The future of the double-decker A380 superjumbo jet was thrown into question last week when a huge order cancellation from Emirates put a gaping hole in Airbus’ future order book. Now comes additional bad news for the A380. A380s are being returned to lessors who have no customers for the used jets. So leasing company Amedeo is moving to its plan B.
Amedeo is starting an airline-for-hire type service using its fleet of Airbus A380s. The plan includes leasing seats and cabin crew to traditional airlines, as well as Expedia, Google, and market disrupters like Airbnb. Amedeo CEO Mark Lapidus told CNBC that he plans to lease to a handful of airlines and offer the service to other companies, not necessarily just those in the aviation industry. It sounds like he wants to start a charter company, but is the A380 the right jet for the market?
Two Big Challenges in Amedeo’s Plan:
Limited Markets where the A380 can fly
One could argue that superjumbo jets like the A380 and 747 are going the way of the dinosaur. But fans say flying on one is unlike anything else. Simply ascending the steps to the second level of an A380 or 747 double decker is exciting. The question is whether the experience appeals enough to consumers to keep them booking flights under the Amedeo leasing program.
These planes consume a lot of fuel. Airline executives are putting laser-like focus on fuel efficiency. New two-engine aircraft like the Airbus A350 and Boeing 777 can carry a similar number of passengers almost the same distance while burning less fuel thanks to improvements in engines and carbon fiber composites.
These problems that plague the sale of the A380 to major airlines could also be the Achilles heel for Amedeo’s new leasing program. If airlines do not want to buy these mammoth aircraft, reasoning could follow that they may not want to lease them either.
Infrastructure Costs of Starting a New Airline Could be a Giant Roadblock
Another possible roadblock for Amedeo is the infrastructure cost of starting up an airline. First and foremost, there are regulations that are challenging in any environment. The issue of crews, ownership, proving flights, and maintaining aircraft is expensive. Some countries are also preparing to impose new taxes to support the U.N. Millennium Development Goals.
And regulations are not the only challenge. The amount of money going out the door to suppliers adds to the financial headaches for a start-up like Amedeo. According to mckinsey.com, more than 60% of an airline’s cost base goes to suppliers. Amedeo has to establish relationships with suppliers and unless they start driving a large amount of business to them, they are unlikely to receive the best pricing on those services.
The problem with lowering supplier costs is that most of them can set prices as they see fit because there is little or no competition, making them sort of oligopolies. For example, many cities only have one airport. And at those airports, there are usually no more than two caterers, two host-system providers, and maintenance.
Even if Amedeo overcomes all these issues, the track record for airlines to succeed is not very long. A number of airlines have failed just this year. The list of airlines that went bust early on is very long. Wikipedia hosts a list of now-defunct U.S. airlines that goes on for several pages. Running an airline with A380s? That’s a big unknown.
A more likely scenario: Excess A380s might be scrapped, even though they are less than 15 years old
The long-range passenger jet market has been under pressure for quite some time. The down cycle in orders is most apparent in the market for wide-bodies like the A380. More and more airlines are retiring the wide-bodies and as a result, used A380s are now potentially set to flood the leasing market.
Singapore Airlines is retiring five A380s from their fleet over the next year. They already returned one in October and the next four will be put out to pasture in 2018. Dr. Peters, from the German leasing company that owns A380s has not yet found a new customer for the aircraft either.
The Singapore Airlines jets that are being retired are only ten years old and will be on the market alongside the Amedeo owned jets. As more and more airlines are ridding themselves of the world’s largest passenger planes, the market could become so over-saturated that some Singapore A380s may even be disassembled to be sold for spares
Still, Amedeo’s CEO is Confident In His Venture’s Success
In spite of the obvious challenges, Amedeo CEO Mark Lapidus insists his new company is being built on solid ground. He asserts that other operators have not understood the A380’s capabilities and did not optimize its capability.
Lapidus said, “With the A380, Airbus started with: ‘It’s a big piece of real estate; do what you want to do.’ That has not helped with the key factors that are great on this aircraft, which are the lowest seat-cost economics of anything flying today or in five years.”
Mr. Lapidus says the Amedeo 380 program will help airlines add routes and maintain service in difficult financial environments. Amedeo anticipates the long-haul aircraft will appeal to airlines that only want to lease a small number of A380s to serve global routes while avoiding large upfront costs paid to Airbus. Lapidus says he only needs three or four carriers to come on board to make the system work and is confident that non-aviation companies like the AirBNBs and Expedias of the world will round out the roster to help support their A380 powered airline.
Grab your popcorn, this will be a fun show to watch…