Great! And I am not here to defend XX airline. The discussion I am into is fact-based. If someone throws in an allegation without giving proof, I can't help but question it.

If you ask me what's my biggest gripe, I'd say it's the consumer behaviour for aircraft purchases and the lack of development/manufacturing in the region. If I was to blow 50 bil on an aircraft order, I'd want it to be locally designed and assembled, and a large chunk of the supply chain established locally. But of course we're getting into another layer of reality, that of policy and even politics where the whole airline group is perhaps viewed as a vehicle to a goal, not the goal itself.

Since privatisation of aviation, the average experience of pilots decreased, that was expected to be part of it and was considered to be okay, one of the original arguments of Kennedy. Remember, safety concerns were the main driver against privatisation.

Since some years, we have a huge shortage of experienced professionals in the aviation industry, especially when it comes to the senior and most demanding positions, the people responsible for the cabin and the whole aircraft.

The massive and fast expansion of the NE3 accelerated the problem, so right now the average experience of an NE3 crew flying a widebody is really low in comparison to what we used to have, that also goes for the cabin crew.

So far, we only had minor incidents where the experience of the crew was a contributing factor, but we face a shortage of pilots in Turkey and the Gulf, two regions with massive growth.

As stated before, one can only hope that jeopardising the standards established by the leaders, e.g. Swissair and Lufthansa will not result in serious incidents or even worse at the NE3. The same is true for ATC, originally it worked out, but since some years now, the recruitment in the Gulf focuses on people, who did not make it in Switzerland, Germany or Austria (again the highest standards in the world)

When it comes to cabin crews, the same issues are applicable plus issues with the English language (an often quoted problem with crews from Asia in general and not unique to the NE3)

I guess you are underestimating one point here.

Right now, the European taxpayers are helping out Emirates. Producing the A380 is a big big black hole for Airbus.

If production would take place in Dubai in a co-op., you would be forced to pay for your own losses producing aircraft at a certain cost and selling it below the cost of production :D

I see your point, China is demanding a certain chunk of production in the car and aviation segment, but I guess EK is doing way better letting Europe handle the production of the A380 and demand the lowest price possible.

It was interesting to see Clark losing it last week. I fear the moment Airbus starting thinking about the A380, the first lessors started calling him demanding higher monthly payments due to lower potential residual values after the original lease period.

Of course, he is right, a A380Neo would really rock, even new engines would help, not to mention new materials. I fear the A380 was the most outdated plane that ever started flying commercially.

I think what we need is a nice summary of the discussion, does not have to be a longitudinal review.

FD1971 brought an interesting perspective from which any airline may be viewed as a financial scam. I mean from all these other vantage points it's simply not the case. But if one was to take certain assumptions for granted, and treats some definitions as absolute, then sure, there's not a single enterprise in this world with clean books. ~ even religious institutions, no, especially religious ones.

I must admit that's taking things too far even academically. I'm not sure the OP's argument was in that vicinity to begin with. His was based on the observation of A380s flying long haul 'from' various US hubs to what he essentially considers as a cul de sac destination. If other airlines couldn't do it, then EK simply can not. He contrasted EK's gov-pumped up suspicious operations and strategy with the role models of the US, both as viewed by him.

Many of us presented arguments to the contrary, some at a micro level with estimations of revenue, costs and profits at a worst case scenario, others with examinations of the OPs argument and citing facts/references that debunk it. Some provided anecdotes and examples from their own observations. Others tried a wider perspective using counter examples from within the industry. And some went personal, questioning the OP's alleged industry expertise and knowledge. The discussion touched on other carriers in the region as well as the A380, as an aircraft and as a programme, but remained focused on the thread title.

Despite that the OP maintained his position foreseeing that EK will belly up in 5 years. The OP appeared to several as someone trolling the thread which was about to get shut by the mods.

The lively discussion draws out long time lurkers, including an ex-employee who gives a realistic account further confirming that yields are no laughing matter for the airline.

