Emirates A380 order: a last hurrah from the Middle East?

Airbus believes Asia now offers a bigger A380 market opportunity than the Middle East, with June's order for 32 more of the double-deck jetliner viewed as perhaps the final huge investment from the Arab region.

1st Jul 2010


Airbus believes Asia now offers a bigger A380 market opportunity than the Middle East, with June's order for 32 more of the double-deck jetliner viewed as perhaps the final huge investment from the Arab region.

The A380 was designed with both regions very much in mind. Still, Airbus Chief Executive Officer Tom Enders says: "I think we have exploited that [Arab] market already. Emirates supported the A380 from the earliest days and [this] increased order is the best endorsement."

The Dubai-based operator in early June ordered 32 Engine Alliance GP7200-powered A380s, nominally valued at US$11.5 billion, taking its total firm orders for the aircraft to 90. The carrier was an A380 launch customer, with an initial commitment for seven machines and options on a further five.

In February 2011, Emirates will start retiring almost 70 older widebody jetliners: Airbus A330-200s; A340-300s and -500s; and Boeing 777-200s, which are to be replaced by 777-300ERs and the forthcoming A350 XWB.

Chairman and chief executive Sheikh Ahmed Bin Saeed Al-Maktoum says the purchase confirms the airline's strategy to be a leading carrier and to establish Dubai as a central gateway to global travel. “Our latest commitment signals confidence in the growth to come, in a thriving aviation sector,” he says.

The carrier expects to become one of the world's largest airlines with this expansion. Prior to the latest acquisition, Emirates already had 143 twin-aisle aircraft on order – 48 Airbus A380s and 70 A350s, as well as 18 Boeing 777-300ERs and seven Boeing freighters – collectively worth more than US$48 billion at catalogue prices.

Emirates uses its current fleet of ten A380s to serve eight international destinations: Auckland, Bangkok, Jeddah, London, Paris, Seoul, Sydney, and Toronto. The aircraft will fly to Beijing from August and Manchester from September, resuming services to New York in October.

Emirates Chief Executive Tim Clark says the additional A380 order "has been in the making for a long time” and is simply an extension of the carrier’s successful growth strategy. The 32 aircraft will be delivered between April 2015 and November 2017. "We have the delivery slots we want, at the time that we want, to allow us to grow at the pace we want,” he says.

Clark says that once the economic recovery is solidly underway, "if we haven't placed orders and bagged the [delivery] positions that we want, then we'll be behind the curve when everybody else is doing it". As Emirates expands its routes and A380 fleet, the aircraft will be despatched to additional long-haul points in Asia, Australasia, Europe, and North America to replace existing aircraft types and increase frequencies.

How can the airline justify the huge fleet? Clark explains that a daily US A380 service from Dubai requires 2.5 aircraft to be assigned to it, with five needed for double-daily operations. "You [need] only six double-daily points on 14.5h missions and those 32 aircraft are gone," he says.

The logic of the Gulf airline's order, 2010's first for the A380 coming just a month after Airbus Chief Operating Officer (Customers) John Leahy doubled his target for the year to 20, is not seen equally clearly by industry pundits. "It might just be win-win [for Emirates]," says Teal Group analysis vice-president Richard Aboulafia. "They'll almost certainly get walk-away rights, so the worst-case scenario is a cancelled order.”

He claims the move provides "a lot of heavily discounted capacity with which to take advantage of [increased market] access. But even then it's impossible to imagine an expansion plan that absorbed 90 A380s before 2026, especially given all their other order positions."

But Aboulafia points out that as Emirates is not growing with traffic that is organic to Dubai, its huge deal could hurt other potential A380 customers.

"Much Emirates traffic has been siphoned from Europe's legacy carriers,” the analyst says. That region “appears willing to let Emirates poach this traffic to save the A380. Letting [Dubai's international airline] grow at European carriers' expense might be the only way to generate demand for this airplane."

Enders recognises the huge stake Emirates has: "There is always a risk [for Airbus] in this sort of exposure, but if you see how Emirates operates, it has one of the best managements in the world. Their strategy is not built on sand. They see chances where others see risks. Industrially, it is much better than selling four A380s here and six there, with each one differently customised."

Of course, the latest Emirates move might stimulate regional rivals to consider their own plans, according to Enders. "Some blue-chip airlines will have to think 'Are we getting it right and is Tim [Clark] getting it very wrong. What will the world look like when Emirates has 90 A380s?'," the Airbus chief says.

A380 product-marketing director Richard Carcaillet expects more customers to increase orders: "I have no doubt we'll see a number with fleets of [such a] size in the medium to long term." He claims Airbus is engaged in A380 sales campaigns with at least three potential new customers for the type, but does not suggest any will mature this year.

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