a 8 hour flight cost of $256 per seat, now that kind of cost will attract price sensitive passengers. NOTE: lease rates have been in the $1.75M per month
At seating configurations over 600, it is the lowest CASK aircraft out there and perfect for the mass leisure/VFR (visiting friends and relatives) markets like Hawaii, Florida, India, Philippines, etc. After almost 10 years of service, the aircraft is a much lower risk today than 10 years ago. Operated by some of the best airlines and best MRO’s in the world, we have low fuel prices still, its a mature aircraft now serving over 102 routes to 50+ major airports around the world more than capable of handling it.
Map of Airbus A380 routes today.
The rise of the big twins has hurt the A380, as FSC (full service carriers) do focus on the high yield passengers, and smaller aircraft like the B787, A350 are better for high frequency services, but leisure destinations do not need a daily service and yet if the market is big enough why not ? The argument airlines use is that too many economy seats, dilutes the average yield as you need more and more low yield economy seats to fill a 620 passenger aircraft, but then the more seats, the lower is the CASK or cost per seat, and that allows for profit opportunities.
In short, while I get the A380’s drawbacks, but I do see opportunities to high density VFR markets, where you still can have first and business class, or go all economy and pack them in “like cattle” for Hajj flights, which is what Malaysian Airlines will do, then you can get to a CASK of $0.035, or $28.50 per seat per FH, or $228 per seat on a 8 hour flight, wow ! charge $300 and your B/E is 76% load factor (or 532 seats) leaving 168 seats to make money with (in a simple revenue management scenario), or potential of a 24% profit margin with all economy.
In 2015, Airbus claimed that the A380-800 with 544 seats has a 8% cost advantage per seat over the 387 seat A350-1000, 43% advantage over the 343 seat B747-8, 37% advantage over the 278 seat B777-300ER and 15% advanatge over the 311 B777-9X, pretty good, considering fuel prices today are a lot lower. This is what I am talking about, CASM, and put 600+ seats in it and fill it and you have a “cash cow”.
The A380-800 will need to be watched, Emirates wants a A380-800neo which may be available by 2021, if the market picks up, but now its down and its future is “cloudy” for now.
Below you can see the slow order book (very similar to the Bombardier CSeries), and slow deliveries and then the reduction in production to just 1 aircraft per month, worth noting the B747-400 is down to 0.5 aircraft per month, sad but we could be seeing the end of the beautiful 4 engine “Queens” of the sky, in the next 3 years.
With just 12 aircraft now produced per month, the program is surely running at a loss and now needs orders for late 2019 deliveries, and they are giving it their best, even though the A380neo is not on the table at this time, new winglets are, that could save 3% on fuel burn and changes to the cabin that could allow up to 80 more seats in certain configurations, again driving CASK even lower.
At EBACE this week, there is talk of Spartfell & Partners re-marketing 4 x used A380-800’s, most likely Singapore Airlines for VVIP/Head of State aircraft, to the ACJ380 is back, maybe, with 17,500 km range and 5,920 ft2 of floor space, wow, so $100M for the aircraft plus say $200M for the interior and for $300M you have one fantastic flying palace.
Always something new in our industry, these days so much is happening its hard to keep up with developments, glad you enjoy my block, till next time, cheers.