The OP hangs up his boots citing lack of time/evidence in continuing the discussion. At which point another poster comes in with the perspective mentioned earlier, while revisiting term definitions and citing other airlines beginnings.

....

And what a perfect way to end the thread :)

My underestimation is guaranteed :)

But do you know, like really, how much Airbus/Europe (whatever entity is appropriate) is losing per A380 built?

I guess you might be making a geopolitical point by apparently referring to the "Near East", but that term is pretty much obsolete today, having been overtaken by the term "Middle East", and the airlines in question are known as the ME3 airlines.

I suppose that is one way of looking at it. The A380 project may not break even as planned in 2015 - and may not break even at all. However, some people may think that subsidising an aircraft manufacturing industry that provides employment to thousands may not be such a bad thing overall, particularly when the alternative would be to effectively give up on the industry in Europe and to cede the global market to a single player.

However, Boeing has also received billions in subsidies - is there an industry or sector anywhere in the world where governments, deeming them strategically important, have not subsidised them?

So where do the ME3's US passengers connect onwards to?

http://i57.tinypic.com/20izb5l.jpg

There is further good reading in the source CAPA article:

US airlines take aim at the Gulf carriers when perhaps they would be better woo-ing them

Neither EK nor any other airline is able to operate ultra long-haul flights at a profit, that is for sure, not even between major major markets like NYC-Delhi, ultra long haul turned out to be a good idea.

We all know the economies of scale of longhaul flights. And the OP has a very valid point questioning whether a daily A380 on SFO-DXB makes sense, that is as easy an answer as the question whether EK is subsidised or not.

The mothership went belly up already some years ago, before the relatives from AUH saved most of Dubai from going down, as far as I remember there was not enough money to save the World, but other prestigous projects were saved and were not falling victim to the sea.

Running ops. between Europe and Dubai (almost perfect stage length) and connecting passengers via DXB to key Asian and maybe some African markets makes sense and these are the routes where EK might run a positive cash flow from basic ops., at least for some months of the year, seasonality is still a major major issue.

But building your own lounge, asking your handlers to run 6-8 check-in counters for a simple 772, sponsoring local soccer clubs with insane amounts gives you the real picture again, they simply do not care what they spend, as long as the losses are sustainable and the big picture makes financial sense.

And as mentioned earlier, the remedies the competitors are utilising are starting to get back at EK. Aside from rising legacy costs at EK, the competition fought back with the only real working remedy, non-stop service.

One of the most lucrative secondary market for EK in Europe is DUS, well, it used to be DUS. Huge catchment, hardly any competition having something really unique (non-stop service to Asia) so EK really did a good job with loads in the 90's during the European Winter and these are real numbers without somebody from Dubai taking a second look at it before they are published.

But then Star started playing hardball and launched non-stop service to China and Japan with BKK on the horizon, so basically 40-50 C and 150-200 Y seats plus very lucrative (high speed) cargo are gone, because the NE3 cannot compete on speed, the most profitable factor in aviation. A few years ago, they tried to compete on speed on HAM-JFK, well, it turned out to be a speedy exit minus the soccer sponsoring. :D

EK could employ the A 380, which is still used as one of their major marketing weapons, but again certain passengers are simply gone, thanks to Star. Not that EK could really demand high yields in the first place....the usual downside for H&S operations.

Even worse, LH is also starting to operate high density A343 to destinations, which were really owned by EK and the NE3 over the last years, very thin holiday destinations (Mauritius, Seychelles etc.) that will never be really profitable, but as long as they break even, LH should do fine and it is worth a shot, the 343 are fully depreciated anyway. It is not like paying a monthly leasing rate of close to $ 1.9 million for just one A380. ;)

To summarize this thread:

EK is heavily subsidized, certain parts of the network might run a profit from basic operations.

Ultra long-haul ops. are insane, you are basically flying fuel across the world. Decreasing oil prices are helping, though.

