Here’s Emirates’ A380 Sales Pitch To Other Airlines

Yesterday I wrote a post about Airbus possibly discontinuing the production of the A380.

The plane just hasn’t gotten much traction lately, and Airbus hasn’t received a single new order for the plane this year. Next year they’ll have to make a decision about the future of the plane — in 2018 (once the current orders are fulfilled), should they scrap the project, or should they invest a few billion dollars into further improving the concept, in hopes of selling more of them to the airlines?

One thing that’s fascinating is just how much of a fan Emirates is of the A380. It’s normal for airlines to prefer one aircraft over another, though Emirates’ CEO Tim Clark loves the plane so much that he has basically been going on roadshows with Airbus trying to sell it to other airlines.

Of course he’s not doing this out of the kindness of his heart, but rather because Emirates benefits from this plane more than any other airline, and has incredible purchasing power with Airbus. He’s miffed at the thought of the aircraft being discontinued, because it’s a core part of the Emirates business model.

Emirates-A380

Emirates explains why other airlines need the A380

What’s most interesting, however, is Emirates’ Tim Clark explaining why other airlines need the A380.

Via Australian Aviation:

Emirates president Tim Clark has warned that with air travel due to double in the next 10 years to seven billion passengers a year, airlines and airports will need giant aircraft like the 500-seat class A380.

“The A380 is a passenger magnet. We operate five a day from Dubai to London’s Heathrow and they are 95 per cent full,” Clark said.

“Airlines are too conservative and have not put the right interiors into their A380s.

Some of the interiors are a disgrace and use 1970s thinking,” Clark offered.

“We put all our premium seats on the upper deck and economy on the main deck, but others have mixed them which is inefficient.

“Our competitors laughed at us when we put showers and a lounge in the A380. But passengers love the showers and they love the lounge.”

Clark said the A380 “is a great aircraft”.

“If airlines don’t believe they can fill an A380 then their business model is wrong. If they can’t fill it there is something wrong with their marketing.”

Now, Tim Clark is one of the brightest guys in the airline business. But I think he’s way off base here. Emirates needs the A380. It works great for Emirates’ business model. But to suggest that it would therefore work as well for other carriers is ludicrous. None of the A380’s other operators are exactly overjoyed by the plane, so clearly he’s in the minority.

And frankly, he’s really not talking like a numbers guy here. I don’t think most airlines are concerned about whether they can fill A380s. They’re concerned about whether they can do so with good yields. I don’t think most airlines are uncertain as to whether passengers “love” showers and lounges. Rather they’re concerned about whether there’s a return on investment for them.

Emirates-A380-First-Class-10

That being said, if nothing else, Airbus does already have one customer that wants to buy the next generation of A380s:

Clark said the new model, if built, would have excellent economics, as good as the Boeing 777X that Boeing will introduce in 2018.

“And we will buy 140 of the A380neos,” said Clark.

“As long as I am around I am going to continue to fight the battle for the A380.”

“This is a great aircraft and the world needs it.”

Emirates-A380-First-Class-01

Bottom line

The uncertain future of the A380 is such a sticky situation. On one hand, if I were an airline other than Emirates, would I be ordering more A380s? Well, maybe Etihad and Qatar could really use some more since they’re presumably trying to operate under a similar business model. But aside from that, no.

At least not yet. In 10 or 20 years, I absolutely do think the world “needs” the A380. The demand for global air travel will continue to grow, and airports will continue to get more heavily slot restricted.

But it’s also a huge gamble for the airlines. Conversely, the 787 or A350 is as close to a “sure bet” as the airlines can get — it has the range to fly almost anywhere and can enter new markets profitably, something the A380 can’t necessarily do.

Comments

  1. I am still surprised that the A380 hasn’t been tested to do hub to hub flying in the US couldn’t it help in busy airports like ORD, JFK, LGA, EWR, ATL, LAX? But it certainly seems like frequency seems to be king right now, and I am not sure that is sustainable.

  2. I don’t think he is wrong. There was a time when American airlines tried to put the best product out there, charged accordingly, and were successful. He is taking the same approach. Now the American airlines are trying to lure people with the lowest fares on planes with lack of appeal and comfort. We have gone Wal Mart and they have gone Saks Fifth Avenue.

