The A380 is somewhat of an enigma.  While it is the solution to congested airports, and is well preferred by passengers in survey after survey, it has not sold particularly well.  Only one carrier, Emirates, seems to understand how to make money with the A380, which is the mainstay of its Dubai connecting hub for long-haul international travel.

Introduced 10 years ago, some of the first A380s from SIA are coming off-lease are now being replaced with new models. With residual values yet to be set once the first retired A380s are traded. A used A380 could be quite attractive to carriers that favor early availability coupled with flexible . (perhaps those folks in Atlanta).

Plus the A380 remains very attractive as a slot consolidation aircraft.  For carriers with multiple frequencies into congested airports like ’s Heathrow, the freeing of a slot enabling service to a new airport through frequency consolidation can be a financial windfall. The key question is to what degree frequency and time of service impact demand.  Heathrow also provides a special attraction for the A380.  The airport’s landing charges now have a noise component.  Because the A380 is so quiet, it is cheaper to land at Heathrow than a 777.

Another airport that uses noise levels in its landing fees is Narita, where the A380 shows the same benefit over the 777.  Today it’s clear that airports have to deal with more than just terminal limitations or runway slot constraints to maintain or expand operations.  Local community noise tolerance is becoming increasingly important.  Being a quiet neighbour is now a key requirement to getting the political allies for the .

Emirates has taken 100 A380s over the last decade, an average of 10 per year.  If we assume they will be replaced after 12-15 years, and replaced with newer A380s, the only aircraft with the same capacity, then Airbus could expect orders for 10 aircraft annually from 2020-2030.  That is certainly adequate to keep the production line humming.

The industry expected Emirates and Airbus to announce agreement on a new order for 36 A380s at Dubai that did not materialize.  Publicly, Emirates has stated that it wants a commitment from Airbus to keep the A380 line open for another 10-15 years.  In addition, Emirates has rejected the A380Plus concept from Airbus, which is detailed here.

Is there something more going on behind the scenes?  We believe so.  Emirates would like an A380neo, as more modern engines would restore the once-significant seat-mile costs advantage for the aircraft that is now evaporating as new technology aircraft enter the market.  Airbus is finding it difficult to justify, even though they, as we, believe increasing airport traffic will make A380 sized aircraft essential at major hubs.  However, in Airbus’ defence, they o not have the same step change in engine technologies that allowed for its other neo programs.  Both the Trent and GP7200 on the A380 today are relatively new engines.  Moreover both engines have seen upgrades to offer better economics.  Then there are airframe improvements that need to be considered – and the A380plus is a step in that direction.  Airbus is waiting for the right critical mass of technologies to emerge that will enable the 15%+ improvements that a neo require.  Emirates may be pushing, but they have to acknowledge that there are no engines ready.  Rolls-Royce might have a solution with fan engine but that is going to be ready by 2025.

Airbus knows that airlines don’t like risk and behave in risk averse ways.  The two recent C Series orders, coming soon after the Airbus interest in the program, illustrate that.  With Airbus now behind the program, several risks, including long-term customer support, have been eliminated, clearing the way for purchases that likely would not have happened as quickly without that assurance.

Airlines don’t like to take the risk of filling large airplanes.  Every week has a Tuesday, and every year has a February in which demand will not be as robust as other periods.  Many airlines prefer an aircraft they can fill every day, even if they cannot accommodate some traffic, so if slots are available, they would prefer to fly aircraft they know they can fill rather than one that introduces uncertainty.  Since Airbus hasn’t been successful at selling the A380 in large numbers, what market conditions would change to enable larger sales of the A380neo?  Amedeo has some ideas it is working on that address this challenge.

Another answer is constraints.  While megacities are growing, and traffic is growing faster than airport capacity, route dispersion is fragmenting the “hub and spoke” models in and the US.  In the early 1960s, flying to Europe meant transferring at Idlewild in NY.  Today, many major cities have non-stop service across the pond to multiple destinations.  In Europe, even Lufthansa splits its connecting traffic and intercontinental routes between Frankfurt and Munich, which helps eliminate at Frankfurt, but also the need for an A380, since A350s from Munich take some of the traffic.

However the fragmentation thesis is still developing.  Among the A380 operators only one airline has two hubs in their home markets.  This means those A380 operators are able to exploit and focus the aircraft’s particular capabilities.  Which means that connecting megacities will invaribly require VLA aircraft because, as we see across the globe, airport growth is protested.  Does congestion impact?  The answer is yes, because traffic growth is outstripping airport growth and capacity.

Consequently the absence of a deal at the Dubai show between Airbus and Emirates is not the end of the story.  Emirates does not want to drive Airbus into a sub-optimal decision regarding the future of the program.  Both firms are tied to each other around the A380.  Besides the reason that the likes of , Lufthansa and Air France are slowing down their A380 interest is because Emirates has been taking more traffic from them, especially between Asia and Europe.  That alone suggests that Emirates will keep acquiring A380s, especially as its older models are retired.  Just like Singapore Airlines.

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