An Unlikely Giant in the Sky--The Airbus A380

Airbus Group (NASDAQOTH: EADSY  ) is having a hard time selling its largest commercial jet in the U.S. In fact, out of the 324 A380 planes the European aircraft manufacturer has already built, or is currently building, it has failed to sell a single one to any U.S. carrier. Although some remain optimistic, I find it unlikely that the U.S. carriers will change their minds.

A380 aerial view

The Airbus A380 has a wingspan of nearly 80 meters.  Photo Credit: Airbus. 

A simple explanation for the lack of interest in the A380 shown by U.S. carriers is that the jet is too large for American routes. Most planes travel short distances and have a quick turnaround. The A380, however, holds anywhere from 525 to 853 passengers depending on cabin configuration, and cannot be flown multiple times per day, as many smaller planes are. If an American carrier feels it will not be able to run enough flights with the A380 with full (or nearly full) capacity, then it seems reasonable for them to pass on this particular model.

Why sell in the U.S.?
Although Airbus has failed to sell or lease an A380 to a U.S. carrier, it has sold a few hundred globally, half of which it has already delivered. Most orders for the A380 are from the United Arab Emirates (140 orders), and from Qatar and Singapore (about 50 orders total). Other customers include China, South Korea, and Germany.

Having successfully sold its massive jet in markets outside of the U.S., does Airbus care about the lack of interest from American carriers? Well, it certainly should. The U.S. has always boasted the highest volume of air transport. According to data from The World Bank, the U.S. has accounted for over a quarter of global air traffic each year by number of passengers, going at least as far back as 1970, when it accounted for over half of all traffic. 

If Airbus is unable to sell in the U.S., it is forgoing the largest single market for aircraft in the world. Airbus spent roughly $15 billion to develop the A380, which carries a listing price of $300 million per plane. It is reasonable to assume that the possibility of selling even a few A380s in the U.S. is highly desirable, and worth significant efforts to the company. 

Trends in air travel
The A380 is nice. Really nice. The massive plane offers a comfortable and innovative cabin, with ultramodern design and technological integration, showcased in this video. Customers also have the option to socialize in on-flight communal lounges, and even fly in private cabin suite rooms.

Wide stairs offer easy access the upper deck area

The spacious, modern interior of the A380. Photo credit: Airbus. 

Although the designs and innovations in the A380 are impressive, there has been a recent trend in U.S. air travel that makes widespread demand for these premium accomodations seem unlikely. The growing popularity of Spirit Airlines (NASDAQ: SAVE  ) hints at the commoditization of air travel in the U.S. Spirit is an ultra-economy carrier offering bare-bones services for super-low prices. Despite the apparent unpleasantness of the Spirit experience, their flights are generally full, suggesting that American fliers desire low prices above quality of service. And a recent article explains that low fare/low service air travel may not even be so new of a trend.  Perhaps most Americans are not interested in paying a premium for a more comfortable flight. 

The A380 in the U.S.
I think it is unlikely a U.S. carrier will adopt the A380.  American passengers are demanding less expensive flights, and rich passengers in particular are likely more concerned about booking flights that fit their schedules than having the opportunity to lay down in a personal bed while in the air for just a few hours.  In addition to low demand from passengers, however, an even larger obstacle may be airports themselves.

The A380 is too large for most airports.  They need longer runways for takeoff, wider lanes for taxiing, and larger lobbies to fit 700+ passengers and their luggage.  A handful of the largest airports in the country currently accommodate A380 international flights, including JFK, LAX, and San Francisco International. 

Even if a carrier were tried to assign an A380 only to the most heavily traveled, longest domestic flights in the U.S., it doesn't seem worth the cost of using the larger plane.  Maybe some passengers flying from New York to Miami, or LA to Chicago would choose the jumbo luxury experience, and certainly these passengers may have the means to do so, as these are the wealthiest cities in the country.  But more likely than not, most passengers will appreciate lower cost flights that better fit their schedules-an effect of smaller planes making more frequent trips. 

Note to investors (and passengers)
I believe that it is possible that a U.S. carrier will start using the A380.  If a single carrier used the A380, this could present a competitive advantage over its competitors, being able to offer luxury and prestigious domestic travel.  However, I think that the challenges to filling up that many seats are too large to make it a profitable investment, and so I do not think this is likely to happen.  If you're excited about experiencing the A380 yourself, you'll likely have to look overseas.

At least one lessor of A380s remains optimistic however.  Mark Lapidus of Amedeo predicts that Delta Air Lines (NYSE: DAL  ) will fly the A380.  Personally, I'll believe it when I hear this interest coming directly from the carrier itself.  Until then, I'll remain skeptical.   What do you think?  These jumbo jets represent hundreds of millions of dollars of investment; the decision to fly (or to continue not to fly) could have significant impacts on earnings for shareholders.  

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Read/Post Comments (8) | Recommend This Article (11)

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  • Report this Comment On July 22, 2014, at 7:24 AM, RandiRN wrote:

    The place I expect a domestic airline to us an A-380, would be on a route where they used the 747. However, the airlines could now purchase a 747-8 which would transport almost as many people as the "Bus". The 747-8 would not require the airport changes that the A-380 needs.