The competition is fighting back, it will be interesting to see whether most of the routes flown with rel. small long-haul aircraft are providing enough passengers, the yields are certainly worth it, but the critical number of pax has to be reached day in and day out, on every Wednesday and Saturday in low season...and one empty flight wipes out all the profits from 6 good days.

Nobody at EK really cares whether the daily A380 flying 8000 miles breaks even taking a look at the bare numbers, that is a massive difference in comparison to more transparent airlines we find in Europe. An AF or LH A380 has to break even, otherwise it will be gone. Be careful before investing your minimum share of $15-20k. :p

There is a huge difference between flying and building an A380 from a financial perspective, a A380NEO would be the next best thing, I am talking about a 15% potential, which can be easily achieved from a technical point of view, the basic investments for such a project might not look too good, especially the initial financing. One should never forget that Airbus has all hands full anyway with other projects, which are waaaay more profitable.

Well, this thread certainly heated up since I was away!

Lots of things to reply to and comment on, but if I quoted each part of the previous few pages specifically I think it would be unnecessarily long and get in the way of the flow of the points being made, so I apologise for that in advance.

As edy4eva said in post 425, I think we have two or three different themes of discussion going on and I think it’s worth just summarising and highlighting where they separate.

The OP’s initial question is based on the idea that EK is doing something that traditionally is exceptionally difficult to make money on: commence regular service on ULH routes with high capacity, expensive to run planes (the A380). It is so exceptionally difficult, in fact, that he believes that EK must be absolutely mad to do this and even more insane to actually expand service with more cities, and more of these aircraft types. Therefore the airline must be losing money hand-over-fist - for the airline to continue to do this means that, as they aren’t going bankrupt, they must be propped up with cash being pumped in by owners.

Other posters replied with some viability and feasibility calculations, in an attempt to work out the cost of running an A380 sector to the USA and what factors impact that cost base. Data included publicly available fare data, aircraft specification and cost analyses in order to come up with scenarios where EK would lose or make money on the routes. Then further information was provided using traffic statistics to see whether these scenarios were viable and occurring in reality.

The counterpoint replies from the OP stated that even with a lower cost base of operations, this still wouldn’t be enough to cover costs, as there is ostensibly little O&D demand from the USA-DXB for the airline to charge premium yields. Other posters then provided additional data about what the traffic for EK is composed of (connecting traffic) and the connecting business model - and then updated the viability calculations with new cost and revenue assumptions.

So in essence, in order for you to come to your own conclusion about whether EK is a scam on a operational basis you would have consider the following:
- when evaluating whether it’s profitable to run a ULH operation, just how much does it cost to run a ULH sector - fuel costs and fuel capacity give you an idea as to the fuel costs, so your evaluation rests on EKs cost base, encompassing everything from crew costs, to sales to lease payments and depreciation
- if ULH is to pay its own way, is there enough revenue on these routes to cover those costs - a calculation you would have to base on passenger load factors and fares - here, do you rely on EKs own non-broken out load factor data or is there any external data you can better trust. If it doesn’t add up, is there any cargo revenue you could factor in? Is the proper allocation of fares to ultimate destination being taken into account and the additional costs thereof of the onward sector?
- in the case you think that the ULH is the most loss making of the part of the entire operation, can the rest of operations generate enough cash to cover those operating losses - does it make enough
- when evaluating EKs cost base, can we trust the representations of the financial reports to be accurate or misleading, and if it is misleading, is that intentional fraud in the reports or are true costs simply held off balance sheet, or are they simply operating in a lower cost environment?

As this hinges on cost metrics, clearly your evaluation is influenced by your opinion on the trustworthiness of information - either information provided by EK itself, or when comparing EKs public numbers with companies in the peer group, are the peer group numbers also transparent and trustworthy? Or are they themselves subject to certain factors?

