Emirates pulls the A380 from its New York-to-Dubai route, underscoring the disconnect between Airbus' production plans and the travel slump
It's taken Airbus the better part of three years to untangle the problems that disastrously delayed the launch of its A380 mega jet. But now, just as production is starting to pick up speed, comes troubling news from Emirates, the Dubai-based airline that is the A380's biggest customer. (No, not the report that Emirates is complaining about technical glitches on the plane. Although embarrassing, that's unlikely to cause a major setback for the A380 program.)
The more worrisome news: On Mar. 18, Emirates said it was pulling the A380 off its New York-to-Dubai route and substituting a smaller plane because of weak passenger demand. Emirates said it would switch the A380—one of four in its fleet—to a more heavily used route. The airline said the decision has no impact on its plans to buy a total of at least 58 A380s, including seven more scheduled for delivery this year.
Still, the announcement highlights the growing disconnect between the A380 production schedule and the reality of a steep slide in global travel. According to the Geneva-based Airports Council International, passenger travel on international routes fell 6.7% during January. The numbers for the rest of the year are likely to be just as bad, or worse. "We must accept that this downturn will continue for a while longer," says Andreas Schimm, the council's director for economics.
Airlines almost certainly won't cancel or delay any of the roughly 18 orders that are scheduled for delivery in 2009—for the simple reason that the planes are already built and are now being customized for their buyers. But what will happen in 2010 and beyond? Although Airbus hasn't disclosed annual targets, it's probably aiming to have at least 25 planes roll out of the factory next year. The planned buyers include Air France-KLM, Lufthansa, China Southern, and Korean Air, along with additional deliveries to Emirates, Singapore Airlines, and Australia's Qantas, which already operate a total of 13 A380s.
So far, none of these carriers has backed away, although Air France said on Mar. 4 it would delay delivery of the final two planes in its 12-plane order. But the airlines may soon find the numbers simply don't add up. Taking delivery of an A380 costs well over $200 million, an expense that will be hard for carriers to stomach when their revenues are slumping and they can't fill the seats they already have.
Shuffling planes to more heavily traveled routes might work in some cases. But the international traffic numbers in January were down almost everywhere, including declines of 8.9% in Europe, 6.6% in Asia, and 4.5% in North America. Only the Middle East eked out a 2.2% increase. Airbus's archrival Boeing (BA) in recent months has suffered cancelation of 33 orders for its 787 Dreamliner.
Airbus, for its part, badly needs every $200 million delivery it can manage. After running up billions in cost overruns on the A380, it has said it won't break even until 420 of the planes are sold. Even before the downturn hit, some customers including Virgin Atlantic and Los Angeles-based International Lease Finance had pushed back their planned A380 delivery dates.
Why haven't more followed suit? One explanation was offered this week by Steven Udvar-Hazy, chief executive of ILFC, the world's No. 1 buyer of big commercial jets. "When a bomb explodes, the light flash travels a lot faster than the sound," Udvar-Hazy said at an industry conference in Arizona. "The flash occurred in September, but the sound hasn't reached Seattle and Toulouse yet."