  3. @Nathaniel

    A380 at LGA???

    what would be really cool is if HA bought them and flew them JFK-HNL… sadly that will never happen.

  4. @ Nathaniel — At the end of the day hub-to-hub flying is all about frequency, to minimize total travel time. The A380 wouldn’t really help in that regard.

  5. @ Ray — Right, but I think that’s for good reason. I don’t think the “premium” business model works in the US.

  6. @lucky, any idea how much Emirates is paying per A380. My overall impression is that they have such leverage over Airbus with this airframe that they only paying 50% or so of list for and Airbus is making very little money on each plane they sell to Emirates. If this is the case, Emirates offer to buy 140 A380neos doesnt help much since with the big discount Emirates order wouldnt even come close to covering the development cost of the new wing and engines never mind allow Airbus to make a profit.

  7. Have you heard about the A380 NEO and the A380-900? They’re due to be launched soon, as CONFIRMED by Airbus CEO

  8. @ Abdel Rahim Abdallah — I’m not sure I’d buy into the hype. Airbus stock fell substantially after the announcement that the plane may be discontinued, so I wouldn’t necessarily take what they say at face value.

  9. Great sales pitch by Tim Clark: “You are not buying A380s because you are not only inefficient, and have pathetically unimaginative designs, but you are just plain stupid.” Yeah, that line will win them over for sure. 🙂

    I think there must be something to what Dan is saying, otherwise Airbus wouldn’t have to redesign it, they could just keep making them for Emirates. Apparently no profit for Airbus in that.

    Essentially, Clark is asking other airlines to buy more of the aircraft that Emirates buys at a discount, and gives Emirates a competitive advantage over them due to their unique routes, so that Emirates doesn’t lose the sweet deal they have with this aircraft. I don’t think they are in fact “stupid” enough to fall for that.

  10. “Great sales pitch by Tim Clark: “You are not buying A380s because you are not only inefficient, and have pathetically unimaginative designs, but you are just plain stupid.” Yeah, that line will win them over for sure.”

    Now I really do hope Airbus discontinues the plane, if only just to give Tim Clark and other executives at Emirates one giant middle finger pointed at the sky.

  11. the irony here is the world population just getting bigger and bigger and in term of transport efficiency, A380 will do the job but in reality, fuel prices are too volatile to make it work.

  12. Lucky, actually the Airbus stock fell due to them announcing earnings would be flat in 2016, when the market census had been for a 6% growth in earning in 2016. There were also revisions on cash flow. So these two reasons were the main reason why the stock fell. The stock fall did not have anything to do with the A380 discussion about option of walking away from the aircraft.

  13. Everything old is new again. Slot restrictions and market growth projections were the factors cited by every domestic US airline loading up on 747’s, L1011’s, and DC-10’s almost 50 years ago. PSA was even flying TriStars with lower deck lounges on intra-California routes back in the mid-70’s. The plan didn’t work then and it won’t work with the 380 now. It’s just too big.

  14. @BHill – you can find articles going both ways on whether the cause of the decline in stock value is due to A380 issues.

    http://www.bbc.com/news/business-30427116

    That said I would guess it is more complex and that many factors go into it. I am not an European accounting expert but I would also guess Airbus would need to take significant charges against earnings if it cancels the A380 project in 2018 as debt that they hoped to repay with aircraft sales then has to be repaid with other earnings.

  15. Dan – Yes, I am aware of that. But as I stated earlier, you will not find news in the financial or investment media saying the drop was due to possible halt of A380. Since there was correlation between the stock price drop after the investor conference and A380 production halt possibility in 2018, some media incorrectly reported that this was why the stock dropped and then more media pick it up, like the BBC. But that is not the reason why investor sold the stock. But if you want to believe investor sold the stock due to possible halt of production of the A380, then it is fine with me – just like it is fine with me that my kids believe in Santa Klaus ☺

  16. Probably should have been more clear. Airbus stock was already down on the year before this investor meeting and a portion of that was due to known problems with the A380 orderbook. This most recent decline was likely due only to the investor meeting you reference but the overall decline over the past 12 months is almost certainly partially related to the A380s poor sales performance. I am guessing you agree that the poor A380 sales figures over the past 12 months have been a drag on earnings and therefore Airbus stock price?

