B777LRF
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Re: Emirates' Business Model without the A380?

Thu Feb 14, 2019 8:43 pm

Simple. Merge with Etihad and operate a dual-hub airline out of AUH and DXB with a huge fleet of the largest twins du-jour.
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evanb
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Re: Emirates' Business Model without the A380?

Thu Feb 14, 2019 8:48 pm

smartplane wrote:
Unless Airbus or related parties have underwritten a buyback.

You are quoting definitions. Commercial aircraft leasing is a rainbow, with experts always trying to keep one step or more ahead (or to the left or right, or even re-visiting a door previously believed closed).


Agreed that it's a "rainbow" (I really like that term), but it's the specifics of how Emirates (not me) write it up in their financials which makes it clear that they have a lot of skin in the game with respect to the finance leases. However, as you say, any guaranteed buybacks from Airbus will have a big say in it. We'll know soon enough since Airbus would likely have to write up a contingent liability pretty soon if they have a significant liability for buybacks. The closing of the line would be a significant event in terms of residual values and they'd have to recognize it pretty quickly if they're on the line.
 
smartplane
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Re: Emirates' Business Model without the A380?

Thu Feb 14, 2019 8:55 pm

evanb wrote:
smartplane wrote:
Unless Airbus or related parties have underwritten a buyback.

You are quoting definitions. Commercial aircraft leasing is a rainbow, with experts always trying to keep one step or more ahead (or to the left or right, or even re-visiting a door previously believed closed).


Agreed that it's a "rainbow" (I really like that term), but it's the specifics of how Emirates (not me) write it up in their financials which makes it clear that they have a lot of skin in the game with respect to the finance leases. However, as you say, any guaranteed buybacks from Airbus will have a big say in it. We'll know soon enough since Airbus would likely have to write up a contingent liability pretty soon if they have a significant liability for buybacks. The closing of the line would be a significant event in terms of residual values and they'd have to recognize it pretty quickly if they're on the line.

Will be sufficient conditions (precedent and subsequent) that nothing needs to appear for a few years, unless EK wants to bring the process forward.
 
dtw2hyd
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Re: Emirates' Business Model without the A380?

Thu Feb 14, 2019 9:51 pm

To his credit, STC did say 125 is the maximum number of A380s DXB can handle. EK order book stops at 123. Not bad.

Emirates pilots always claimed(on the internet) EK at best needs 40 A380s. So EK can keep latest 40 on extended leases.
 
Prost
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Re: Emirates' Business Model without the A380?

Thu Feb 14, 2019 10:43 pm

So an acquaintance of mine flew SEA-DXB-BKK-DXB-SEA. I thought they were crazy for flying this routing, but the fare was $800 RT. By reducing capacity, I’m assuming fares such as this will soon be history and EK profitability should increase.
 
WAC
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Re: Emirates' Business Model without the A380?

Fri Feb 15, 2019 12:01 am

The prime business of EK is to create Dubai and promote it as a world destination whether it is fot a few hours shopping, a transit stop for a day or two or for MICE events. EK and the A380 were the perfect instruments for this. Will be interesting if the UAE will try and persue a open skies agreement with the EU like Qatar (alternative could be China/India). If they can then I do not see a big challenge for EK or Dubai to continue their long term strategies and goals. If not I would see Dubai crumbling faster than Sodom/Gomorrah given the real estate and hospitality sectors rely on EK being the major supply/demand influencer...
 
RJMAZ
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Re: Emirates' Business Model without the A380?

Fri Feb 15, 2019 12:18 am

The resale value of the A380's will be very poor. Emirates will get a very good offer to keep them.

I expect Emirates will buy back most of the A380's when their lease runs out. This is a unique case and they will break tradition.
 
Buffalomatt1027
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Re: Emirates' Business Model without the A380?

Fri Feb 15, 2019 12:59 am

EK's problem is that right now, it flies to pretty much every single large airport on the planet.

EK plan should be to fly to medium size airports with the a330 NEOs and 350s. Go where the 777s and 380s are too large to go (or fill capacity wise)

Follow the BA model. BA is using the 787s and using them for medium airports such as Nashville, San Diego, Oakland, Austin, texas,and I am sure a bunch of other places around the world. The 787's dont have huge capacity but can open up new markets. Which EK needs.
 
cledaybuck
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Re: Emirates' Business Model without the A380?

Fri Feb 15, 2019 1:25 am

enzo011 wrote:
The best of all, EK passengers will not have to contend with 9-abreast 787s that is even tighter than the 77W

I’m pretty sure that is not true. Everything I see has EK 777’s at 17”. Most 787’s are slightly bigger than that.
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lightsaber
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Re: Emirates' Business Model without the A380?

