Probable A380 Program Termination This Week - No last minute BA Order
#46
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https://www.forbes.com/sites/michael.../#298436c97af1
#47
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The aircraft are owned by leasing companies, EK can just return them at the end of their leasing period, that is my understanding, unless you have some information to the contrary?
Last edited by Globaliser; Feb 27, 2019 at 8:11 am
#48
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The article notes:
The trouble is, it’s hard to move Emirates out of the position it’s got itself in. In terms of maintenance and training, its current fleet of A380s and 777s is vastly cheaper to operate than the chaotic mix of aircraft held by North American and European carriers. Making matters worse, there’s no real market for second-hand A380s, so the traditional way for airlines to refresh their fleet at minimal cost isn’t readily available.
Additionally the thing with yields is that it's the average per pax per km. Now we need to consider however the average number of pax per flight. EK's smallest aircraft is the two-class 77L with something like 300 seats (don't have the exact number), their largest 615 seats. So while the yield per pax is lower the total yield per flight on average is higher than airlines that operate 50-seat or 150-seat aircraft (regional jets, single-aisles like the 737 etc).
It's important to always put numbers into context. So I think yes, EK is in a bit of a pickle with all its A380s given the recent slowdown, and probably would like to stop taking more now and maybe even have a few less (like 10 less), they've also shifted to way more 2-class frames. That being said I don't think they'd be massively worried about second-hand market because as mentioned they don't own them, they own a few (like 5 or so) but most are leased and not their problem. Additionally they have 150 777X on order as well as a lot of 787s, so they already have the frames on order which they can use to replace the A380. Conceivably they could become an all-Boeing airline in the next 12 years or so if they phase out all A380s after around 10 years (average lease duration typically)
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#49
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20 years later, the answer however has been more point-to-point (or point-to-hub) rather than congested hub to congested hub. Personally I think with the longer range single aisles starting to take-off (no pun intended) we may see this trend really accelerate now. Single aisle routes such as BRS-YYZ and NCL-ORD for example - yes I know the 757 has enabled this to some extent but those aircraft are at least 20 years old and at least two previous engine generations. The A32X NEO series aircraft take this to another level with fuel efficiency.
The 787 and others have allowed the development of many new long-haul routes, but they seem to be being used most succesfully within the hub-and-spoke system for the most part. LH single aisle may change that, provided someone can get up and running - unlike the likes of Primera.
#50
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Having said that, it would be no surprise if EK's heavy dependence on the 380 has a correlation to low yields. It's what you'd expect, for the reasons given in the article.
Additionally the thing with yields is that it's the average per pax per km. Now we need to consider however the average number of pax per flight. EK's smallest aircraft is the two-class 77L with something like 300 seats (don't have the exact number), their largest 615 seats. So while the yield per pax is lower the total yield per flight on average is higher than airlines that operate 50-seat or 150-seat aircraft (regional jets, single-aisles like the 737 etc).
#51
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Indeed - the graph was fascinating for reasons other than EK's specific numbers. For example, it surprised me that CX's numbers are so low, and that (in contrast to CX's continuing trend) SQ seems to have stabilised itself recently after its own well-publicised issues. But none of these things would be apparent from discussions involving passengers.
Having said that, it would be no surprise if EK's heavy dependence on the 380 has a correlation to low yields. It's what you'd expect, for the reasons given in the article.Do we need to be careful with terminology here? Yield is precisely that which is depicted in the graph: revenue per passenger km (or per mile, depending on cultural norms). The total revenue per flight may go up with a larger aircraft, but that doesn't necessarily change the yield: 300 passengers each paying $100 for a flight on a smaller aircraft from A to B gives you the same yield figure as 600 passengers each paying $100 for a flight on a larger aircraft from A to B. But the total revenue per flight is a meaningless number on its own. It would be more interesting to look at revenue per available seat per km: if 300 passengers each pay $100 for a flight on a fully-loaded aircraft from A to B, that figure is twice that of a flight from A to B of a 600-seat aircraft that's only half full when carrying 300 passengers each paying $100. That's a number that isn't shown in the graph, and that's one of the unknown variables to which I referred. In addition, there are also the cost per passenger km and cost per available seat km figures to look at.
Having said that, it would be no surprise if EK's heavy dependence on the 380 has a correlation to low yields. It's what you'd expect, for the reasons given in the article.Do we need to be careful with terminology here? Yield is precisely that which is depicted in the graph: revenue per passenger km (or per mile, depending on cultural norms). The total revenue per flight may go up with a larger aircraft, but that doesn't necessarily change the yield: 300 passengers each paying $100 for a flight on a smaller aircraft from A to B gives you the same yield figure as 600 passengers each paying $100 for a flight on a larger aircraft from A to B. But the total revenue per flight is a meaningless number on its own. It would be more interesting to look at revenue per available seat per km: if 300 passengers each pay $100 for a flight on a fully-loaded aircraft from A to B, that figure is twice that of a flight from A to B of a 600-seat aircraft that's only half full when carrying 300 passengers each paying $100. That's a number that isn't shown in the graph, and that's one of the unknown variables to which I referred. In addition, there are also the cost per passenger km and cost per available seat km figures to look at.
All in all, I think what it boils down to is that the termination of the A380 programme was foreseeable (though didn't think it'd be this early), but I don't think it's a train smash for any airline, which was kind of the argument in response to which this whole sub-debated started.
#52
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All in all, I think what it boils down to is that the termination of the A380 programme was foreseeable (though didn't think it'd be this early), but I don't think it's a train smash for any airline, which was kind of the argument in response to which this whole sub-debated started.
