It is making this site hard to enjoy. A topic can’t go by without someone griping that Boeing has become the God of the point-to-point universe, and Airbus is stuck in the grave of over-capacity. Or that Americans are just jealous. It is really getting frustrating. All I want to read and write about is cool planes, old and new, the technology, the airlines, the flights. Sure it’s fine to debate the points of two aircraft. But the level of paranoia, accusation, and protectionism here is beyond ridiculous. I’m probably going to cancel airliners.net after this first month. But I’m giving it a try, so here’s my bit, a contribution to both sides.
Economy of scale and new technology will combine to make this, on a per-passenger basis, cheap to operate. However a hefty entry fee will limit sales to fairly small numbers on an order to order basis. Airbus and airlines promise to provide slightly more space in cattle class and new luxuries in first class, hoping passenger preference for the plane will be a slightly bigger factor. There are some possible issues with the size of the plane in some airports. But most or all major airports can accommodate them, if not in the most efficient way possible. Many airports also have expansions in their short to medium term futures, and the directors of those airports know that politics aside, they might as well prepare for the A380. That’s the situation in YYZ and YVR at least.
Is economy of scale a bad business model? Ask Wal-Mart. Shouldn’t they have been put out of business by convenience stores? Also, for econo class pax like me, low fare is key. Money is the king, and on routes that can fill the A380, expect cheaper fares to increase demand, hopefully leading to a cycle of growth.
Of course the problem will be filling the planes. Fortunately the market looks strong. The world is urbanizing at a rapid pace. Big cities keep getting bigger, and in the third world city growth is astonishing, as well as personal income levels. If the A380 with 800 seats can make an airfare between Beijing and Shanghai cost less than a sleeper on the overnight train, I’d expect it to be a huge success on those types of routes.
City growth, income growth, trends in urbanization. The market for the A380 is there, not on some over-saturated New York to LA route. OK, say that the A380 needs two cities of 5 million or more to be even feasible for a route. I worked out the formula as this: number of routes is SUM(n-1)+1, where n is the number of cities.
Well in 1950 there were 8 cities for a possible 21 routes. In 1970 with the 747 introduced there would be about 14 cities for a possible 91 routes. Today there are at least 41 cities greater than five million for 820 routes, and by 2015 there will be an estimated 59 megacities. That’s 1711 possible A380 routes between them. Of course there will be exceptions as smaller cities with hub airports can support the A380 and bigger cities that can’t sustain it. But it’s an assumption. So the large city to large city market isn’t stagnant, not by a long shot. Even if only a third of those routes are eligible for A380, then route potential from 1970-2015 would be 30 city pairs to 500. The world is a very different place than it was 35 years ago. I live in a big city, many of you guys do to. My parents never did, neither did many of your parents. Check prb.org and population statistics for my numbers if you want.
I find it crazy that everyone argues about passenger preference for frequency. Personally, when I fly domestic or Transcon, I like to depart at 9AM. Who wants to depart at 8PM and arrive at 2AM? When I want to fly Air Canada YYZ-YEG and the two morning flights are booked, sure there are “more choices”, but I personally care less about a flight every 3 hours and more about getting my desired AM flight. Same for international flights, it’s much better to depart in the afternoon and arrive the next morning. Want to depart ORD to LHR at 9 AM, waste an entire day in the air, and arrive in the middle of the night? Not me. I’m sure the airlines are aware of this, just examine any given route: AC has YYZ-YVR at 7,8,9,10,11, 1,2,4,5,6,11. Sure they could cram a few more routes in those gaps, but do customers really want them? Why does air canada have to sell the 11, 1 o’clock routes for less than the 8,9AM? Because there’s more to life than just frequency, there are restricted slots, and there are desirable travel times. Those peak times are prime locations for bigger planes.