Fri Feb 15, 2019 1:43 am

Prost wrote:
So an acquaintance of mine flew SEA-DXB-BKK-DXB-SEA. I thought they were crazy for flying this routing, but the fare was $800 RT. By reducing capacity, I’m assuming fares such as this will soon be history and EK profitability should increase.

I hope that was on a holiday (slow travel day). Otherwise proof of why EK must downsize.

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Matt6461
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Re: Emirates' Business Model without the A380?

Fri Feb 15, 2019 1:53 am

cledaybuck wrote:
enzo011 wrote:
The best of all, EK passengers will not have to contend with 9-abreast 787s that is even tighter than the 77W

I’m pretty sure that is not true. Everything I see has EK 777’s at 17”. Most 787’s are slightly bigger than that.


777 cabin is 231in wide; 787 is 216in wide. That's 15in difference.
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hongkongflyer
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Re: Emirates' Business Model without the A380?

Fri Feb 15, 2019 2:29 am

vfw614 wrote:
The point I was trying to make:

By simply replacing A388s with B779s one for one, Emirates will loose up to 15 per cent of its passenger count simply because of reduced capacity (maybe one or two percentage points more if, as suggested above, they are no longer the "A388"-airline, but just more of the same like Qatar, Etihad etc.) Increasing frequencies with smaller aircraft is not a straightforward option.

So is this just a case of "so what, small(er) is beautiful" or an issue of concern?


EK's flights are not flying out completely full. On average, only 77% which is slightly below the industry average.
Having a 15% drop in capacities only result in higher loading factor i.e. 90%.

Sure some routes eg. London will get hurt and I am sure it is where the last few 380s will fly before they finally retired,
but the impact is not as much as you think.

In addition, the "wow" factor is becoming less significant, and it will become "just another large plane" in ten years later.
 
okie73
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Re: Emirates' Business Model without the A380?

Fri Feb 15, 2019 3:07 am

One thought...maybe now they will actually turn a profit.
 
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Channex757
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Re: Emirates' Business Model without the A380?

Fri Feb 15, 2019 3:24 am

okie73 wrote:
One thought...maybe now they will actually turn a profit.

Emirates has been consistently profitable since their first year of operation, and also finances aircraft on commercial terms or with Islamic financing.
 
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flee
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Re: Emirates' Business Model without the A380?

Fri Feb 15, 2019 4:43 am

dtw2hyd wrote:
To his credit, STC did say 125 is the maximum number of A380s DXB can handle. EK order book stops at 123. Not bad.

Emirates pilots always claimed(on the internet) EK at best needs 40 A380s. So EK can keep latest 40 on extended leases.

Well, not all 123 will remain as the early frames will be retired soon - this year, I think.
 
KFLLCFII
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Re: Emirates' Business Model without the A380?

Fri Feb 15, 2019 8:56 am

Channex757 wrote:
okie73 wrote:
One thought...maybe now they will actually turn a profit.

Emirates has been consistently profitable since their first year of operation, and also finances aircraft on commercial terms or with Islamic financing.


What is "Islamic financing"?
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Channex757
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Re: Emirates' Business Model without the A380?

Fri Feb 15, 2019 9:36 am

KFLLCFII wrote:
Channex757 wrote:
okie73 wrote:
One thought...maybe now they will actually turn a profit.

Emirates has been consistently profitable since their first year of operation, and also finances aircraft on commercial terms or with Islamic financing.


What is "Islamic financing"?

Basic explanation is that Islam does not allow for charging of interest. Islamic financing is where a finance entity (usually a bank) buys the asset then effectively rents it to the airline on terms which are more like rent-to-buy. Charging interest is forbidden but making a profit is not so the financing is structured as a deal where profits from the asset are used to rent it and then at the end of the lease it can be sold. The main principle is that money cannot be made from money (interest), but can be made from trade.

It's a hell of a lot more involved than that above (religion after all....) but it has been described as an efficient and ethical way of financing. It does involve real assets (an aircraft financed by actual money. Large banks like Lloyds Group are becoming involved in Islamic financing. The vast majority of international banks won't touch it as there is a split of risk and reward between client and financier that is outside their model.
 
StudiodeKadent
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Re: Emirates' Business Model without the A380?

Fri Feb 15, 2019 9:36 am

KFLLCFII wrote:
What is "Islamic financing"?


Financing from financial institutions that don't charge interest. Interest is forbidden by Islam.

Islamic banks essentially work like investment banks instead, and take cuts of the profits of businesses they loan money to.
 
