MIAMI — The Airbus A380 superjumbo officially turned ten yesterday, as the gargantuan European double-decker jet entered service on October 25, 2007, with Singapore Airlines. In the time since its entry into service (EIS), the A380 has built an enduring legacy, both as a technological marvel and as an economic failure.
This is the first of a two-part analysis of the Airbus A380 at ten years of age — exploring the fundamental economic assumptions that went wrong.
Part II, published online tomorrow, will look at the current operators of the A380 and assess the type’s prospects moving forward.
The A380’s core economic thesis was doomed from the start
The center of Airbus’ pitch for the A380 in the early 2000s was the notion that the core of the long haul business model would be so-called hub-to-hub flights.
Essentially, the thesis went that long-haul and high-volume medium-haul flying between big markets would be handled primarily by the A380, while medium and short-haul connections at those markets would be handled by the 767/777/A330/A340 and narrowbodies, respectively.
It wasn’t a horrible thesis—at the time the Boeing 747-400 was a wildly successful plane that was used by airlines around the world in precisely this manner. Meanwhile, the long-range versions of the 777—both -200(ER) and -300(ER)—hadn’t formally entered service, and the longest ranged jets (the 747 and the A340) were both quad-jets.
Read More: Celebrating a Decade of Double-Decker Flying
The problem for Airbus was that this thesis was dependent on an international airline hub structure. The model looked a lot like that of the early 1990s, with 15-20 major global hubs.
At a glance, these would be the London-Heathrow, Paris-Charles De Gaulle, Frankfurt, Amsterdam, Tokyo-Narita, Taipei, Hong Kong, Singapore, Sydney, Los Angeles, Chicago, San Francisco, New York-JFK, Seoul, Kuala Lumpur, or the Bangkok type of hubs. These were the growing cores that would continue to see traffic funneled into them as the economy grew in the 21st century.
It also required that aviation route authorities remain a scarce commodity, with routes and seat volumes awarded on a case by case basis. This had the effect of dampening competing airports within single markets (Melbourne competing with Sydney, Manchester competing with London-Heathrow, etc.) and artificially boosting capacity at the hubs.
Airbus was more or less exactly wrong
Airbus realistically could not have foreseen the degree to which those two conditions would not hold. Rather than keeping firm as it had for nearly two decades, the international airline hub structure was torn asunder by the rise of the Indian and Chinese economies and of course by the growth of the Middle Eastern airline giants, Emirates, Qatar Airways, and Etihad (the MEB3).
Even though all MEB3 are A380 customers, they are living breathing proof of the immense volatility in global aviation over the past decade and a half. Each of the airports in which they operate has grown its annual passenger traffic volume by more than 500% (Doha and Abu Dhabi are over 600% in the same period).
And the rise of OpenSkies agreements between numerous countries worldwide has diluted the aggregating power of single, strong hubs. Mumbai, Bengaluru counterbalance Delhi, and Chennai; Beijing is counterbalanced by Shanghai and Guangzhou (and Chengdu and Kunming and Hangzhou and… you get the idea), and Hanoi counters even Ho Chi Minh City (Saigon).
The world of aviation is now the world of the 787 and the A350 and eventually the 797, or whatever Boeing’s middle of market (MOM) plane ends being called. Boeing’s point-to-point (more accurately hub-to-spoke) thesis was correct in the end.
Operating economics also doomed the A380: its unit costs are too good
Beyond the high-level economic thesis, the A380 is also plagued by specific problems with its operating economics on a route-by-route business.
At the highest possible level, this problem boils down to the following adage: it’s easy to fill a fleet of A380s in the summer but nearly impossible to do so in the winter.
The airline business is not consistent year round. There are peaks and valleys throughout the year, usually coinciding with holidays. But generally speaking the IATA Northern summer (April – October) represents the peak of business for ~90% of the world’s most important airlines. The exceptions are Qantas, LATAM, Virgin Australia, Gol, Azul, Avianca, Air New Zealand, and pretty much no other carrier of consequence.
During that period there are plenty of routes where you can fill the A380, ranging from London-Los Angeles to Bangkok-Rome to New York JFK-Munich.
But while in the winter you’ll still fill up on London-Los Angeles, the JFK-Munich and Bangkok-Rome routes don’t even have a chance.
For any airline north of the equator that doesn’t have the rare combination of either a massive but lower frequency or slot-restricted hub, the A380 is not a plane you can fill year round. A few airlines have hubs large enough to fill 10-15 of the jets, but only Emirates has the hub volume always to fill it’s A380s.
Bringing things back to the title of this section, the A380 has excellent seat-mile economics when fully loaded. In fact, its unit costs are the best in the history of commercial aviation for an airplane that can carry as many passengers over as long of a distance. But those unit costs are useless if you can’t fill the plane—then you’ve just paid a very high fixed operating cost for less revenue.
So the A380 has such great unit costs only because it’s so big. But because it’s so big, it’s not a plane that can be profitably filled year round except in insufficient numbers. So in a genuine sense, the most significant strength of the A380 (it’s low costs) is also the driver of it’s greatest curse (high overall fixed costs).