Not too long ago, jumbo jets were considered the flagship products of The Boeing Co. (NYSE:BA) and top rival Airbus.
The Boeing 747 is arguably the most iconic plane of all time, and last year it became the first wide-body aircraft to reach 1,500 deliveries. Airbus entered the jumbo-jet market nearly a decade ago after spending tens of billions of dollars to develop the A380.
Yet A380 sales have fallen far short of projections with 317 orders, compared to Airbus' original market projection of demand for 1,200 planes. Demand for the latest passenger version of the Boeing 747 has been even worse, with just 51 orders since it went on sale nearly a decade ago.
There are a number of reasons why Boeing and Airbus are having so much trouble selling their jumbo jets. But one critical cause has been largely overlooked: the trend among airlines toward increasing seating density.
Adding capacity on key routes
One key idea behind the business case for the Airbus A380 was that air traffic was doubling every 15 years and key airports were getting crowded. Indeed, numerous hub airports in major cities across the world -- including New York, London, Chicago, and Frankfurt -- are at or near their capacity limits for one reason or another.
Airbus figured that if key airport hubs could not accommodate additional flights, then airlines would need bigger planes to meet rising travel demand. Accordingly, it built a plane that was significantly larger than the only other jumbo jet on the market, Boeing's 747.
Airbus markets the A380 with a standard configuration holding 525 passengers in three classes. The maximum capacity is 853 seats. Boeing advertises a capacity of 467 passengers for the 747-8I with a standard three-class configuration -- although it's not an apples-to-apples comparison. (With similar layouts, the 747 would have space for about 405 seats.)
Both jumbo jets are significantly larger than the Boeing 777-300ER, the next-largest plane in production. (Boeing puts its capacity in a three-class configuration at 386 seats.) In theory, this makes the 747 and the A380 good candidates for adding capacity at overcrowded airports.
There's another way
However, airlines have recently discovered an even better way to add capacity -- put more seats on smaller planes. While passengers prefer to have more space, particularly on long-haul flights, most people have not been willing to pay much of a premium for that extra space. Airlines that add seats to their planes have not suffered any long-term backlash.
Thus, Air Canada updated some of its 777-300ERs from a 349-seat configuration to a denser 458-seat configuration. Adding these seats meant shrinking the business class cabin from 42 seats to 36 seats. Some business class seats won't have direct aisle access, unlike the standard configuration. Meanwhile, economy seats will lose an inch of legroom and will be narrower (10 seats per row instead of 9 across).
Yet the discomfort these changes might cause is far outweighed by the more than 30% increase in capacity. Air Canada can offset any deterioration in fares with significantly lower costs per seat.
Not a fair fight
By contrast, the airlines using the Boeing 747-8I and the A380 have generally made them at least as roomy as the "standard three-class configuration" models. Lufthansa, the main operator of the 747-8I, outfits them with just 340-386 seats. Most A380s are set up with roughly 500 seats. In the most extreme example, Korean Air places just 407 seats on its A380s!
With comparable seating configurations, the Boeing 777-300ER is slightly more fuel-efficient than either the 747-8I or the A380, according to an analysis by Leeham Co. It also has lower maintenance costs, thanks to having only two engines, while the 747 and A380 are both four-engine planes.
As airlines raise the seating density on their 777s, what began as a minor unit cost gap is becoming a wide gulf. In Air Canada's 458-seat configuration, the Boeing 777-300ER attains a massive unit cost advantage over the 747-8I and the A380. (In fact, Air Canada's 458-seat 777-300ER probably has a cost per seat that is 40%-50% below that of Korean Air's 407-seat A380.)
Still not enough demand
Obviously, jumbo-jet operators could strike back by putting more seats on their 747s and A380s to level the playing field. Indeed, Emirates recently decided to outfit some of its A380s with denser two-class cabins with more than 600 seats.
However, a limited number of routes can handle that much capacity. Furthermore, an A380 seating layout that was truly comparable to Air Canada's dense 777-300ER layout would have more than 700 seats.
Thus, the increase in typical aircraft seating density is a big reason behind the weak A380 and 747-8I sales. Not too long ago, a 777-300ER would normally have been configured with about 300 seats. In that world, there was a clear market for larger, 400-500 seat planes to serve busy, capacity-constrained airports.
With seating density on 777s quickly rising, the market for even larger aircraft is fading. (The next-generation 777-9X will be more sizable and fuel-efficient than the 777-300ER, accelerating this phenomenon.) Airlines have realized they don't necessarily need "more airplane" to put more seats on busy routes.
A 400-seat 747 or a 500-seat A380 will clearly be more comfortable for passengers, especially in the cheap seats. But the more that economy-class passengers come to expect that they will be crammed in like sardines, the greater the argument for putting 400-500 seats on a 777 instead. Airlines can't get enough of a premium for the extra space on a jumbo jet to justify the extra cost.
Perhaps there will eventually be enough demand at capacity-constrained airports to create a significant market for 600-800 seat jumbo jets. Until that is the case, Boeing 747 and Airbus A380 orders will probably remain few and far between.