Dubai Airshow

Emirates A380 Business Model Remains in Question

 - November 15, 2019, 6:40 AM
Whether or not the elegantly gigantic A380 makes business sense, there is no doubt that it is a pleasure for passengers and a fun adventure to visit on the Dubai Airshow static display.

With the fleet having fallen by two units to 268 aircraft as of September 18, from 270 aircraft at the end of the financial year in March, Emirates’ fleet growth appears to be static. Twin-engine supremacy, symbolized by the Boeing 787 and Airbus A350, has called into question Emirates’ A380 model.

“I don't think it ever was a bad idea,” Peter Morris, chief economist, Ascend by Cirius, told AIN. “[It] managed to create a unique business model that nobody could follow. Nobody had that scale of aircraft interconnecting through a central point, which in this business is usually all about competition.”

Morris believes the airline not only took traffic from other big players but also generated a large amount that wouldn't otherwise have occurred. “The classic example [would be] the UK Midlands-to-Australia-type traffic, where people would have had to drive down to London, stay in a hotel, then go over Singapore and so on. Now, you get a flight from Birmingham to Dubai to Australia. In other words, you should have only two sectors and it's a lot less hassle.”

By targeting particularly regional markets in the UK, Emirates developed a business that British Airways (BA) was not interested in. “Emirates provided a service, and when you're talking about around 60 cities in Europe connected to Dubai…and then onwards to Africa, to Asia, and so on, it provides a degree of alternate choice,” he said. “It's got a robustness and that goes back to the original point that the A380s give a competitive advantage, as nobody else can provide that kind of degree of capacity.

“It's been very effective in building their global route network. Now it's a given. You can now start talking about different aircraft. I still think that it's unlikely that they will downsize to a Boeing 787 type of operation. It's that they need that volume going through Dubai to keep the whole model ticking over.”

In contrast, Richard Aboulafia, vice president of analysis, Teal Group, of Fairfax, Virginia, has reservations about the Emirates A380. “The A380 is probably their only mistake. They face tough calls and easy calls this year. They are keeping very quiet. Things will happen, as they certainly don’t need the extra capacity; their route network would be far better off without the A380. What would happen if passenger numbers fell 20 percent? Also, if they could get rid of the most heavily discounted fare passengers, on a fleet of A350s or 777s, they would be rolling in cash.”

He also demurs on the airline’s orders for the Boeing 777X, which now stands at 150 aircraft. “Emirates may have been wrong on the 777X, or at least on the size of their order; the 787 would have been the one to go for. The notional 777-10, and the A350-1000 are in the same bracket as the 777X, in that few airlines want larger than 300-seat planes right now.

“I understand why Emirates are curbing capacity. Geopolitics, the macro-economy, and trade sanctions could easily lead to a cyclical downturn. That’s not showed up in the GDP numbers yet, but passenger traffic could be the canary in the coalmine. IATA’s numbers have taken a serious hit this year.”