Boeing made a bet on the 787. However, as you note, that's an easier bet to make when you already have the 747. Boeing already had a jumbo. It's easy to make a bet on twin-engines getting certified for longer ocean crossings when you already have the 747. There's a lot of things that Boeing bet on with the 787 and you're totally right that it's way easier to make those bets when you already have the 747. However, they did make those bets and, in hindsight, it looks like they were better moves.
The A380 is really built for hub and spoke systems which is one of the reasons Emirates uses it so much. Emirates almost exclusively goes through Dubai and so they're able to, for example, load up a plane from London to Dubai and then Dubai to Singapore. The airline industry started moving away from that and toward more point-to-point routes in most cases. A 787 lets an airline serve a route that just wouldn't fill a 747 or A380 and provide customers with a better experience. For most airlines, that's a win.
The A380 isn't just a 747 competitor. It's a bet that the 747 didn't go far enough and that what airlines really needed was something huge. Boeing's bet was that a fuel-efficient twin that could serve point-to-point routes (rather than hub-and-spoke) would provide the economics for better, more customer-friendly routes, better utilization due to fewer empty seats, etc. Airbus didn't build a 747 competitor, they wanted to one-up it.
It is true that some airports have constrained slots, but is this mostly a London Heathrow problem? A slot-pair at Heathrow can go for over $50M. By contrast, the DOJ valued 12 slot-pairs at JFK at $44M or $3.7M a piece. American sold 17 at LaGuardia and 52 at Reagan for $381M or $5.5M a piece. That's certainly money, but it seems like the problem at Heathrow is an order of magnitude worse. When you move down from the most congested markets (and DCA kinda counts due to artificial restrictions), slot constraint seems a lot less interesting. Is the A380 a plane to solve the problems of a few airports? Is solving that problem enough?
If you're Emirates, London -> Dubai might be your most important route and the A380 means you can service it for a lot of people. Of course, that's where most of the A380's support is coming from. For airlines that don't operate such a hub-and-spoke model, who use less constrained airports than London Heathrow, etc. it seems that the 787 has been a lot more attractive.
You're right that when they started the A380, it wasn't clear that the market would turn the way it did. Honestly, if Airbus had made a 747 competitor instead of something much larger than a 747, it might have fared better. But the number of routes that can fill an A380 is small, the number of airports where landing slots are unduly expensive is small, and customers like the convenience of point-to-point (and the larger windows, better headroom, better humidity, less noise of a 787).
The A380 isn't a complete bungle, but it was a bet that not only did airlines like the 747, but they wanted something larger. Boeing bet that if they could have something a bit smaller for a lot of the routes the 747 was on, they'd like that. The A380 found a big customer in Emirates, but the 787 has much broader appeal. That doesn't mean the A380 doesn't have utility and is certainly useful for certain routes that are popular and slot-constrained, but the 787 seems to be more useful for a larger number of situations.
Excellent points, and I agree that the switch in the market certainly was a large component, and probably the larger component. I still think that Airbus simply could not not do the A380, just as a defensive move and hedge, and that it may have served a commercial purpose even if it didn't manage to be profitable on its own.
> constrained slots [..] certainly money [..]
Are slots primarily a money problem? My understanding was that the constraint is not so much their expense, but simply non-availability. For example, one of the most valuable assets of Air Berlin apparently is their slots[1]. AFAICT, these were/are not available on the open market, they get doled out by some mechanism.
Non-availability is what makes them expensive. It's kind of two sides of the same coin. If the slots were widely available, they wouldn't be a valuable asset. They are a valuable asset only because they aren't available.
The point of looking at the monetary value is that it's a way to quantify how unavailable they are. Land costs money. Where land is scarce, it becomes expensive. Where land is abundant, it's cheap. If landing slots can be acquired cheaply, it means there is availability.
It looks like EasyJet bought their Berlin Tegel operation for €40M including 25 leased A320s. Most likely the landing permits weren't that valuable. Lufthansa is taking on 81 aircraft for €210.
Let's say that each plane has 2 slot-pairs per day. That's €800k/slot for EasyJet and €1.3M for Lufthansa. But let's say half of the value was the staffing and leases.
