Airbus Group (EADSY -0.67%) 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.
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.
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 (SAVE -2.90%) 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 (DAL -2.62%)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.