Jomar777
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Re: Emirates' Business Model without the A380?

Fri Feb 15, 2019 9:58 am

RJMAZ wrote:
Channex757 wrote:
Utterly barking mad.

If you search my username you will see I have been saying for years that the A380NEO wouldn't happen and that the 747-8 would be in production long after the last A380 comes off the line.

People said I was barking mad and I was called a Boeing fanboy. But I was 100% correct, no bias here just common sense.

Finn350 wrote:
747 is not going to be produced in 2030 in any version.

People are now assuming the VLA market is gone because the A380 got cancelled. The A380 was just a poor quality product. If it wasn't for Emirates with their huge growth stategy and slot restrictions the A380 would have ended production years ago.

The 747-8 is the queen of the freighter industry. Nothing comes close.

The 747-8 has received 55 orders in the last 6 years. That is an average of 9 aircraft per year. It has a production backlog of 4 years. To make it to 2030 it only needs 42 more orders and it has 11 years to get those orders. Do the math. Boeing needs to get less than 4 aircraft orders per year.


Really sorry but I do not buy it. The B747-8 is only on production because of their Freight Sales. Yes, it has some passenger orders but they are not worhtwhile and will not be delivered if, for any reason, the freight market tips and the Project does not acquire new orders. The A380 is a clear evidence - had plenty of Emirates orders and went downhill when those orders gone.

It is lucky Boeing shifted so many Freighters otherwise, the B47-8 would have gone by now so it is no merits.

As for Emirates, it is going to be higher frequency and less frills in exchange. By the time they retir their A380s, DWC will be fully operational and will have much more slots to offer. Places like London (which receive several A380s at LHR and LGW) will either expand or adapt to a less frequency/high yield situation. They are already offering STN also so you can see solutions are available to them on any market.


The B748 can be easily be matched in capacity by the B779 so expect this to be the A380 replacement and not the B748 which is already dying a low death
 
vfw614
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Re: Emirates' Business Model without the A380?

Fri Feb 15, 2019 11:27 am

it is going to be higher frequency and less frills in exchange


For a long-haul hub system there is, I think, a limit of the number of banks you can operate because of time differences, curfews etc. I am not sure if more than four banks at Dubai are really practical. So simply ramping up frequency at the busiest airports in EK's network is not really a straightforward solution.
 
a320fan
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Re: Emirates' Business Model without the A380?

Mon Feb 18, 2019 11:05 am

Prost wrote:
So an acquaintance of mine flew SEA-DXB-BKK-DXB-SEA. I thought they were crazy for flying this routing, but the fare was $800 RT. By reducing capacity, I’m assuming fares such as this will soon be history and EK profitability should increase.

Funny, I’ve actually never flown EK because they always seem to be several hundred dollars more expensive than other options when I’ve looked over the last several years. Most recently about two weeks ago booking some flights for my parents. Saved $600 by booking them on QR. This either says that QRs yields are super trash or that EK actually can charge good fares on some of its network (AU-EU at least)
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SomebodyInTLS
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Re: Emirates' Business Model without the A380?

Mon Feb 18, 2019 1:58 pm

a320fan wrote:
Prost wrote:
So an acquaintance of mine flew SEA-DXB-BKK-DXB-SEA. I thought they were crazy for flying this routing, but the fare was $800 RT. By reducing capacity, I’m assuming fares such as this will soon be history and EK profitability should increase.

Funny, I’ve actually never flown EK because they always seem to be several hundred dollars more expensive than other options when I’ve looked over the last several years. Most recently about two weeks ago booking some flights for my parents. Saved $600 by booking them on QR. This either says that QRs yields are super trash or that EK actually can charge good fares on some of its network (AU-EU at least)


The last (and only) time that Emirates was a cheap option for us from Europe to SE Asia was back in about 2006 or 2007. Every time we flew since then they've been towards the expensive end of the spectrum - Lufthansa and Singapore Airlines have been better options on several occasions. No idea why people think they're (still) cheap... They have good marketing, I suppose (also evidenced by the number of "norms" who think Emirates is a classy high-end airline).
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mdavies06
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Re: Emirates' Business Model without the A380?

Mon Feb 18, 2019 1:59 pm

By the time DWC is finished, EK may wish to phase out all of its 380 in order to compete with the increase competition from other airlines operating at higher frequency. It will be difficult to compete with the economics of the 787 or 321neo using an 380. JL in the 1980s were operating +100 747s, and see how JL ended up in the late 2000s.
 
steeler83
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Re: Emirates' Business Model without the A380?

