AIRLINES THE A380 & BUSINESS MODELS

The 2019 Dubai Air show is slated to open Tomorrow. On the eve my Thoughts about the airline industry and its challenges.

In 2009 when the AIRBUS 380 was inducted into the major Airlines, it was a different world out there. The Industry has since seen many turbulence's and swings. Airbus has already announced that they would stop production of the A380 by 2021 and that it would never be able to recoup the money invested in the project. When air bus started the A380 Project back in late 1990’s and 2000 they were not only taking up a technical challenge they were also making certain assumptions how airline industry would function in the future. But as we know future is always full of uncertain developments.

AIR TRAVEL INDUSTRY SITUATION

So the future is here and what is that we have found out, So has the worldwide Air travel gone down. A big resounding “NO”.

The number of people travelling by air has been growing and it has been growing year on year except for 2009 when it did not grow compared to the year before. That is a total of 4.3 Billion passenger departures in 2018 compared to 4 billion in 2017.

Source ACI world Air Traffic report 2019

 So where is the growth coming from and why is the A 380 stopping production.

SOURCE OF GROWTH

OK, More and more people are using air travel or doing more of flights. The growth in the recent years has come from Budget airlines. Now Budget Airlines do not use A380. They have their own pet aircraft’s which include A320 and its variants From the Airbus stable and 737 from the Boeing stable. Other things with the Budget airline model are the Point to Point system of Flight. Under this model an Aircraft typically fly from a small Airport in origin to a small airport in the destination. This keeps the cost low and also would be able to do a quick turnaround so that they can keep the aircraft in the air more for more profitability. So, where did the A380 fit in the Airline business and what is the issue. In contrast to the Point to Point way of flying all the major traditional (full service) airlines do what is called a hub and spoke model.

THE MODEL

An airline like British Airways used to connect various locations in the world to its London hub. Say a passenger who wishes to travel from Mumbai in India to New York in the USA would take the Mumbai London flight and change over at London to the London- New York flight. In this Model an airline like British airways would use the A380 on the London New - York flight as it could collect passengers from all its other routes who wish to fly to New York and club them in one of its daily flights between London and New York and vice Versa. Now this model was the Predominant model in the market when Airbus started working on the A380.

So, there were the two Models with Budget airlines using smaller aircraft for shorter Distance with the point to point system and the full-service airlines using the hub and spoke model with smaller aircraft's on the hub to local destinations and huge aircraft like A380 on the Crowded routes between big cities.

DISRUPTION

But things changed and now that the Boeing 777 and Dreamliner and Airbus- A330 and its versions which are is available which can-do long-haul flights in range of 5000 to 14000 Kms with around 200-300 passengers. Now this opens up point to point flights with lesser passengers, on cities which were not possible before. So in the above example a instead of flying trough London a flight between Mumbai to New York became possible where the flight can be filled up and make profit on the flight, this is a disruption to the Hub and spoke Model. An extension of the Budget Airlines but with long haul flights. One of the new airlines which uses this model is “The Norwegian” there are similar others.

All the Middle east airlines follow the Hub and spoke model which is under change now. So to grow and sustain now they need to look at connecting smaller cities to the hub from the east to may be smaller cities on the west. Which is not good news for the A380’s. A380 would still be used on the what is the high traffic routes connecting bigger cities.

WAY AHEAD

So how is the aviation industry going to evolve. I have seen comments in some reports about how the airline industry would evolve. They predict that those airlines which have tie up with hotels and other modes of travel would after better that is passenger would look at one company for their all travel needs. If that was the case then THOMAS COOK should have been in operation today.

My understanding is the opposite, airlines would become more and more expert in one thing and try to outsources certain activities, say Airlines may start to outsource flight attendant’s for a start, so that flight attendant’s instead of working for one airline can work for a company which provides Flight attendance’s on demand to multiple airlines.  SO, a flight attended from Bangalore need not shift her residence to Say Doha to work in Qatar Airways. She can stay in Bangalore and fly to Qatar on a return flight of Qatar Airways to Doha and return on a air India flight to Bangalore. This saves the airlines huge on payout to flight attendants for their stay in the Hub city of that airline. This is my way to look at how it would evolve.

Thanks

Olmec Consulting

#emirates #etihad #qatarairways #airlines #airbus #boeing