Lest you think by now that I’m completely pro-Airbus, I know there are challenges and costs with the A380 that will cause problems too, maybe things that others haven’t thought of. Sure it might save on fuel per passenger and landing fees, but when an A380 lands it’s going to need a big ground crew to service it. What’s the ground crew going to do in between these huge flights every 4 hours? Same with layover times, cleaning the airplane, filling it with food. What about monthly or seasonal variation? Airlines can afford to put a CRJ or 737 aside during February low time, but an A380? I bet it would cost thousands per day just to store. Fuel savings isn’t that big of a deal either. Sure it’s an expense, even one of the larger ones, but it’s passed on to passengers mainly, ie all airlines experience it. The point is that there are so many factors affecting the cost, that fuel savings won’t make or break an airplane. This applies to the 787 also. Say the A380 can get 20% cost savings on better fuel mileage on LHR to PEK, but pay 15% extra on ground crew (both numbers refer to net) for a total savings of 5%. Wow, so an airline could operate its paid-for 767s, or invest hundreds of millions into A380’s for a potential break even point around 2030 with profits afterwards.
I think this plane will be successful, but not because Boeing says it is the new super efficient ultra long range dreamliner that will open new markets. I think its key will be flexibility, and the fact that it is a great new plane for the middle of the market. It will be the best medium to large sized aircraft. It can change routes, it can do a short hop then a long one. It is big enough to serve the high demand routes but more flexible to be moved around when necessary.
What routes can it do, exactly, that a 767 can’t? Maybe a few. But it’s not going to open up Kansas City to Wuhan China. This is a big plane, it will service major centers. It will likely find some 767 type routes that are growing both in demand on existing routes and new possible routes. I have a feeling that we’ll be seeing more 787s in North America because it fits NA’s current needs of replacing 767’s better than a new jumbo plane. For example Air Canada operates older 767s from Vancouver to Asian cities, these could be served by the 787 (I can hope!). But those that live in Springfield are still going to need to connect to get to Tokyo.
And I’m not degrading its planned achievements either. It efficiencies will raise competition and profits for airlines using it. It is going to serve a big market more efficiently than airlines before it (and likely some after it). I’m particularly excited about a higher cabin pressure and humidity. This will be a nice change on longer flights.
It will sell well to current 767 operators that want to expand and replace their fleet. Since the 767 has been highly successful, calling the 787 a 767 replacement is a good thing, not a bad thing. This aircraft will be highly successful because it fills the need for medium sized aircraft very well. In fact I’d say the 787 will be a huge success for Boeing, might even keep it at or above the 50% sales mark.
787 vs A380
No aircraft is going to take the world by storm, and spell life or death for the competitor that doesn’t buy a hundred models of it. All of the modern aircraft are currently competitive. It’s remarkable that aircraft are selling at all really, given the great deals available on older models. But the new ones will sell, and the reason is in my explanation of the urbanizing, wealthier, higher travel demand world . And arguments about a cost savings per flight that are well within the regular variation of the cost of a flight are largely academic. Another factor that both manufacturers are probably overstating is the impacts of comfort, especially on cheap class. Of the great majority of econo pax, which of them would seriously have selected a more expensive flight if it was advertised as having one extra inch of room or a few percent more humidity?
So, the 787 will sell very well, but it won’t be the only plane in the middle of the market. It will probably outperform the A350 by a few percentage points, and the 767s by more. But in an industry with seasonal swings, competition, wide choice of new and used aircraft, those few percentage points won’t make airlines tow out the Airbus’ and sink them in the ocean, for a tax break by encouraging coral reef formation. A350, 330 even used 767s and others will be competitors.
The A380 will be the only plane in its market, but it will sell less. It has to compete with itself and its support costs. Small orders will probably never knock our socks off. The big ones such as Emirates will be exceptions, if ever again. They won’t need to open new factories and assembly plants. But I forecast a steady production line and a strong future for it, because it will do one type of flight very well.
Air travel demand is going to grow and is growing, for all segments, especially away from us westerners. Most of those city pairs that I highlighted for the A380 routes apply just as strongly to the 787. In fact, if I loosened the constraint for the 787 down to cities with 3 million or more, there would probably be a couple thousand possible routes by 2015! Sure these two planes will fly on the same routes in some cases, that will be a function of demand between enormous and rich cities, not a function of one type being a billion times better than the other.
This should be a discussion where positive outlook on future growth means both companies can be successful, and there’s no need to squabble. Buying aircraft such as the A380 makes sense, for growth opportunity in some locations, on some routes, for some airlines. Ditto for 787, with a much greater potential market, but more competition. Western operators might pick up the new birds, sell the older ones to domestic Asian and foreign airlines. Both aircraft manufacturers also have the rest of their lineups. More people will fly more. Everyone wins.
[Edited 2005-02-11 03:17:52]