Mon Feb 18, 2019 3:16 pm

Jomar777 wrote:
RJMAZ wrote:
Channex757 wrote:
Utterly barking mad.

If you search my username you will see I have been saying for years that the A380NEO wouldn't happen and that the 747-8 would be in production long after the last A380 comes off the line.

People said I was barking mad and I was called a Boeing fanboy. But I was 100% correct, no bias here just common sense.

Finn350 wrote:
747 is not going to be produced in 2030 in any version.

People are now assuming the VLA market is gone because the A380 got cancelled. The A380 was just a poor quality product. If it wasn't for Emirates with their huge growth stategy and slot restrictions the A380 would have ended production years ago.

The 747-8 is the queen of the freighter industry. Nothing comes close.

The 747-8 has received 55 orders in the last 6 years. That is an average of 9 aircraft per year. It has a production backlog of 4 years. To make it to 2030 it only needs 42 more orders and it has 11 years to get those orders. Do the math. Boeing needs to get less than 4 aircraft orders per year.


Really sorry but I do not buy it. The B747-8 is only on production because of their Freight Sales. Yes, it has some passenger orders but they are not worhtwhile and will not be delivered if, for any reason, the freight market tips and the Project does not acquire new orders. The A380 is a clear evidence - had plenty of Emirates orders and went downhill when those orders gone.

It is lucky Boeing shifted so many Freighters otherwise, the B47-8 would have gone by now so it is no merits.

As for Emirates, it is going to be higher frequency and less frills in exchange. By the time they retir their A380s, DWC will be fully operational and will have much more slots to offer. Places like London (which receive several A380s at LHR and LGW) will either expand or adapt to a less frequency/high yield situation. They are already offering STN also so you can see solutions are available to them on any market.


The B748 can be easily be matched in capacity by the B779 so expect this to be the A380 replacement and not the B748 which is already dying a low death

I've become quite a 747 cheerleader over the last few years or so. I'd really love it if Emirates or anyone for that matter would place an order for the 747-8i. That said, I'm afraid I must agree that the 4-holer (passenger variant) is a dying breed. Why would anyone order the 748 when the 773ER can carry the same number of people with better economics/efficiency (less fuel burn, etc)? Especially with Boeing rolling out with the 779, and Airbus the A350 stretch (improvements over the 773 in terms of capacity and range), the 747 is unnecessary. Later on, I see EK placing a large order for the 779, A350, or both.
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frmrCapCadet
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Re: Emirates' Business Model without the A380?

Mon Feb 18, 2019 3:35 pm

There are a number of books on Islamic finance and trade. Recommend all of us read at least one. Do remember that basic Hebrew and Christian texts have the same ban on interest. Amazon actually has a 5 star Kindle version for $6.
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par13del
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Re: Emirates' Business Model without the A380?

Mon Feb 18, 2019 3:49 pm

So to throw into the mix, now that Airbus has removed one of the A.Net advantages of EK (the other being cheap fuel) will European carriers now buy additional long range a/c and start offering competition to EK because they can now purchase and use the same a/c that EK uses?
 
JamesAlice
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Re: Emirates' Business Model without the A380?

Mon Feb 18, 2019 4:52 pm

I actively go out of my way to fly Emirates, particularly if it's an A380. I always fly in J.

I once flew with EY as it was cheaper, and it was an absolute disaster (They weren't even using EY planes) - All I could think of was how I wish i'd paid the extra and flew what I knew.

I'll be really sad to see the A380 go. It's an amazing plane to fly in. I hope long term EK offer an onboard lounge on the 777-X if they can fit it in.
 
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lightsaber
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Re: Emirates' Business Model without the A380?

Mon Feb 18, 2019 5:48 pm

par13del wrote:
So to throw into the mix, now that Airbus has removed one of the A.Net advantages of EK (the other being cheap fuel) will European carriers now buy additional long range a/c and start offering competition to EK because they can now purchase and use the same a/c that EK uses?

Since Dubai must import oil, they do not have cheap fuel.

Please take the time to educate yourself by reading an EK annual report:
https://www.emirates.com/english/about- ... rency.aspx

The impact of fuel is mentioned 42 times in the 2017-2018 report.

Jump to slide 78. 28% of operating cost was fuel. Good, but that is because EK doesn't have any gas hog aircraft.
Maintenance is tiny as so many of EK's aircraft are in the maintenance holiday.

Their exceptional cost is overhead at 2.2%. I wish more companies were operated that lean. In fact, crew layover at 1.3%, shows how lean they work.
Marketing at 7.3%. Wait, the normal overhead is corporate (2.2%)+marketing (7.3%) + IT (2.8%)=12.3%. As long as that is below 15%, that is awesome!