Land costs money even when it's not in a popular location. If landing slots command a certain amount of money, that's not a bad thing. It gets bad (bad enough that you want a work around) when they become very expensive.
For example, let's say the A380 takes 2x the passengers of a 787. Let's say that based on passenger load, fuel, profitability of point-to-point over hub-and-spoke, etc. flying the A380 costs you $2M more per year than flying two 787s. Well, it looks like you can get a landing permit for well under $1M so it makes more sense to buy the landing permit off someone else.
Things are generally available, even if scarce, for a price. Airlines are choosing the 787 to optimize for their profit and including the scarcity and cost of landing slots as part of that. At most airports, it seems they're available for reasonable amounts of money.
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In terms of Airbus not being able to not do the A380, do you mean that they had to create a 747 competitor to be prudent or that they had to build the A380?
You might be right that, based on the information and the market at the time, prudence might have demanded a response to the 747. But did it demand building something bigger? Maybe they could have build something marginally smaller than a 747 and been better off.
Airbus had a dream that a much larger aircraft than a 747 would be a winner. It is for certain routes, but not most. For most routes, companies wanted a smaller 747 and Boeing gave that to them in the 787.
At the time, I remember it looking like Airbus was going to get a win with the A380 and that the 787 would be the mistake. Turns out that larger didn't work out.
> The point of looking at the monetary value is that it's a way to quantify how unavailable they are. Land costs money. Where land is scarce, it becomes expensive. Where land is abundant, it's cheap. If landing slots can be acquired cheaply, it means there is availability.
Sure, but I think you're missing the point about the "non-availability." I don't think the cost shows everything.
When there's lots of slots available then the price will be low. When there's few slots available then the price will be high. When there's _very few_ slots available then prices are harder to compare. There's an upper limit on what a company will pay (a slot can only provide so much profit, after all, even if you expect to own it for many years). Prices will presumably start to depend more on who's bidding for them and what deals can be struck.
Free market economics only works if the market is able to respond (i.e. it's relatively liquid).
Yes, I think Airbus probably had to do a 747 competitor. Did it have to be larger? Dunno. My guess is that it didn’t make much sense to make it the same size or slightly smaller, as shown by the A340, and they already had a 787-size twin, the A330.
this debate is extremely informative; thanks for sharing and engaging so clearly and politely! since you felt a smaller plane would be more desirable for most routes, could you elaborate why you felt airbus was going to win at the time? thanks!
In the early years of the post-communist era state disintegration that is currently going on in Bulgaria, the national airline "Balkan" was sold for a funny sum of $150k [1] and subsequently liquidated supposedly netting a lot of unaccounted money for its valuable slots.
Speculatively, by (i) having a more negative effect on the profitability of their major competitor in a duopoly and (ii) by having indirect positive effects on their sales of other aircraft. As unsuccessful airliner programs go, the A380 wasn't that bad, with over 200 actually delivered. Though it would have looked a lot worse if it wasn't for Emirates
There are also likely technologies developed for the A380 which will have long run benefits when adapted for newer generation versions of other Airbus aircraft.
Not just technologies but also operational gains. The problems with the development of the A380 forced Airbus to synchronise their CAD/CAM software and development practices between their previously semi-autonomous offices in Germany and France. It also led to further organisational rationalisation and the removal of French and German government influence on commercial decisions. It led to the removal of a lot of identical functions on both sides of the border and removal of the rules stating that work had to be split rather than concentrating similar functions in certain countries. That in itself was a big gain for Airbus, probably worth a quarter of the money spent on the development of the A380 if amortised over the length of the project. Once the costs started building up it was easier to convince the various governments to back off a bit.
Methinks the operational gains could be done for 1/100th or less of the $30B+ the A380 cost. Failing at a huge project isn't a way to get governments to back off, it's a way to get them to realize they should stop funding you.
