March 19 (Bloomberg) -- Airbus SAS spent a decade saying the A380, the world’s largest passenger plane, would stand up to a recession because it’s cheaper to run than most other jetliners. The argument is starting to fray.

Emirates, the A380’s biggest customer, said yesterday that a drop in traffic between Dubai and New York had rendered the superjumbo unsuitable after seven months on the route. The carrier will instead switch to Boeing Co.’s smaller 777.

Airbus spent $18 billion developing the 525-seat A380 to secure its position as the world’s No. 1 planemaker, winning orders worth $65 billion at list price. Boeing responded by creating the 787 Dreamliner, betting that a growing economy would ultimately favor smaller planes serving more routes.

“The A380 is so huge that in the current environment it’s really hard to fill,” said Frank Skodzik, an analyst at Commerzbank in Frankfurt with a “reduce” rating on Airbus parent European Aeronautic, Defence & Space Co. “That’s why we’re seeing delays in deliveries.”

Emirates, which operates four of the planes, says it may delay some of the 54 still on order. Air France KLM Group, Europe’s biggest airline, has postponed two deliveries, and Germany’s Deutsche Lufthansa AG will take its first two A380s in 2010 instead of this year. Kingfisher Airlines Ltd. of India deferred its first delivery to 2014 from 2012.

EADS fell 1.9 percent to 9.35 euros in Paris today, the lowest since May 29, 2003, valuing the company at 7.62 billion euros ($10.4 billion).

Hub Airports

In marketing the A380, Airbus argued that a very large plane offered unrivalled economies of scale and would make sense in tough times because slumping demand leads airlines to drop flights between secondary cities and focus on flying to larger hub airports, with smaller craft fanning out to minor locations.

“What they can do is consolidate flights that aren’t doing so well into the A380, which is bigger and more fuel efficient,” said Rohan Suppiah, an analyst at Kim Eng Securities Pte in Singapore.

While that’s generally what has happened, the current slump in travel is so severe that on routes such as Dubai to New York, where high frequencies need to be maintained to lure those business travelers who are still flying, the 150 or so extra seats on an A380 versus the 777, say, are too difficult to fill.

Emirates will instead redeploy the two A380s freed up from New York, where the airline flies twice daily, to its services between Dubai and Toronto, which has three flights a week, and Bangkok, a major source of tourist travelers to the sheikdom.

Changing Demand

“This aircraft redeployment was based solely on a change in capacity demands in these three markets,” Emirates said in its statement yesterday, adding that it will look again at operating the plane to New York if and when demand revives.

“For the A380 to make sense an airline must have routes with both frequencies and volume,” said Yan Derocles, an analyst at Oddo Securities in Paris. “If you don’t have those two you don’t benefit from the lower unit costs per seat because you can’t actually fill the plane.” He rates EADS “reduce.”

Toulouse, France-based Airbus, the world’s biggest planemaker ahead of Chicago-based Boeing, says carriers routinely shift fleets around to adjust to market conditions.

“It is a fully normal process in operations to deploy aircraft where the airline sees a best fit, and this is of course continuously optimized throughout the year,” sales chief John Leahy said yesterday by e-mail.

Airbus declined to comment on potential changes to delivery schedules for the A380, which is priced at $327 million before discounts, saying talks with customers are confidential.

Target Cut

The company handed over 12 of the superjumbos last year and in December cut the target for 2009 by three planes to 18. Emirates, Qantas Airways Ltd. and Singapore Airlines Ltd., the only current operators, are scheduled to get about five A380s apiece, with Air France also due to take its first plane.

Leahy says the A380 remains the best available solution for those carriers looking to serve airports where traffic rights or landing slots are limited and demand is high. Slot-constrained London Heathrow, the busiest international airport, already receives A380 flights from all three airlines that own the plane.

“You’re seeing the Boeing 747 fleet aging, and the airports are still looking to optimize slots, so the A380 ultimately does still make sense,” said Bertrand Grabowski, the board member responsible for aviation at Germany’s DVB Bank SE. “But because of this economic climate it’s going to take more time to be a success than was envisioned.”

A350 Lag

For carriers seeking a new widebody aircraft with fewer seats, Boeing’s Dreamliner is due for first delivery next year after repeated delays. That’s still three years earlier than Airbus’s similar-sized A350, which took longer to come to market because of the European company’s earlier focus on the A380.

Airbus forecasts suggest Tokyo will be one of the busiest cities for the A380, and flights operated to the Japanese capital by Singapore Airlines, the model’s first customer, are proving its worth, Kim Eng’s Suppiah said.

Still, Jim Eckes, managing director of industry adviser Indoswiss Aviation, says even Asia’s most profitable carrier should rethink its commitment to 13 more superjumbos.

Singapore Air doesn’t “discount the possibility of deferring future orders” for the plane spokesman Stephen Forshaw said today in response to Bloomberg questions. The company is scheduled to take delivery of four A380s this year and has no plan to delay those, he said.

Chief Executive Officer Chew Choon Seng said Feb. 16 he aims to reduce capacity 11 percent and cut the fleet for the first time since 2004.

“Do they have enough business to fill up such a large plane?” Eckes said. “It’s an expensive aircraft and if there’s any way they can avoid taking delivery they should do it.”

To contact the reporter on this story: Andrea Rothman in Paris at aerothman@bloomberg.net

Last Updated: March 19, 2009 13:25 EDT