Yesterday, Airbus delivered Emirates’ first Airbus A380. The new aircraft will fly from Dubai direct to New York City. It will be the United State’s first regular A380 service as well as the Middle East’s first A380 service. This aircraft is the first of the 58 A380s that Emirates has ordered.
Another carrier flying the skies with the A380, Singapore Airlines, has announced that their load factors have decreased despite the greater available seat miles offered to passengers. The airline cites that fuel has contributed to this dilemma. This makes me wonder if he A380 came a little too late in the market for airlines.
As fuel prices have nearly doubled in the year, more than half of most airlines pay out over 50% of their expenses to fuel bills. Ryanair, a low-cost european carrier modeled similarly to Southwest Airlines, stated that they went from paying appx. 30% of their expenses on fuel (last year) to paying appx. 50%+ of their expenses of fuel. The carrier has announced that they will cut staffing at airports, also citing that their bases at Dublin and London Luton are their most expensive cities. Luckily, the carrier has focused on fuel efficiency and operates a fleet of 737-800s. Other carriers, such as Singapore Airlines and Emirates, are forced to pay high fuel bills with the growing A380 fleet, yet the passengers just aren’t there.
With the rising of ticket prices, the days of visiting family 500nm+ away is no longer a possibility for some families. Rising fuel costs will inevitably force 5 vacation round-trip flight families back to 1 vacation a year, depending on their wealth. Low-cost carriers won’t save these passengers, since legacy carriers attempt to maintain low-cost carrier fares (they just have more fees).
You should be getting the picture that more capacity vs. high fuel prices does not help airlines. Instead, it just adds unused seats to the market and forces airlines to pay a higher fuel bill. A few years ago, when these orders were places, the market was able to sustain the A380. It’s no doubt that New York to Dubai will be a crowded route, but with the 57 A380s that have yet to arrive, many of those will have unused capacity. The great thing about these two airlines is that they have large international traffic at their hubs, and not a great deal of competition out of these hubs (based in their cities). How many passengers want to wait an hour to board the A380 anyways? (Also, on a side note, knowing what Airbus knew in the late 90′s / early 2000′s, they should not have built the A380. The expected revenue (back in that time period) did not exceed R&D costs. It was a huge loss for Airbus, but helped with R&D with the A350.)
There are two sides to every issue. In this case, is the A380 going to help or hinder these airlines? Will it be a fuel-saving tool, compared to the 747? Or will it add too much capacity. I’m sure these airlines will place the A380 on large-demand routes, no doubt about it.
Image: airplanemart.com
Your analysis is interesting, but let me deal with two issues. On the routes where we are operating the A380, we are seeing load factors substantially higher than the network average. This is, in part, because the aircraft is deployed on routes where the capacity is needed and where additional capacity could not come by additional frequency due to slot and/or airport congestion. Singapore-London is the prime example. And while, in raw fuel consumption terms, the numbers may be higher for the A380, on a per seat mile basis, the aircraft is delivering substantial improvement in fuel efficiency over the older B747-400s.
Secondly, if you see our load factor results, let me give those some context. The reduction in load factor is not a sign that demand has weakened. In fact, number of passengers carried for the period April-June was a new record, up 3.5% on last year. And the difference in growth percentage between number of passengers carried and the RPKs points to more customers flying longer haul.
However, the reason you see the load factor reducing is that capacity is being added faster than it can be soaked up, even with the increased demand. Why is that the case? It is an unfortunate byproduct of the delays to deliveries of the A380s. Had they been delivered on time, we would likely be seeing a capacity increase of the norm – around 3-5% pa – over the past few years. Capacity grew 9.4%: entirely due to the bunching of deliveries of new aircraft which should have occurred during the last financial year. Capacity change in the first quarter last year over the year before was, in fact,
-1.5%, caused by retirement of some 744s but the failure of Airbus to deliver the A380s to match the planned retirement of the older aircraft. Even for the full financial year last year, capacity only grew 1.2%. The corresponding RPK growth, at more than double the ASK growth, had the effect of pushing the load factor very high.
So the bunching effect of delayed deliveries will impact year-on-year capacity growth for a little time yet. By definition, if RPK growth does not exceed ASK growth, Passenger Load Factor will fall. But that doesn’t mean there isn’t some growth in the market. The high ASK growth is artificially inflated because of the delays in delivery of the A380s, but over time, that will correct itself.
All of that does not change the fact that we are now operating in a climate of much more uncertainty than last year. Weaker economic conditions and staggeringly high fuel prices mean we are beset with challenges. However, we will continue to push foir new opportunities and carefully and prudently manage both costs and capacity to ensure we don’t lose sight of the need to achieve profitability, even in the most difficult of times.
Stephen Forshaw
Vice President Public Affairs
Singapore Airlines
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