But there is also the human factor to consider, especially in organisations that are fully or partly government owned. They don't have their "own" money (it's taxpayer money), and in some ways they aren't allowed to pursue their own agenda (it's not their money right?), it is political; so rocking the boat by pushing change can be difficult. So for these types of organisation sometimes it takes catastrophic events to foment change.
i) 747 sales were already declining and it required expensive investment to continue.
ii) How would A380 sales help sell other Airbus aircraft? It's such a low volume plane that it offers virtually zero benefits to purchasing other Airbus models.
200 deliveries for a $30B+ development costs is a disaster. Airbus has already admitted the development costs will never be recouped, they'd have to sell over 400 planes to ever have a shot.
And any technology you want to develop for other planes would have been far cheaper to just develop for the other, presumably profitable, planes.
Boeings brilliance was sucking Airbus into this market. Instead of canceling the 747, they kept the 747 production line open with a low cost update (the 747-8) allowed them to crater A380 pricing. That cost Airbus a huge amount of capital, and delayed/hamstrung their efforts to compete with the 777 and 787.
Airbus has lost at least 10x as much on the A380 as Boeing lost on the 747 since 2000.
Nobody is saying Airbus has made a profit on the A380, but absorbing development costs over 250 aircraft delivered leads to much lower losses than absorbing them over 14 aircraft delivered like a certain innovative indirect ancestor of Airbus...
And much as program costs are accounting fiction, Boeing's written down far more than a 10th of the A380 program costs as 747-8 development programme specific losses, never mind the bigger issue of losing a natural monopoly cash cow - even a declining one - and the tag of being the undisputed best at large widebodies which has wider ramifications. Not sure the 747-8 was ever really a significant factor in A380 pricing, because Emirates were even less likely to buy something only fit for freighters as their flagship passenger aircraft than they were to take any notice of what the actual sticker price for the A380 was when negotiating deals.
It's an open question whether the A350 would have done much better if Airbus had doubled down on launching at the same time as the 787, or whether it will do better in the long run for being the more recent aircraft model for its first couple of generations.
Airbus isn't absorbing development costs over 250 aircraft at all, those aircraft are barely going to be profitable on their own construction costs, let alone chip away at the $30B+ developmental costs.
The 747-8 cost only $2.5B to develop. The accounting fiction is Airbus's attempt to minimize how much it actually spent on A380 development. The sole ramification of being the undisputed leader in large wide bodies is apparently limited to massive capital losses.
What boggles me a bit about the A380 vs the 747 is the 747 development was a bit of an accident based on 1960's era irrational exuberance. At the same time they were working on that they were trying to develop an SST. The SST was supposed to be the future of passenger aircraft. It failed and the 747's succeeded. And managed to side line some smaller competitors like the DC10.
But since it went into service no one built a comparable or larger aircraft for 30 years. And if there was a huge untapped market for super large passenger jets, why weren't more 747's in service?
2 points: Airbus had a competitor to the 747. The A340 was close to the 747 with all the benefits of a single airframe supplier.
Second point: Airbus was in a tough spot with the A380. They had to make it huge because Boeing was always threatening a cheaper 747 stretch. I almost feel like Boeing only ever spent money on the post -400 stretch as a "special teams" move to force Airbus into the A380.
Making a money losing investment isn't a "tough spot". You are only damned if you choose to do it. Not only did they know that 747 sales were falling, they knew point to point was becoming more popular.
It was a really easy decision and they blew it. Engineering the world's greatest aircraft is an addictive endeavor, but the numbers have to work and they never did.
In the 1970s the 747 averaged 32 orders per year. In the 1980s it averaged 43 orders per year. It peaked in 1990, taking in 122 orders that year alone, but from 1992-2000 orders dropped to average 27 per year.
Ironically in 1993, the year A380 design work began, the 747 had it's worst sales year ever (till then), with only 2 orders.
The A380 was approved for production in 2000. In 2005, Boeing announced the 747-8 to better compete with the A380.
From 2000-2009, the 747 had 214 total orders, almost all after 747-8 was announced. The A380 had 212. Combined that's 43 orders a year. The market did not grow, despite substantially better, more capable, and more efficient, products.
From 2010-2017, the 747 and A380 have booked 18 orders per year combined. It is by far the smallest jumbo market since it was created. And what point to point advocates predicted.