  • Report this Comment On July 22, 2014, at 9:10 AM, reeshau wrote:

    Brian,

    Supposing that a US airline has to be targeting domestic travel for the A380 is not a logical point of view. No current A380 customer uses them for their domestic travel, after all.

    The point about airport accommodations is valid. It can cost upwards of $1B in renovations to accommodate the plane. But as you also point out, there are several airports that have gates to do so. As Randi points out above, the natural succession is for current 747 routes. These can either move down in scale (slightly) to 777, stay the same with the 747 Intercontinental (which few have) or scale up to the A380.

    One thing that really skews the numbers for the A380 is Emirates airlines. Including delivered planes and future orders, they alone are responsible for 75% of the A380 fleet. This is a specifc niche (if you can call it that) of intercontinental traffic between Europe and Asia, whose effectiveness has been cited by both Lufthansa and Air France as being a problem for them.

    Outside of this, perhaps the best thing to look at is where an A380 carrier competes with a 777, 747, or 787 carrier for passengers. US carriers clearly value frequency and destination network (more, smaller destinations) than feeding a foreign hub. (an A380 requires large hubs on both ends of its route) That is a strategy that can be measured by public opinion and financial results.

  • Report this Comment On July 22, 2014, at 9:23 AM, Tyeward wrote:

    I´m sorry, but if I was running an airline and that airline had a decent balance of international traffic to destinations under the multi hub concept, I wouldn´t bother looking at this aircraft. US carriers won´t be so keen on the idea of shifting their network around just to accommodate a specific type of aircraft.

  • Report this Comment On July 22, 2014, at 11:50 AM, M1k3G wrote:

    American carriers don't only fly domestic routes. Any long-haul overseas route would support these planes.

  • Report this Comment On July 22, 2014, at 3:25 PM, flyguy51 wrote:

    As an airline captain I have to say that I view the 380 as another Concorde. It is technologically feasible but a financial disaster. Only a few airports can handle them and the ones that do find that they put a strain on customs and handling every time they arrive. It is absolutely tearing up the taxiways at LAX. I understand that the wings are already developing cracks. To get the efficiency out of them, the 380 must be flown quite a bit slower than the 747. I've been told it's 2 hours slower on the LA to Sydney run at QANTAS.

    I have flown aircraft from Airbus and Boeing and they have 2 distinctly different philosophies. At Boeing, the computer is there to assist the pilot, while at Airbus, the pilot it there to assist the computer. Airbuses are throw away airplanes designed for 3rd world countries. Sorry, but if it ain't Boeing, I ain't going.

  • Report this Comment On July 22, 2014, at 4:10 PM, sctrojans wrote:

    The reporter failed to mention that the A380 is an aircraft used on long haul routes and not on domestic services. There is a big room of opportunity for the A380 and US Airlines.

    Take the example of British Airways in the LHR-LAX segment, the company dropped its 3x a day 777 service to 2x a day A380 without compromising capacity. The A380 has a lower per seat cost of operating than the 777.

    Airlines such as UA, DL and AA could use the A380 in densely competitive markets such as LHR, CDG, FRA, PEK, NRT, MAD, FCO, MUC, GRU, GIG, SYD.

    Failure to do so will make US carriers uncompetitive to other airlines of the world as these would have lower operating costs per seat.

    Try selling a more expensive ticket on a smaller plane to a passenger with inferior services and see how you fare.

    The A380 is very present in the United States, with daily services to JFK, IAD, DFW, IAH, LAX, SFO and MIA. Los Angeles is the leading non-hub A380 destination. The question here is which battle do the legacy carriers want to pick? Option A combat the low-cost Spirit in the low-yield domestic market, or maintain their position in the high-yield trans-continental service where they are slowly losing ground to Emirates, Lufthansa, British, Quantas, Air China, Korean Air, etc.

    US Airlines need to replace the more than 40 747-400 on their fleets, they can downsize to the 777, pick the more sardine packed 787 (one less inch in seat width, try that in a trans-continental flight) and double frequencies (good luck with JFK, LHR slots), or join Emirates, Singapore, British, Luftansa, etc offering the A380.

  • Report this Comment On July 22, 2014, at 7:21 PM, tyminator wrote:

    U.S. travelers are, unfortunately, accustomed to lack of service. It doesn't matter what the plane is; how am I going to be treated on the flight? Is it worth the $$$. Example: I flew AA roundtrip from LA to Paris. Going there was terrible - only 4 beverage services, with only 2 of them including snacks. Coming back, leaving Paris with mostly international clients, we had 7 total services: 2 meals, 2 beverage, and 3 beverage + snack. Would somebody please explain why that happens? I would certainly pay a bit more if I got more in return. I don't care about the plane - I want the services. International airlines get it.

  • Report this Comment On July 23, 2014, at 1:50 AM, rrich wrote:

    The logic is simple, can I endure <unnamed airline> atrocious service and discomfort for a few hours? It depends upon how much I can save.

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