Now you can see why the discussion has moved onto a wider discussion about the trustworthiness of accounts and published information; the position of EK in the wider context of its ownership structure and the Emirates Group and its non-airline operations; whether the airline and group’s owners have different objectives to the owners of other airlines around the world; whether the competition is “fair” or “subsidised” and what we actually mean by those terms - in short, we move away from a discussion based on questions with more verifiable answers and enter a realm of value judgements about motivations and ethics and sociopolitical decision making, which absence of controlled experimentation is always going to be the source of endless (internet) speculation.

It’s a discussion not just confined to aviation - but aviation being at the confluence of international relations, commerce, massive capital investment and national ego it is a convenient lightning rod for all sorts of agendas and debate - nor is it that recent: we’re really just bringing up all the issues around state capitalism. It’s a very popular model, either today Russia and China and their state-favored national champions, Singapore, Brazil with Embraer, Japan’s mid 20th century rebuilding, Korean chaebol, France’s post-war economy. The list goes on and on.

So the question discussion now focuses on:
- does EK operate in a benign business environment that is ostensibly available to anyone who sets up a business in the location or is EK getting specific, targeted help?
- do both of the above definitions qualify as “subsidy” or “unfair”?
- if a state does or does not provide services/tax regime which impacts the costs of operations of a company, does that qualify as being unfair or a subsidy?
- do we cast aspersions on the trustworthiness of their accounts because its a closely held company?
- how much of its costs, if any, are being moved off balance sheet, either through transfer pricing, preferential terms from affiliates, either inside or outside the group? Is revenue being inflated by having affiliated entities buying services from EK which causes those affiliates to sustain losses?
- what motivations are there for “dressing up the numbers”?
- if you think that EK is operationally profitable, should it be doing things like investing in hotels and real estate and making apparently massive marketing efforts, when margins are so thin?
- if you think that EK is running at losses, at what point does it move from making normal losses in the course of operations to a situation whether its owners are bailing it out then to a situation where its owners are subsiding the operation?

There’s no right or wrong answer of course, there’s only guesses (informed or not) as to the motivations of the various actors involved. Our speculations as to these motivations will be informed by our scepticism and trust of the information presented - there’s no verifying a lot of it. Then, we’re asked to make value judgements about the rightness or unfairness of comparative advantages.

And finally, there is a wider discussion about the aviation industry as a whole - has aviation ever been profitable since inception and is it unavoidable that someone, somewhere, usually governments, have made massive losses in propping up aviation in their home countries and whether that’s okay or not. Aviation is seen to be critical to infrastructure, seen to have a social use and public service imperatives - once again national ego comes into play. If aviation is, in the longer term, unprofitable, isn’t subsidy totally inevitable and part and parcel of an industry that requires massive capital investment and is incredibly vulnerable both to macroeconomic and demographic trends and also to “black-swan” events and short term swings in economic sentiment?

I'll reply to some of the specific points raised in the last few pages after I get some actual work done...:D

@FD1971, you do raise some valid points with regards to competition and subsidies. But you seem to be assuming that it's a turf war, like east versus west, or two competing suitors. The thing is, EK are only one of many competitors to LH in several markets. EK are NOT THE sole competitor. Competition is a lot more dynamic than portrayed.

Going back to the point of subsidy, EK, along with a whole heap of other major carriers, are subsidising Airbus through continued orders for airframes, those monies flow through the EU to one way or another subsidise European enterprises, among them EU airlines.

To sum up the above: one could assume a position of suspicion about EK et al about their finances and their market strategy but, even if these assumptions were valid, they do work eventually to the benefit of one's compatriots and not to their disadvantage.

You also seem to ignore how several airlines are using their A380 profitably. I still have to refer back to QF's SYD-DFW, the longest A380 route. Going westward from DFW the loads are restricted (usually blocking as many as 80 seats). Now that works out to be about 80% load when going full house. This is an ULH route with SYD's catchment area a tiny fraction of EK's around DXB. And this isn't their sole A380 route to the US. Yet all we hear from QF are praises for the A380 and its performance. This is coming from an airline known to shuffle entities to reduce tax liability, bring forward depreciation to show massive losses and use that as excuse to reduce the workforce size. And QF pay top dollar for their jet fuel, crew salaries, and so on. Their A380 seats 452 in a 4-class configuration, whereas EK's are 3-class 489-517. So while QF may have higher yields, they're capacity constrained. EK's high density configuration means they can achieve lower cost per seat mile.