When I see posters here compare airlines operating expenses (the other 87.7% of EK's expenses) and ignore their favorite airlines corporate overhead (where good is < 15%, and their airline is higher with less marketing), I really wonder.

EK is just going to have to shrink a little. Not much. Not quickly (Those A380s have lots of life left in them and 779s are coming soon). Bummer. I believe one reason their are taking A339s and A359s is the realization that some destinations just have to be shrunk. :(

EK's #1 benefit is a low corporate overhead and efficient marketing. The 779 will carry a passenger for less than an A388, so they'll do OK.

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WorldFlier
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Re: Emirates' Business Model without the A380?

Mon Feb 18, 2019 5:49 pm

United787 wrote:
Their only choice now is to buy the 747-8i.


779-9X for long routes and a "simple stretch" 777-10X for "short" routes!
 
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par13del
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Re: Emirates' Business Model without the A380?

Mon Feb 18, 2019 6:05 pm

lightsaber wrote:
Please take the time to educate yourself by reading an EK annual report:
https://www.emirates.com/english/about- ... rency.aspx

Like I said, A.Net advantages, you and others have shown figures a million times to no avail, as those advantages are what posters used to claim why the A380 was a success at EK but was killing their favorite airlines who could not make a go of it, we will now see what additional excuse they have for geography and a countries economic plan to develop their country as a transit point.
 
drdisque
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Re: Emirates' Business Model without the A380?

Mon Feb 18, 2019 6:10 pm

If anything their business model works better with slightly smaller aircraft once they move over to the new airport, which shouldn't be gate constrained like DXB.
 
osupoke07
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Re: Emirates' Business Model without the A380?

Mon Feb 18, 2019 6:39 pm

Revelation wrote:
My guess is that EK already knows which routes really support the A380's capacity and which ones actually benefit from bars and showers.


My bet is that EK operates their owned A380 for 20-25 years and that DBX-LHR is one of the last routes that sees the type. They just have so much capacity into LHR and I think that's where downsizing to a 779 would hurt them the most.
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dochawk2
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Re: Emirates' Business Model without the A380?

Mon Feb 18, 2019 6:50 pm

dredgy wrote:
Emirates' business model is not to fit as many people on a plane as possible.
Emirates' business model (as stated repeatedly by Tim Clark and the sheikh dude) is to connect secondary cities to primary and other secondary cities.
Emirates is the airline that lets you fly Adelaide to Zagreb or Kampala to Seoul.


Or Entebbe.
God, give us wings to fly!
 
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flyingclrs727
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Re: Emirates' Business Model without the A380?

Mon Feb 18, 2019 10:07 pm

Also EK could pick up available A380 airframes from airlines that no longer want to fly A380's. It's quite likely Airbus will be performing heavy maintenance and cabin refurbishment on most of the remaining A380's. They have lots of A380 sized hangar space available with no new air frames to build. I'm sure leasing companies will be desperate to place their A380's coming off lease from smaller airlines.
 
gunnerman
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Re: Emirates' Business Model without the A380?

Tue Feb 19, 2019 12:35 am

It's been clear for some time that three airlines with mega hubs on a stretch of the Persian Gulf coastline isn't working, with brakes being applied to continual expansion. EK's passenger load factors have rarely if ever exceeded 80%, so aircraft smaller than the A380 will reduce costs and push up yields.
 
Boeing727
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Re: Emirates' Business Model without the A380?

Tue Feb 19, 2019 12:39 am

dik909 wrote:
United787 wrote:
Their only choice now is to buy the 747-8i.


Close your eyes and imagine a 747 with EK livery. What do you think of that ?

If you're like me, you cringed and thought, "Ew, no."


Looks beautiful to me...

 
720B
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Re: Emirates' Business Model without the A380?

Tue Feb 19, 2019 12:58 am

afterburner wrote:
RJMAZ wrote:
The A380 was just a poor quality product.

No it isn't. It is one of (or even) the most comfortable aircraft ever. It just doesn't sell well.


To RJMAZ


Jeez, where were you when Airbus was looking for a quality manager? You could have saved the program.

Jokes aside, yours is by far the most pompous and arrogant comment I've seen on a.net
 
travelhound
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Re: Emirates' Business Model without the A380?

Tue Feb 19, 2019 1:32 am

For me, I would be asking what is the business model for the next decade and how does the A380 fit?

