For many years, Airbus (NASDAQOTH:EADSY) has been dogged by weak demand for its massive A380 jumbo jet. While Airbus has long believed that airport congestion will force airlines to use bigger and bigger jets, jumbo jets have instead been falling out of favor.
Indeed, Airbus has received just two A380 orders year to date, offset by two cancellations. Thus, the A380 order backlog is shrinking quickly -- especially when you exclude orders that airlines are likely to cancel.
As a result, Airbus is eagerly looking for any airline that might be interested in buying A380s. Surprisingly, Hawaiian Holdings (NASDAQ:HA) CEO Mark Dunkerley revealed last week that his company has made "initial inquiries" about the A380. Nevertheless, it's quite unlikely that Hawaiian Airlines will add the A380 to its fleet.
Airbus slashes production and looks for new orders
After many years of losses, the A380 program finally broke even last year on 27 deliveries. However, that production rate is unsustainable due to the lack of order activity recently.
Airbus finally acknowledged reality back in July, announcing that it would cut production by more than 50% to a rate of one per month in 2018. Airbus is working hard to reduce A380 production costs to make that rate viable. However, it will still almost certainly lose money building only 12 A380s per year.
That said, the company remains publicly committed to the A380 program for the long run. Airbus executives appear to be optimistic that orders will recover eventually, particularly as air travel growth increases airport congestion. The goal is simply to find enough takers for the A380 to keep production going until demand recovers.
More A380s coming to Hawaii?
At first, the idea of little Hawaiian Airlines buying the A380 might seem crazy. However, the company already operates a fleet of more than 30 widebodies to fly from Hawaii to the U.S. West Coast, Asia, and the South Pacific. It offers multiple daily widebody flights from a handful of its gateway cities, including Los Angeles, Tokyo, and Las Vegas.
In theory, introducing the A380 would enable Hawaiian Airlines to consolidate frequencies (i.e., operating one A380 flight a day instead of two A330 flights). It would also allow the company to continue growing at Tokyo's Haneda Airport, where it can't add extra flights.
Japan's ANA seems to be following this strategy. It ordered three A380s late last year and plans to use them primarily for its flights from Tokyo to Hawaii.
However, based on Hawaiian Airlines CEO Dunkerley's comments, it wasn't clear how serious the company's discussions with Airbus about the A380 have been. There are some good reasons to doubt that they will lead anywhere.
Bigger planes or more flight options?
First, there's value in having multiple daily flights on busy routes. For example, Hawaiian Airlines flies from Los Angeles to Honolulu at 7:45 a.m., 10:00 a.m., and 5:05 p.m. Customers have different preferences about when to travel, and this allows Hawaiian to meet their needs. The carrier wouldn't be able to fill three A380s a day on that route without significantly reducing its fares.
Second, in the next few years, Hawaiian Airlines plans to introduce more nonstop flights from the West Coast to destinations in Hawaii other than Honolulu. These new routes will cannibalize some business that would otherwise connect in Honolulu. That leaves even less need for Hawaiian to operate jumbo jets like the A380.
There's a middle ground
The biggest reason for Hawaiian Airlines to pass on the A380 is that it could instead buy Airbus' new A330-900neo and capture a lot of the upside of operating larger jets without the downsides of the A380.
The A330-900neo is a larger, updated version of the A330-200, the backbone of Hawaiian's current long-haul fleet. It will be able to hold about 15% more seats than the A330-200 while costing about the same amount per trip to operate. Additionally, it would integrate seamlessly with the existing A330 fleet in terms of pilot training and spare parts.
Thus, if Hawaiian Airlines decides it wants to add larger planes to its fleet, the A330-900neo would be a much more natural choice than the A380. It would reduce Hawaiian's unit costs and provide incremental seats on key routes without flooding the market with excess capacity. With that alternative available, it's hard to imagine Hawaiian Airlines buying Airbus' ailing jumbo jet.