However, the article does properly raise the question about whether the only airline to have bought the aircraft in big numbers did so as part of a strategy whose fatal flaws have been long been evidenced in the numbers and which have now been spotlit by that early termination, which reflects the niche position of the aircraft in every other airline that operates it (leaving aside those, like CX, that were long thought to be natural customers but never actually bought it).
Mind you, if EK's strategy is in truth fatally flawed, I shudder to think what adjectives one might use to describe EY's.
#53
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All in all, I think what it boils down to is that the termination of the A380 programme was foreseeable (though didn't think it'd be this early), but I don't think it's a train smash for any airline, which was kind of the argument in response to which this whole sub-debated started.
Without too much doubt the A380 not been successful for Airbus who have only sold around 30% of the frames by now that they built their business case on for the original go-ahead. Both times they have been caught out in their estimation of the 747 and 744 replacement market - for the older 747 they offered the A346 that was totally wiped out by the 77W (77W outselling A346 by circa 7:1) and then also a combination of 77W and market fragmenting 787 for the 744 replacements instead of A380. Of course they captured some of that with the A350 but they were late to the party. Good to see BA has selected the A35K as a key component of their 744 replacement though ^
#54
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One irony struck me this morning: If the 380 production line is indeed shut down in the foreseeable future, it may mean that manufacture of the 747 will outlive the 380.
#55
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I think it has certainly been successful for some airlines (BA for example who have said they would like more). It has been certainly very successful for EK too but the question is whether they have reached a natural plateau in just how many they can operate. Some other airlines it has not reached expectations - AF and LH for example have cancelled firm deliveries and QF did last week too. However as I said, I personally believe those 3 airlines would have taken far more if EK had not so aggressively expanded in the last 20 years with their capture of a huge number of Europe to Asia / Middle east / Australia pax off the legacy Europe and Australia carriers.
Without too much doubt the A380 not been successful for Airbus who have only sold around 30% of the frames by now that they built their business case on for the original go-ahead. Both times they have been caught out in their estimation of the 747 and 744 replacement market - for the older 747 they offered the A346 that was totally wiped out by the 77W (77W outselling A346 by circa 7:1) and then also a combination of 77W and market fragmenting 787 for the 744 replacements instead of A380. Of course they captured some of that with the A350 but they were late to the party. Good to see BA has selected the A35K as a key component of their 744 replacement though ^
Without too much doubt the A380 not been successful for Airbus who have only sold around 30% of the frames by now that they built their business case on for the original go-ahead. Both times they have been caught out in their estimation of the 747 and 744 replacement market - for the older 747 they offered the A346 that was totally wiped out by the 77W (77W outselling A346 by circa 7:1) and then also a combination of 77W and market fragmenting 787 for the 744 replacements instead of A380. Of course they captured some of that with the A350 but they were late to the party. Good to see BA has selected the A35K as a key component of their 744 replacement though ^
#56
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As others have said, the first glance interpretation needs to be tempered
There are a few "hints" at what is going on though:
There are a few "hints" at what is going on though:
- CX: not a surprise given they are on the sick list as far as profitability and margins are concerned
- IAG: is itself a basket of long and short haul, "premium", "value" and "LCC". A more interesting analysis might have been BA, LH group excl Eurowings et al, and the others
- BUT LH vs IAG IS interesting. Broadly similar mix of carrier models and long/shorthaul mix. So one could argue LH is creaming it on yields. So we might conclude the dominance of STAR on TATL from Germany and the absence of a solid longhaul competitor (a VS for example), and for now somewhat less market penetration from LCC and ME3, is allowing them to charge more.
- No one is immune to falling yields and trends of yields look broadly the same. So some factor(s) hitting all of them collectively - one assumes price competition and capacity growth more than new small entrants.
- And of course this is yield per pax per KM. So as has been said EKs measure may look poor but its operational efficiency and choice of fleet means that is still a mighty profitable airline.
- Is there an analysis of EBIT or PBT for 2018 that might demonstrate how this yield performance drops down to total profit I wonder.
#57
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- BUT LH vs IAG IS interesting. Broadly similar mix of carrier models and long/shorthaul mix. So one could argue LH is creaming it on yields. So we might conclude the dominance of STAR on TATL from Germany and the absence of a solid longhaul competitor (a VS for example), and for now somewhat less market penetration from LCC and ME3, is allowing them to charge more.
It could be that German corporates are willing to pay more for travel than British ones, or just that LH has a better product so they can charge more for it too, of course.
Also bear in mind this is revenue, not profitability, so higher yields don't necessarily translate into better returns with IAG seeming to prefer to focus on cutting costs rather than increasing yields.
#58
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100%, there are many more variables that we don't know, that matter. Of course just because there are more pax, and thus more revenue, doesn't make the flight more profitable, if the aircraft has a higher operating cost, the question is whether operating an A380 vs a half-the-size 77L has twice the cost or 150% of the cost. If EK (or any A380 operator) can achieve >150% of revenue at 150% of the cost of a 77L then arguably it is more profitable (very rudimentary).
#60
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I think average stage length is a big factor here too. So EK's will be much longer than the European airlines, but actually I would guess that LH's average stage length is shorter than BA's too, which means that it may (or may not) be the case that LH's and BA's fares could be broadly comparable in the relevant segments (e.g. shorthaul premium etc), but LH's RPK could be greater because it's average distance may be shorter. I haven't looked at the actual numbers here, just making the point that stage length is a very significant variable which may affect RPK a lot because fares are not directly correlated to distance.