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Aviation: Emirates explores fleet changes

Fascinating reports emerged today suggesting that Emirates and Airbus are locked into negotiations over 36 Airbus A380s the Middle Eastern carrier has commitments for. Some of these orders are conditional and various parties are postulating that they could be switched to smaller twin-engined Airbus A350s or even A330neos. At least one pundit also claims Emirates' interest in 40 Boeing 787s - for which a memorandum of understanding (MoU) was signed in 2017, but no firm order has yet been placed - might be at risk too.

Emirates' follow-on order for A380 has been delayed due to disputes over engine performance and durability, with the airline seeking guarantees manufacturers have been unwilling to provide. Cancellation of those 36 aircraft would almost certainly spell a premature end to production of Airbus' double-decker giant. With all but three outstanding firm orders destined for Emirates, output would undoubtedly cease before the middle of the next decade and maybe as soon as 2023.

Does Emirates need more A380s?

Its interesting to note that Emirates' load factor (the percentage of seats occupied) has hovered between 77% and 80% over the last ten years. The double-decker has an obvious advantage on routes where it can be consistently filled, but the higher fuel burn from four engines means it loses more money than smaller aircraft when it is flown with a lot of unoccupied seats or space has to be sold at low fares to fill it up.

The airline's A380s come in three different configurations and can accommodate from 489 to 615 passengers. Emirates' typical 80% load factor means that between 391 and 492 customers will be on each flight. But the airline also has 115 777-9 aircraft on order which are likely to seat between 380 and 440 passengers. So from next year the first tranche of larger 777s aircraft could deliver some of the A380 lift without leaving passengers behind, enabling the existing Airbus to cover the busier routes. Unless Emirates can nudge its load factors into the 90s it is unlikely to leak many high-value customers to its rivals. And a knock-on effect of downsizing some services is that is better occupancy rates might make fares rises possible - although the competitive landscape will also play into that equation.

Questions over whether Emirates will take 36 additional A380s are beginning to emerge. (Anna Zvereva)

Nevertheless airliners are typically flown for more than a decade - Emirates tends to dispose of its aircraft after 12 years or so. Acquisition strategies are based around forecast growth in demand as well as current day economics, and while Emirates' A380s might not all be full now they could be in the early 2030s. However, although the Middle East has grown rapidly over the last two decades Dubai International Airport is now almost full and signs are that the upward trend is flattening a little. Its therefore not a stretch to wonder whether Emirates really needs more than the 109 A380s it currently operates.

Alternatives

Emirates will already have substantial sums tied up in deposits for some of the A380s it has on order. Cancellations typically forfeit pre-delivery payments, but the money can usually be switched to alternative products in the same manufacturers line-up. So the idea that Emirates might move its commitments from A380s to smaller A350s or A330neos is potentially feasible. The parties involved in the discussions are currently staying tight-lipped so it is impossible to be sure where the motivation for these changes really comes from. Emirates may well have decided that enough is enough as far as the A380 is concerned - or it might be threatening to switch to other aircraft as a bargaining lever. Equally though, Airbus makes a loss on each A380 it builds and the contract developments might point to the manufacturer wanting to call time on the program unless Emirates makes another firm commitment quickly.

Emirates signed a MoU for 787s more than a year ago but has yet to firm up the order. (Boeing)

Questions also arise as to why the airline hasn't firmed up its 40 aircraft 787 order, more than a year after the MoU was signed. Could it be that Emirates wants to settle plans for its very large aircraft first, given this could play into the next size down? The alternatives have some potential. Boeing 787-10s and Airbus A330neos work very well in the regional and mid-haul market where Emirates currently operates larger 777-300s and some A380s. Downsizing would enable increased frequencies and help maintain fares. Similarly the A350-9 and 787-9 are solid long-haul performers that could serve the US east coast from Dubai to the same effect.

It will be fascinating to watch developments with the potential Emirates' Airbus and Boeing orders. But if its outstanding commitments are not finalised or are cancelled soon, ongoing production of the A380 will be on borrowed time.

Text © The Aviation Oracle

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