Tuesday, April 26, 2005

The Plane Will Fly, But Will the Idea?

This article on the new Aerbus A380 is correct in that it will fly within standard conditions, given all of the simulations Aerbus has run. What I am not sure will pass muster is whether the airline industry will be receptive to a business model that relies on larger units to cental locations rather than smaller units over a distributed area. Home town example: I have had the misfortune to have to go to LAX for flights and to play chauffer for friends and family. I have also done the same at Burbank Airport, no more than forty miles away. Everything is different as night and day, from parking to lines. With other small airports in the area (John Wayne and Ontario) people in the LA area are more likely to get a flight for travel than if LAX were the only option.

So I am sceptical about the A380. Obviously the intent is to move more people in the same number of flights, but that does not count the peripheral costs of having to deal with more people coming through already congested hub airports. That and I am not a fan of government subsidy of the airline industry. Boeing have been taking a beating, but things are looking up. I wonder just how much European pride drove the A380's development as opposed to engineering and economic considerations.

1 comment:

Colin Samuels said...

Your post makes some good points. I think that national pride may have played a part in their decision to produce this plane, but we should also recognize that there is no one economic reality applicable in the aircraft and airline industries.

While there is definitely an expanding market for shorter travel (and thus for planes like the smaller Boeings and Airbuses), there is also a market for large capacity long-haul travel (major international routes) and for large capacity short-haul travel (primarily in Asia domestically). In both international and domestic travel, the key to success for airlines is to reduce their per passenger/per mile cost to a profitable number. Boeing's approach with its "Dreamliner" is to dramatically increase efficiency while maintaining currently-achievable passenger loads; Airbus is going another direction, by dramatically increasing passenger loads while making only incremental improvements in efficiency. Either way, if successful, will lower the per passenger/per mile cost for their client airlines.

Your point about whether a general return to or strengthening of the hub-and-spoke model of airline management will work is a good one. I think the answer will always be that any one approach will not work for everyone. Some passengers (like yourself) will value local airport convenience and scheduling flexibility and will be willing to compensate in other ways (like making multiple stops along the way); others will disagree or value things differently. Moreover, some routes will not be practical except using the hub method.

The bottom line for airlines is that any company that tries to capture all of the market or to apply a one-plane-fits-all solution to everyone's needs will be doomed to failure. Where JetBlue (US domestic long-hauler), RyanAir (European discount short-hauler), and Southwest (US domestic discount short-hauler) are successful is in carving out niches where each can specialize and dominate. Each focuses on a particular type of plane which is best-suited for its purposes, but the key is that they don't focus on everybody -- they focus on the people who are best-suited to the business model (and plane) they've chosen. The bigger airlines are learning these lessons slowly, but they're learning.

I think there will be a market for both the Dreamliner and the big Airbus, but the Airbus is definitely a riskier move, seeking to fill a market need but first needing to convince potential buyer that that market exists at all and that a big investment in associated infrastructure would be returned. What's interesting is that for the first time since the 747 debuted, there will be a class of plane (the big Airbus) without a competitor; whatever need for that class of plane exists will always go to Airbus. Whether that pool of buyers is deep enough to justify the Airbus investment is what, as you point out, remains to be seen.