I think part of the parent's point is that, even in a stagnant market, Airbus basically took half of it from what was previously a monopolist. Those 43 orders per year used to be all for Boeing, and now they only get half. That's a victory of sort, regardless of where the market is going for both companies.
Again, it’s not a victory, it’s been a horrific loss. Airbus disintegrated $30B of their own capital, while Boeing walked away after spending only $2.5B more.
And you see low numbers. All throughout the discussion here, I see mostly references to the 787 and 747. No. It was the 777 all along that constrained the A380. And the 777X was the coup de grace.
This..
Airbus product line (cash cow) is based on midsized fuselage cross section twin. A300 fuselage cross section. This is what funded the A380. 4 engines (A340) dont make economic sense after ETOPS.
Airbus does not have large cross section twin. Hence the A350xwb is critical to their future, not A330neo. Large cross section ETOPS twin 777X is the real 747 replacement. A380 is a halo product and not 747 replacement. The market is too small for A380 production run vs RnD costs.
Now Airbus product line is more secure. A350xwb completes their prouct line-up. Single aisle, medium cross section twin, large cross section twin.
BTW: I forgot that Boeing wasn't the only company to understand how poor the prospects were for the Super Jumbo market. McDonnell Douglas designed a new super jumbo just before Airbus it did, but saw the writing on the wall when they tested customer demand, and canceled it.
What I can't understand though is how it even makes sense at LHR.
A380 requires 'super heavy' spacing between planes AFIAK, as opposed to 'heavy' for 747 and below.
Surely all the gain you get from more passengers is lost as you need significantly more spacing between the plane and the next one? So you might as well just run two 787s instead and extract more point to point incremental revenue?
Please do reply, I've wondered this for a while and haven't been able to have a good answer.
The difference between heavy and super heavy spacing is only 30-60 seconds (depending on airport), which is a lot less than an additional arrival/departure slot (which come in pairs for obvious reasons).
Wasn't another thing that Boeing believed that fuel economy would become more important in the future and thus developed airframes with fuel efficiency in mind?
At the time the Dreamliner was being announced people were initially underwhelmed by the proposal but Boeing persisted and tried to impress upon the aviation industry that they had made the right choice. I don't think at the time everyone thought the Dreamliner was the best answer to the A380.
Turned out it wasn't. The 777 is the real profit engine at Boeing, the Dreamliner may never earn back it's cost thought it will never be as bad an investment as the A380.
Apparently the Dreamliner is doing better than anticipated, for it has begun turning a profit[1]. With the A380 being developed, Boeing couldn't just stand arms crossed. They had to develop a response --and in this case develop new materials to achieve better fuel efficiency --the discoveries thereof can be reused in future frames.
That article is misleading, the Dreamliner is at least a decade away from true profitability, if it ever gets there. When Boeing announces it "turned" profitable, they are saying it now costs less to make each Dreamliner than they are selling for. But that is ignoring over $30B in development costs (plus interest) that it needs to earn back before it can ever generate a true economic profit.
"In the second quarter of 2015, Boeing lost $25 million on each 787 delivered but was planning to break-even per plane before the year end. After that Boeing hopes to build 900 Dreamliners over six years at an average profit of more than $35 million each. But with deferred costs peaking in 2016 at $33 billion, Leeham analyst Bjorn Fehrm considers Boeing can't make an overall profit on the program. Ted Piepenbrock, an academic affiliated with the MIT and the University of Oxford, projects losses decreasing through the first 700 airliners, forecast the cumulative deferred costs to peak beyond $34 billion and its model most favorable to Boeing projects a program loss of $5 billion after delivering 2,000 Dreamliners. Boeing’s original development investment, estimated at least at a further $20 billion, isn't included in these costs.[177]"
Thanks for the insight and clarification. This has to be one of the most difficult businesses to be in, given a poor choice can risk bankruptcy for the developer/manufacturer. If relative success means turning a profit 20 years hence, that's one hell of an industry to be in.
"Boeing made a bet on the 787. However, as you note, that's an easier bet to make when you already have the 747. Boeing already had a jumbo."