If QF with their lower density can make the A380 work, EK should be able to do the same at a much larger scale. I am not assuming that margins are linear, it's just the QF case can be seen as a model much more constrained than EK.

@eternaltransit, the discussion has moved on indeed to a higher level of abstraction where the questions and answers are more speculative and less definite. Data and anecdotes as evidence become less relevant. I think this is an indicator that the discussion at its ground level has been exhausted.

But dare I say despite all the evidence presented, arguments put forward and the perspectives brought to this thread, it is barely scratching the surface. Many theories that may sound logical or plausible, if put to a test may actually fail. They are after all, interpretations, mental models of a reality that can never be be fully disclosed from a single vantage point. And similarly, what we might all see as Truth now, may and will change over time.

Your analytical summary of the discussion, along with the perspective defying questions are spot on. If there was an award for the best post of the year, then yours should definitely be it. ^^

Not really and this is major point several people incl. the mainstream media fail to understand. A huge chunk of the market is simple not attractive at all for the incumbent national carrier. People buying the cheapest Huawei smartphone are not customers Apple wants to have. Many Ryanair or Emirates backpackers' are not interesting for LH at all, simply because they are not paying enough. Of course, LH has more competitors than EK, but EK is working on three waves, so three daily flights are certainly a different option on key Europe-Asia markets.

Do you really think that any airline in the world can fly 450 passengers and no cargo over a distance like SYD-DFW-SYD and make a profit? We are talking about an A380 taking off with roughly 250 tons of fuel per leg. :eek:

DFW is (in)famous for luring anyone to the greater Dallas area, it is the airport with one of the highest airline marketing budgets on this planet and they are doing a good job.

Again, the 380 is performing well on many routes between 4000-6000 miles, the diseconomies of scale are starting to get insane once you cross a certain threshold.

Qantas has always been subject to certain 'accounting' rules, e.g. parking their aircraft at LAX for half a day. If you take a look how other airlines calculate the costs of aircraft on the ground, you might get an idea how profitable certain Qantas routes would be in their respective books...

Of course, those calculations are presented by LH Cargo, when it comes to night curfews and the financial consequences from such measures. :D:D:D

I can assure you that sometimes numbers presented by airlines are not that far apart from election results in former Eastern European countries. @:-)

Your assurances are more likely to persuade me if backed by numbers rather than the innuendo that you know things that the rest of us do not. Where are the figures to give credence to your claims?

While I don't disagree with your point, I don't fully agree with it either.
I have seen first hand how financial reports are 'tailored' to fulfil a specific goal, at a small department level as well as at the level of a large organisation. The reporting is valid and is legal simply because there are tons of exemptions and loopholes in the taxation laws that permit an entity to take advantage of. Hence my position on the agreement.

But you and the OP allege that the reporting done by EK is so screwed up it must therefore be a scam with a black hole through which funds flow. We sort of go back to that point raised a month ago on this thread: to whose benefit might this be? I mean someone is incurring a loss, for what purpose or goal? And if that loss was justifiable through generating jobs or mobilising an economy or something else, then what is everyone's problem with that? Threat to other carriers? unfair competition? what about the competition benefiting one way or another from this continued support from under the table?

If we're gonna get into that level of philosophical debate, then it will be reasonable to ask about unfair competition from the USA/and the developed world for resource consumption at the expense of poor nations. Heck, we might even touch on ethics, and whether a university and a hospital are generously funded with white powder money, would that absolve the drug lords from their sins? There's no end to this chain of reasoning.

But back to your portrayal of financial reports, if that was wholly true then these enterprises fidgeting with their figures would be in breach of taxation laws and therefore, there should be tons of law suits and fines brought upon them. But that is not happening now is it? Hence the disagreement part of my position.