I suspect there were a number of factors associated with the A380 cancellation with fundamental changes in market being one of them. With Indian domiciled carriers expecting to fly more direct routes to international markets, aircraft like the 777X economically opening up routes that can bypass the ME3 hubs and the Emirates states transitioning from high growth to sustainable economies, the market for Emirates could be a very different place in 5-10 years time.

I suspect we will shortly be witnessing a softening of demand for ME3 flights to the extent all three airlines could have consistent negative growth into the foreseeable future.

The world is an ever changing place.

Just my 2 cents.
 
LAXLHR
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Re: Emirates' Business Model without the A380?

Tue Feb 19, 2019 1:32 am

RJMAZ wrote:
AIRT0M wrote:
How exactly was the A380 a poor quality product?

Airline CEO's including Alan Joyce have said so. This is in regards to his comments of two 787's versus a single A380.

As aircraft becomes bigger the cost per passenger improves in nearly all cases. As an aircraft becomes bigger the risk to fill the plane becomes worse.

Load factors and offpeak suits the smaller aircraft for example 14 weekly 787 flights can easily drop down to 10 weekly flights in the offpeak season. However 7 weekly A380 flights can not be dropped down to 5 weekly flights without losing a large amount of customers.

The A380 provided very little improvement in cost per passenger over the 777-300ER but provided a very big risk to the airline. The 777-300ER provided a big cost improvement over the A330 with very little risk.

If you created a graph with CASM on one axis and airline capacity risk on the other axis it will form a straight line. The aircraft above the line sell very well, the aircraft below the line sell poorly.


Yeah, sometimes its just best to take a seat. That is NOT what Joyce said, or even close. Go read the interview and educate yourself please. 2 787s offering better economics over the A380 does not make it a poor quality product.
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JayinKitsap
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Re: Emirates' Business Model without the A380?

Tue Feb 19, 2019 7:27 am

I believe that EK things the A380 is terrific, but there are limits to the fleet size. Over the last 5 years EK has received like 3 dozen as their growth has slowed. They are in a period where it hurts to take on new planes. Time to assess. Also, the uncertainty of 12 year old A380s is probably making any kind of new leases or financing tougher, as is - 'What is the value of the last A380 coming off lease, the answer is the lease basically needs to fully pay for the frame as no residual value.

EK has like 15 RR 380's in the fleet now but it is still new to them. They are probably doing better on fuel but are needing work more often than the EA engines or the GE90's, regret has probably set in a bit. It is clear that EK and RR could not come to terms on the last order - both wanting more $ their way. So EK is looking at 6 A380s a year minimum when 3 or 4 would be better, and the ones they are getting they are unhappy with the engines. They are ready to look at plan B.

For over 3 years EK and AB I am sure have been in production scheduling and the drop dead dates to sign getting pushed back. Airbus is looking at incremental loss on each frame, other than pride keeps them from letting it come to a close. As AB feels they have the deal, suddenly EK indicates it is a Boeing order, for 40 78X, a big finger to AB. The financial planners are giving AB the drop dead dates to order or cancel - the changing of the guard brings where Enders needs to clean up a long ago mess. Long ago the Qantas order died, both knew it but AB probably gave some incentive to let it stay there, the order book was slowly scrubbed, probably in a manner to minimize cost to AB.

The order depending on RR is likely to have had a 1 year term to settle on the engines, just over a year was this month. Suddenly the curtain fell.

So in essence EK wanted to defer orders currently on contract and had decided to not order more. RR wants out, Airbus is facing with making the best of a bad situation.

At the negotiations there was sure to be a spreadsheet with the cost of each upcoming line number to deliver, and the cost to cancel. Somewhere around the frames in production or the number of months notice to cancel the lead items, the number of frames to keep and to drop was arrived at.

Airbus then presented the list of the options to convert to as they were sure to not lose order value unless large fees were paid. I think 15 were taken off the prior order, it is probable that EK got 2 A339 and 2 A359 to replace each A380. With this deal the table is now cleared for financial considerations between EK and AB. Looking at these replacements it seems probable that EK had pretty firm orders from last year, otherwise why take so many.
 
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Revelation
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Re: Emirates' Business Model without the A380?

Tue Feb 19, 2019 1:05 pm

JayinKitsap wrote:
I believe that EK things the A380 is terrific, but there are limits to the fleet size. Over the last 5 years EK has received like 3 dozen as their growth has slowed. They are in a period where it hurts to take on new planes. Time to assess. Also, the uncertainty of 12 year old A380s is probably making any kind of new leases or financing tougher, as is - 'What is the value of the last A380 coming off lease, the answer is the lease basically needs to fully pay for the frame as no residual value.