It's also easier to make this bet when the passenger version of the 767 is struggling for new orders because of the A330. Boeing had the 747 against nothing, the 777 winning and killing the A340, and the 767 losing to the A330. So Boeing made a better A330. That's why I don't see the 787 as such an insightful bet in terms of capacity (size, length, weight and range): it really is pretty close to the A330. And a modern A330 can pretty much do anything the 787 can do, albeit burning more fuel on the way. The real risk was in the development process and industrialization of the 787 though, which proved risky and costly.
The 787 has a significantly longer range than the 767/330. That fact alone a very large impact:
1/ It is much heavier than those, and costs a lot more in fuel on takeoff and landing, which makes it a bad choice for the short-but-heavy-load routes that the 767 and 330 excel at (HKG-TPE, CTS-HND, etc). So it's a bad replacement and competitor in those markets.
2/ On the other hand, it opens up ultra-long-range point-to-point flights that weren't quite possible before without a jumbo (e.g. UA on SFO-SIN, or routes to secondary Chinese cities like XIY, CTU, CAN, etc.)
Remember that Boeing killed off a trans-sonic plane and decided to build the 787 instead. They weren’t always sure this was the only way to go. I think the economy tanking and fuel costs rising made the decision for them.
But thanks to the 787’s extended range variants, that’s not necessarily going to be the case for long. Qantas starts Perth to London direct in March on the 787.
The other thing that the 787 does is open up availability of more gates at more destinations. If you're an airline and having difficulty getting gates at the traditional international airports, having the 787 is a competitive advantage.
The A380 is really built for hub and spoke systems which is one of the reasons Emirates uses it so much. Emirates almost exclusively goes through Dubai and so they're able to, for example, load up a plane from London to Dubai and then Dubai to Singapore. The airline industry started moving away from that and toward more point-to-point routes in most cases. A 787 lets an airline serve a route that just wouldn't fill a 747 or A380 and provide customers with a better experience. For most airlines, that's a win.
The A380 isn't just a 747 competitor. It's a bet that the 747 didn't go far enough and that what airlines really needed was something huge. Boeing's bet was that a fuel-efficient twin that could serve point-to-point routes (rather than hub-and-spoke) would provide the economics for better, more customer-friendly routes, better utilization due to fewer empty seats, etc. Airbus didn't build a 747 competitor, they wanted to one-up it.
It is true that some airports have constrained slots, but is this mostly a London Heathrow problem? A slot-pair at Heathrow can go for over $50M. By contrast, the DOJ valued 12 slot-pairs at JFK at $44M or $3.7M a piece. American sold 17 at LaGuardia and 52 at Reagan for $381M or $5.5M a piece. That's certainly money, but it seems like the problem at Heathrow is an order of magnitude worse. When you move down from the most congested markets (and DCA kinda counts due to artificial restrictions), slot constraint seems a lot less interesting. Is the A380 a plane to solve the problems of a few airports? Is solving that problem enough?
If you're Emirates, London -> Dubai might be your most important route and the A380 means you can service it for a lot of people. Of course, that's where most of the A380's support is coming from. For airlines that don't operate such a hub-and-spoke model, who use less constrained airports than London Heathrow, etc. it seems that the 787 has been a lot more attractive.
You're right that when they started the A380, it wasn't clear that the market would turn the way it did. Honestly, if Airbus had made a 747 competitor instead of something much larger than a 747, it might have fared better. But the number of routes that can fill an A380 is small, the number of airports where landing slots are unduly expensive is small, and customers like the convenience of point-to-point (and the larger windows, better headroom, better humidity, less noise of a 787).
The A380 isn't a complete bungle, but it was a bet that not only did airlines like the 747, but they wanted something larger. Boeing bet that if they could have something a bit smaller for a lot of the routes the 747 was on, they'd like that. The A380 found a big customer in Emirates, but the 787 has much broader appeal. That doesn't mean the A380 doesn't have utility and is certainly useful for certain routes that are popular and slot-constrained, but the 787 seems to be more useful for a larger number of situations.