Friday, October 19, 2007

Sizing Up the Next Generation of Aviation

Boeing 787 vs. Airbus A380
This week marks the advent of a very important milestone for Airbus, as it signifies the delivery of its very first A380 jumbo jet to Singapore Airlines. Loaded with over 80,000 gallons of fuel, an estimated range of 8000 nautical miles and a potential passenger capacity of 800, the A380 could theoretically average 80 mpg per person, assuming maximum capacity. Compared to the 45 mpg my 2006 TDI Volkswagen achieves transportating me to and from work, the A380 seems to reign supreme with regards to fuel efficiency. For the accomplished executives at Airbus, this statistic appears to be a chief selling point for the behemoth flying craft. While Airbus' latest achievement most certainty replaces rival Boeing's(BA) 747, does it really accomplish anything more than retire an already obsolete aircraft?


For Airbus, developing the A380 has been a tumultuous journey. For starters, this initial delivery is a casual two years behind scheduled. While the engineering complexities of this undertaking surpass my intellectual capabilities, Airbus's problems seem more deeply rooted than pure technical issues. During the past two years, the European aerospace manufacturer has cycled through 5 CEOs and has plans to eliminate 10,000 jobs over the next four years. The complications and subsequent delays have literally cost the firm billions of dollars in lost revenue. FedEx has canceled an order for 10 A380's and instead chose Boeing's(BA) smaller 777. Two additional firms, Virgin and UPS have also placed their orders on hold until at least 2013. Even with this first successful delivery, CEO Thomas Enders concluded that, "Increasing A380 production to meet demand remains Airbus' greatest challenge for the next years."

For BA, Airbus' problems have been a godsend as the 787 Dreamliner has a 5-year lead ahead of Airbus' A350 XWB, which has succumb to multiple redesigns and subsequent delays. To put it in perspective, BA has 50 customers for its 787 compared to a the 16 for Airbus' superjumbo. While BA does have the lead over Airbus it is however not devoid of set backs as the company recently disclosed a 6 month delay for the first delivery of its 787.

Where the A380 fails, the Dreamliner shines. Unlike the massive A380, the nimble 787 is capable of landing in nearly every major city. This allows for direct flights and avoids the hassle of hub transfers. Boeing's craft is also highly fuel efficient. With an estimated range of 3,050 nautical miles, a 33, 500 gallon fuel tank and a passenger capacity of 330, the 787 is calculated to achieve 20% greater fuel economy compared to similar size aircrafts. Boeing achieved this superior efficiency through the use of new materials, next generation engines and increased electrification, according to the Green Car Congress.

Does It Really Matter?

Even if Airbus is able to deliver to its existing customers how many additional orders can it realistically obtain? Does the demand exist for a football stadium capable of flying from New York to London? With oil trading in the high $85 per barrel range, and jet fuel commanding the highest variable cost per flight, airliners might be forced to choose fuel efficacy and functionality over luxury in order to remain competitive.

As I mentioned before, at capacity the A380 boost considerable fuel efficacy, but will carriers really attempt to pile 800 economy passengers into one vessel? And if so, how will already condensed economy passengers react to the multiple plane changes required to get them to their final destination? In Singapore's case, the airline equipped their A380 with 399 economy seats, 60 business class and 12 suites. With these numbers the A380's impressive estimated fuel economy drops significantly to 47 mpg per person. This reduction in fuel economy will most certainly have to be recouped with ticket premiums. According to the AP, the going rate for the inaugural Singapore to Sydney luxury suite will cost around $7,160 per ticket, which is a 20-35% premium over standard business class.

The world has seen its share of aviation giants long before the advent of this superjumbo. From the three story, 6-engine Dornier Do-X, to Howard Hughes' infamous 1947 "Spruce Goose", the world has hyped and eventually retired the majority of these flying leviathans. Only BA's 747 was capable of transcending the curse of these flying titans, but even the illustrious 747 has seen its career slowly dissolve, to make way for more fuel efficient replacements like 777. At this point, only time will predict if Airbus' A380 will survive the stigma these flying giants.

Disclosure: The author has no position in any of the aforementioned companies.

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