It's worse than that. It needs to fully pay for the frame plus yield as much as one could get for a 12 year loan on the full value of the frame, otherwise investors would just chose to find a better place to invest such as a 12 year loan.

I really hope EK locked in finance for the A380s it is receiving over the next 2-3 years otherwise they may find their decision to cancel their future A380 orders comes with blowback.
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Channex757
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Re: Emirates' Business Model without the A380?

Tue Feb 19, 2019 1:24 pm

Revelation wrote:
I really hope EK locked in finance for the A380s it is receiving over the next 2-3 years otherwise they may find their decision to cancel their future A380 orders comes with blowback.

Were you asleep when we were discussing Islamic financing earlier? This is just the kind of deal that would fund an A380 and repay its cost plus profits over 12-13 years.

The blowback you allude to wouldn't happen in that situation as interest cannot be part of the contract. Final value is dealt with differently too
 
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enilria
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Re: Emirates' Business Model without the A380?

Tue Feb 19, 2019 1:35 pm

Here's my opinion.
1) Going to smaller aircraft will lead to needing more frequency.
2) Going to more frequency will overwhelm the capabilities of DXB.
3) This will likely lead to moving over completely to DWC, which was the plan anyway.
4) DWC additionally destabilizes AUH/EY because now what will probably be the largest airport in the world at that point will only be a 58 minute drive from AUH as opposed to ~75-80 now.
5) I think all of that cements a merger of EY and EK with AUH being cutback to a fairly short list of regional and vanity routes on smaller aircraft.
 
timtam
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Re: Emirates' Business Model without the A380?

Tue Feb 19, 2019 3:01 pm

Some are looking at this the wrong way by thinking that the demise of the A380 will unravel the Emirates Business Model.

Emirates has been a huge success story and has shown itself to be a very smart operator. This is unlikely to change going forward - they will continue to be a smart operator.

If Emirates saw its future business model was dependent on the A380, it could have kept the A380 in production by ordering more. However Emirates has chosen not to do so and has effectively brought about the cancellation of the A380.

Why? Only Emirates will know the exact reasons. However it can be speculated that it sees a need to evolve its business model in the future. The huge success of the QF direct flights from Perth to London has demonstrated that improving aircraft technology will see more direct flights in the future. Before long there will be no real need to stop in Dubai when flying from Sydney to London or Paris or Frankfurt or Rome - in 5 or so years customers will be flying direct.

So looking in their crystal ball, Emirates may have come to the conclusion that they will be doing more secondary city to secondary city flying using smaller aircraft in the future and less higher volume routes (needing bigger aircraft) as those routes are taken over by more direct flights that dont need a stopover flight in Dubai.

The world would be a lesser place without the A380 - it is an engineering marvel - it is an incredible machine.
 
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enilria
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Re: Emirates' Business Model without the A380?

Tue Feb 19, 2019 3:04 pm

timtam wrote:
Some are looking at this the wrong way by thinking that the demise of the A380 will unravel the Emirates Business Model.

I think that implies a much too optimistic view of the economics of the A380. If the plane were such a magical economic miracle that it is the only thing that makes Emirates survive then why does nobody else want the plane? LOL. The only real issue is that DXB is jammed now and smaller airplanes will push EK to DWC.
 
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SomebodyInTLS
Posts: 1679
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Re: Emirates' Business Model without the A380?

Tue Feb 19, 2019 3:24 pm

enilria wrote:
timtam wrote:
Some are looking at this the wrong way by thinking that the demise of the A380 will unravel the Emirates Business Model.

I think that implies a much too optimistic view of the economics of the A380. If the plane were such a magical economic miracle that it is the only thing that makes Emirates survive then why does nobody else want the plane? LOL. The only real issue is that DXB is jammed now and smaller airplanes will push EK to DWC.


I think you completely misread that. He says the demise of the A380 will NOT make Emirates uneconomic!
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SEPilot
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Re: Emirates' Business Model without the A380?

Tue Feb 19, 2019 3:44 pm

No business can expand indefinitely, and from what I have seen EK is bumping up against its limits. Unfortunately many business leaders only recognize those limits too late. Perhaps EK is recognizing them now. Also, when EK started their growth spurt the airline landscape was quite different; since then 787s and A350s have started flying long haul routes that do not require stops, and hence bypass the Middle East. So the EK business model may not work as well any more.
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lightsaber
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Re: Emirates' Business Model without the A380?