  17. BHill –

    I’m glad you’ve spent the time surveying a statistically significant number of investors to determine something that flies I’m the face of conventional knowledge and common sense.

    If you don’t believe knowledgable investors are primarily driven by forward looking metrics, than I relieved you have no control over my portfolio.

    The shutdown of a major product line is not good news for any company’s bottom line…. And especially in aerospace where the upfront costs (which will now have to be written off) are so enormous.

  18. I recently flew Asiana’s A380 Suites to ICN and returned on ANA’s First Square 77W. The A380 is so much more comfortable than a 777. More space, bigger suite, nice big lavs that I can actually change in without stepping in piss. That said, I agree with Clark that airlines like Asiana did not fully deliver the potential – especially with the lounge/bar. Even the FA’s thought Asiana’s bench upstairs was silly.

    While Asiana is struggling and discounting to fill their A380s, it seems like ANA could use these larger planes given their consistently full flights to the US. It would be fun to see what the Japanese could do with the lounge and extra space – much like we saw in the 70’s with the 747.

  19. Dan – On December 6th 2013, the stock was around 50. And just a couple of days ago before the latest investor conference the stock was also around 50, just before the dramatic drop. But the stock has been between 55 – 42 in the past 12 months, and granted the trend line slants slightly downward over the past 12 months, but that has got nothing to do with A380. Part of it was to due to reduced defense spending.

    ********
    Ron – Dude, chill..have some Krug for goodness sake 😉

    It has been known for years the sales of the A380 were not as good as hoped and it has been a loss making production line. The development cost will have been amortized by 2018 anyway so no write down needed. If Airbus stopped a loss making production line would that not be good for the stock? Your argument is an oxymoron.

  20. “The A380 is so much more comfortable than a 777. More space, bigger suite, nice big lavs that I can actually change in without stepping in piss.”

    Yeah, that is great for the few people traveling in first class. Economy passengers probably don’t care either way.

  21. Many people just but their tickets off of Priceline, and don’t even know which airline they are flying until they get to the airport. The business is about price, frequencies, and direct flights.

  22. @alex here here! Ive got no status on any airline at the moment and especially considering the latest frequent flyer program changes, given that I fly only 3-4 times per year, it’s purely about the price/travel time for me. I’m not choosing a 2 stop over direct to save a hundo but if 2 airlines offer directs departing at roughly the same time, if one is even a dollar cheaper I just go with that because it doesn’t matter to me. Not including spirit!

  23. (“The A380 is so much more comfortable than a 777. More space, bigger suite, nice big lavs that I can actually change in without stepping in piss.”

    Yeah, that is great for the few people traveling in first class. Economy passengers probably don’t care either way.)

    Business Class passengers also get to use the bigger lavs and bar (on a well-designed A380). Economy passengers are just livestock cargo (but I think their lav is also bigger on A380s). Perhaps a new A380 carrier like JAL could provide each First Class passenger with a bar guest pass to give to an attractive economy class passenger of their choosing.

  24. The A380 was (is) a groundbreaking aircraft a decade ago. What made a person watch the documentaries on it and what attracts customers is not the passenger weightage but those features on the A380 not present in other aircrafts. The A380, at least in the premium cabins, has redefined what airlines can do. An airline should ideally get A380s at a lower configuration for the next 20 years. Of course, I am talking about big city hub airlines like BA and AF. These airlines can use the A380 to attract both the economy class passengers as well as the business class passengers. Remember the concorde? I hope the A380 doesn’t go down that route

  25. I’ve said it before and I’ll say it again…TIM better have a turbo charged camel to escape with when the Royal ‘Heads’ finally crunch the numbers, and realize what a revenue hole they’ve gotten themselves into….
    As far as ‘hub to hub’ ORD has not and to my knowledge ever will, accept A380’s OMG were the Daley Dukes actually prescient ???

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