Will the biggest bird find a new nest in the VVIP and ACMI markets?

25 May, 2017

Now in the tenth year of Airbus A380 operations, it is clear that the aircraft has not been the commercial success that Airbus hoped, although you certainly will not be hearing any executive of the company stating this publicly. Maybe the aircraft arrived in the marketplace at the wrong time. Perhaps the SuperJumbo’s time has yet to come with infrastructure congestion sure to be a topic discussed with greater regularity in the coming years. What is sure is the aircraft will always remain a niche option, but that exclusivity may just open the door to new markets for the type.

When Airbus first launched the A380 the marketing team at the European manufacturer had a field day. From bowling alleys to cinemas, the Super Jumbo was set to become the cruise ship of the skies. However, with the exception of First Class showers, bars and even a small art gallery, such innovations have been ignored by operators in return for maximising seating capacity to deliver the best economics to the airlines and comfort to passengers.

But far from its maximum capacity of 853 passengers, all the airlines to operate the type have decided upon three or four class arrangements seating around 500-500 passengers, with the most densely configured aircraft – one of a number of layouts for Emirates Airlines - providing 615-seats in a two-class offer.

Since its entry into commercial service in October 2007 with Singapore Airlines, the manufacturer may have added to its backlog, but the almost all of these orders have come from repeat customers and the majority have been from the largest operator Emirates Airline. In fact over the past two years Airbus has added just two units to its backlog as Emirates has grown its overall commitment to 142 aircraft, of which more than 90 are already in service.

There has also been limited interest in the second-hand market as both Singapore Airlines and Malaysia Airlines have looked at possible future deals to place some of their aircraft in recent years. This has resulted in some innovative solutions to find new homes for these aircraft are opposite end of the spectrum – a VVIP transport and a dense 700-seat configuration for special charters.

Singapore Airlines, the launch customer for the A380, has confirmed that although it will retire some of its early production A380s, it remains committed to the aircraft and still sees a role for the aircraft, particularly on high-demand routes to slot-constrained airports. However, in the past couple of weeks it has confirmed that four of its early aircraft will be retired when their leases expire in 2018 and these are thought to be the aircraft now being marketed by Swiss company Sparfell & Partners for sale in a Head-of-State configuration in cooperation with specialist aircraft interior designer Winch Design.

Although the company declines to reveal the source of the aircraft, an advert marketing its Head-of-State VVIP conversion, clearly identifies the aircraft as 2007 and 2008 year of builds, Rolls-Royce Trent-powered with an existing 12F, 60C, 369Y cabin arrangement (as currently used by Singapore Airlines on its oldest aircraft).

Airbus has always seen a potential market for a corporate version of the A380 with its 10,000 square feet of available floor area on two decks affording the ACJ380, which it also dubbed the ‘Flying Palace’, more room for ideas and wishes than any other VIP aircraft on the market. In fact Saudi Arabia’s HRH Prince Alwaleed bin Talal bin Abdulaziz Alsaud, Chairman of Kingdom Holding company, placed an order for the aircraft to a great fanfare at the Dubai Air Show in November 2007, but subsequently cancelled the commitment earlier this decade before the aircraft entered production.

Another potential second-hand market for the A380 will be at the opposite end of the market as an ACMI (aircraft, crew, maintenance and insurance) lease provider and is a scenario being backed by Malaysia Airlines. It has become clear that for the Asian airline the aircraft is just too large to sustainably serve markets. It has already dropped the aircraft from the Kuala Lumpur – Paris market and will soon replace its remaining aircraft on the Kuala Lumpur – London route with smaller twin-engined A330s.

Its failings to secure new customers for its fleet has pushed it to establish a sister airline venture that is expected to take over the operation of its A380 fleet and operate them for specific missions (such as Hajj and Umrah) and on wet-lease agreements for other operators not wishing to fully commit to acquiring their own aircraft. These are likely to include configurations maintaining their current 496-seat layout, a 605-seat two-class option and a 700-seat, all-Economy offer, to meet expected demand.

So, are there really enough untapped opportunities for using the largest jets? There is certainly a volume of predictable movement related to religious pilgrimage to support the operation of large capacity airliners. Likewise, airlines may have one or two routes that can support regular A380 operations, but perhaps these are only seasonal or even shorter seasons and would not support the costs associated with flying the aircraft themselves and could be open to the supply of aircraft on short- or medium-term wet-lease deals to support demand peaks.

It is normal for passenger aircraft programmes to gain an extended life in the freighter market as reduced hull prices makes a conversion programme a favourable option. However, that is unlikely in the case of the A380, as rival Boeing has effectively closed the door to this with the 747-8. While the US manufacturer may not have invested as heavily in the ultra-large sized aircraft market, the 747-8 stretch of the famous Jumbo Jet has witnessing the same demand issues as Airbus. Only Air China, Korean Air and Lufthansa have signed up to the 747-8I Intercontinental, the passenger version of the aircraft, and just 34 aircraft are in service. Interestingly two of these three operators are also customers for the A380.

With Airbus having dropped its earlier plans to produce a new-build freighter variant of the A380, Boeing has been able to grow its 747-8 customer base, with over 70% of the 110 aircraft in service being dedicated freighter aircraft serving with the likes of AirBridgeCargo Airlines, Atlas Air, Cargolux, Cathay Pacific Cargo, Korean Air Cargo, Nippon Cargo Airlines, Saudia Cargo, SilkWay Airlines and Volga-Dnepr Airlines. A recent deal from UPS Airlines, originally a customer for the A380 freighter has guaranteed 747 production for at least a couple more years.

The A380 freighter programme secured initial interest from the likes of FedEx and UPS Airlines thanks to its 150 tonne payload promise, but the aircraft was not designed with cargo in mind and thus could not deliver economically against other aircraft. The sales of the 747-8F will make it difficult for the type to succeed as a converted freighter unless hull prices fall to rock-bottom in a suppressed second-hand market as otherwise there will be no return on investment.

The demand for airliners in the ultra-sized market was always going to be small relative to other sectors, especially as developments with engine technology have allowed widebodied twins to fly as far, but significantly more efficiently than the four engined A380s and 747s. Airbus claimed a strong need for the Super Jumbo to support airport congestion and serve hub-to-hub markets.

According to CAPA fleet data, only 13 airlines currently operate the A380, with over 210 aircraft now in service. The outstanding Airbus orderbook of just over 100 aircraft includes orders that are unlikely to be fulfilled including aircraft for Virgin Atlantic Airways and additional commitments from existing customers such as Qantas and Singapore Airlines. All Nippon Airways (ANA) is the only new customer for the type with three aircraft due in 2019, although the orderbook does include aircraft with lessors Air Accord and Amedo that are yet to be placed.

A closer look at A380 operations shows that the aircraft has partly delivered on the Airbus promise of hub flying, with Dubai International, London Heathrow, Singapore Changi, Bangkok Suvarnabhumi and Sydney airports the largest gateways for A380 operations this summer. The aircraft has certainly allowed airlines to boost capacity on busy routes such as Emirates between Dubai and the UK, while British Airways and some others have used the aircraft to merge two rotations into one and redeploy assets elsewhere.

It is clear that market conditions and competition from other aircraft programmes has limited the need for ultra-large airliners such as the A380 and 747-8I. However, as the global industry continues its rapid growth and with airport congestion likely to remain and potentially further develop as a major constraint on the system, there could be a future rise in demand for these airliners. There are certainly hub-to-hub markets that easily support such high-demand airliners and in the future likely to be an increasing number of city pairs that could also support such aircraft.