Tue Feb 19, 2019 5:10 pm

enilria wrote:
Here's my opinion.
1) Going to smaller aircraft will lead to needing more frequency.
2) Going to more frequency will overwhelm the capabilities of DXB.
3) This will likely lead to moving over completely to DWC, which was the plan anyway.
4) DWC additionally destabilizes AUH/EY because now what will probably be the largest airport in the world at that point will only be a 58 minute drive from AUH as opposed to ~75-80 now.
5) I think all of that cements a merger of EY and EK with AUH being cutback to a fairly short list of regional and vanity routes on smaller aircraft.

I agree with everything buy point 5.

For EK and EY to merge, DWC would need to be closer to the Dubai/ Abu Dhabi border with the ability to taxi aircraft between a terminal and runways on the Abu Dhabi side (conjoined airports). Bilaterals, today, force separate opperations.

To merge, EK needs more O&D traffic. Dubailand is a start. But they are falling behind in growth. As a Disney fan, I'd love to see a park on the boarder. But alas, just a dream.

I also do not see the money for a big DWC expansion. Unless Abu Dhabi kicks in money. But how to make it happen?
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JayinKitsap
Posts: 1394
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Re: Emirates' Business Model without the A380?

Tue Feb 19, 2019 10:23 pm

Revelation wrote:
JayinKitsap wrote:
I believe that EK things the A380 is terrific, but there are limits to the fleet size. Over the last 5 years EK has received like 3 dozen as their growth has slowed. They are in a period where it hurts to take on new planes. Time to assess. Also, the uncertainty of 12 year old A380s is probably making any kind of new leases or financing tougher, as is - 'What is the value of the last A380 coming off lease, the answer is the lease basically needs to fully pay for the frame as no residual value.

It's worse than that. It needs to fully pay for the frame plus yield as much as one could get for a 12 year loan on the full value of the frame, otherwise investors would just chose to find a better place to invest such as a 12 year loan.

I really hope EK locked in finance for the A380s it is receiving over the next 2-3 years otherwise they may find their decision to cancel their future A380 orders comes with blowback.


Last March HA indicated a big reason to go with the 789 was their difficulty arranging financing for the A338, what the difficulty was the lender's risk for a value crash, the '12 year load on the full value of the frame" you mention. I am sure EK has been facing this for the last few years.

As Channex noted, EK is probably able to do Islamic financing, my impression of that financing is the lenders rate of return is pretty close to what a lease or loan would return, yes there are tones of equity in the arrangement. The Islamic investors are also finding better places to invest.
 
smartplane
Posts: 1024
Joined: Fri Aug 03, 2018 9:23 pm

Re: Emirates' Business Model without the A380?

Wed Feb 20, 2019 12:00 am

JayinKitsap wrote:
Revelation wrote:
JayinKitsap wrote:
I believe that EK things the A380 is terrific, but there are limits to the fleet size. Over the last 5 years EK has received like 3 dozen as their growth has slowed. They are in a period where it hurts to take on new planes. Time to assess. Also, the uncertainty of 12 year old A380s is probably making any kind of new leases or financing tougher, as is - 'What is the value of the last A380 coming off lease, the answer is the lease basically needs to fully pay for the frame as no residual value.

It's worse than that. It needs to fully pay for the frame plus yield as much as one could get for a 12 year loan on the full value of the frame, otherwise investors would just chose to find a better place to invest such as a 12 year loan.

I really hope EK locked in finance for the A380s it is receiving over the next 2-3 years otherwise they may find their decision to cancel their future A380 orders comes with blowback.


Last March HA indicated a big reason to go with the 789 was their difficulty arranging financing for the A338, what the difficulty was the lender's risk for a value crash, the '12 year load on the full value of the frame" you mention. I am sure EK has been facing this for the last few years.

As Channex noted, EK is probably able to do Islamic financing, my impression of that financing is the lenders rate of return is pretty close to what a lease or loan would return, yes there are tones of equity in the arrangement. The Islamic investors are also finding better places to invest.

If you are a blue chip credit risk, the lease value is based on the upfront value of the new aircraft, ignoring retrospective credits. And if you are super blue chip, you may even be able to capitalise some other aircraft-related costs, and base the lease value somewhere closer to list.

As your credit risk reduces, the leasing company will only fund the actual cost of the aircraft.

As your credit slips further, the residual shrinks, as do the EOL payments, which are included in the lease payments.

Then it gets to 3rd party guarantees, for the portion not covered by EXIM.

Further still, and no longer monthly payments, but fortnightly and then weekly.

EK is still very much in the blue/super category. Many of the funding participants in EK leases are Dubai connected.

Airbus prefers to fund start ups, and stay with them (EK being an example). Boeing philosophy seems to be, if it has a heartbeat, fund it.

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