Airline passengers may not realize it yet, but they’re the winners in a decades-long battle that will make the future of flying a lot more suited to their convenience—and wallet.
The system of planning the world’s air routes which has been in place since the 1980s has started to unravel as a result of passenger demand.
The most conspicuous casualty of this upheaval is the world’s largest jet, the Airbus A380. Airbus was forced to announce the end of production for its superjumbo this month—only 12 years after it first went into service. No modern airliner has had such a brief life.
Development of the A380 cost Airbus $25 billion and every airplane has been sold at such a loss that the four governments that bankrolled it—Germany, France, the United Kingdom and Spain—will never see their money back. The superjumbo was kept alive but ultimately doomed by one airline: Emirates. Although the airline flies more than 100 of them, it is now turning to smaller wide-body jets. The cancellation by Emirates of an order for more A380s effectively killed the plane.
There is no flaw in the airplane itself but its role was misconceived. In the 1980s the future of international air travel was designed around the belief that the most efficient way of handling growth was to have a fleet of giant jets flying between a network of giant hub airports. Currently, there are only 60 airports in the world with gates that can handle an airplane the size of the A380.
There was to be a second network of shorter routes—the spokes—that connected the hubs to scores of secondary airports, using fleets of smaller jets.
Billions of dollars have been spent building not just the superjumbo but the hub airports in a classic case of top-down planning, in defiance of bottom-up demand. The idea sounded neat but failed to take into account that people are not machines and operate on a different set of values, specifically convenience and price.
Fundamentally, this model overlooked that given a choice, no passenger would normally elect to fly from A to B if it involved flying first to C.
In 2001, I was invited to the Airbus headquarters in Toulouse, France, to inspect a full-size mock-up of the A380’s interior. The actual airplane was still years away from flying but this was the show being put on to woo airlines to buy the jet.
Admittedly, I was momentarily seduced by the prospect of a cabin in first class that, I wrote, resembled “part library, part cocktail lounge, park work station with computer terminals.” I agreed with the Airbus executive who touted it as “more homey, like a nice club.”
I was well aware that in an airplane configured to have 550 seats on two decks things would not seem so well-appointed in the aft quarters. And I said that I assumed that comfort would be a main selling point in trying to persuade people to board an airplane with that number of people on it.
The Airbus executive reacted sharply to this suggestion of crowding: “Passenger surveys show that the more people in an airplane the more it is preferred” he said. “The cruise ship companies found the same thing. People like the bigger ships rather than the small ones.”
Well, I suspect that you can always get surveys to support your case but the logic of that argument seemed counter to my own instincts and experience.
After returning from Toulouse I interviewed the head of Boeing’s commercial division, Alan Mulally (who went on to become the transformative boss of Ford).
Until Airbus decided to build the A380, Boeing had the jumbo jet market to itself with the 747. Boeing literally gambled the company on its success, and the 747 did more to popularize air travel around the world than any other machine.
I didn’t expect Mulally to applaud any Airbus product—Boeing is to this day ridiculously scornful of its competitor. However, he was totally dismissive of the A380. He said it was predicated on a route system that he likened to the centrally managed Soviet model rather than on constantly evolving open markets.
Mulally, a consummate salesman and engineer, offered an alternative model: an entirely new network system built around smaller jets flying what he called point-to-point. Instead of being routed through hubs they would fly directly nonstop between both large and smaller cities where there was a demand.
Mulally was right, and the demise of the A380 is a victory lap for Boeing, just as it celebrated the 50th anniversary of the 747’s first flight. In its 50 years the jumbo has flown more than 5.9 billion passengers, the equivalent of 78 percent of the world’s population. More than 1,550 747s have been delivered to airlines.
Despite that major milestone, Boeing has moved on from the 747. A forthcoming upgrade, the 777, will fly all its routes with as many passengers at significantly reduced costs.
As Boeing reaps the benefits of having anticipated the end of the age of the jumbo, the end of the dominance of the mega hub airport moves closer. Emirates came late to the concept and seemed to have shaped its own unique version of it. For a decade or more Emirates was the great disruptor, exploiting the geographic position of Dubai.
Tim Clark, the president of Emirates, was the architect of a strategy that transformed a remote desert location into a booming nexus of international transportation. Ideally placed as a connecting point between Africa, Europe and Asia, and given the ability of the A380 to funnel long haul passengers nonstop between continents, Dubai drew traffic away from congested European and Asian hubs. Legacy long-haul airlines like British Airways, Air France and Lufthansa hated Clark for weakening their hold on the hub market, but passengers liked having an alternative and the classy service of Emirates.
But in the bigger picture of global air travel Dubai’s emergence as a hub was actually an anomaly. Simultaneously Mulally’s prediction of a better alternative was playing out. By 2010 more and more jets were flying what are called city pairs—new direct routes between cities that had never had nonstop services.
As more city pairs emerged, advances in jet engines have created a virtuous marriage of lower fuel consumption, cleaner emissions and less noise. The higher efficiency means the new generation of airliners are cheaper to operate and maintain. And that meant potentially cheaper fares.
Asian airlines were the first to see and exploit what this made possible: all-budget fares on long-haul flights and a new category appeared. The long-haul low-cost carrier, LHLCC, pioneered by AirAsia X, Scoot, Cebu Pacific and Jetstar. The same phenomenon appeared in Europe, pioneered by Norwegian Airlines’ chief, Bjorn Halvor Kise.
At least one legacy airline with a big stake in the transatlantic market has spotted this trend and is cautiously responding to it. International Airline Group, which includes British Airways and Iberia, has launched a long-haul budget subsidiary called Level. For their base they selected Barcelona, a popular Spanish destination with underused capacity. Level currently flies nonstop between Barcelona, Los Angeles and San Francisco and from Paris to Boston and New York, and more routes will follow.
As the Asian innovators targeted the Pacific the Europeans saw the transatlantic routes, with a tradition of high fares, as a promising target. Norwegian were first, connecting airports in Europe, the UK and Ireland with both the east and west coasts of the U.S..
It won’t be long before a U.S.-based airline has to respond, the most likely being Jet Blue. It already operates a service between the two coasts with an innovative combination of business class and budget seating that could be replicated across the Atlantic.
But it’s not an easy call for an airline to make. The budget model requires careful managing of demand so that all seats are full. A spike in oil prices could screw the economics. And the low fares usually come with a lot of extra charges—for bags, meals as well as heavy penalties for changes and cancellations. Norwegian, for example, even with these largely hidden charges, has already dropped flights between the U.S. and Belfast and Edinburgh.
Nonetheless the rigged, dictated destination market built around the superjumbo and the super hub is as dead as the A380. In the future passengers are going to enjoy a far wider choice of nonstop flights between cities at fares that were unimaginable only a decade or so ago.
And Boeing, the company that made the right call in a multi-billion gamble, now faces another equally challenging decision.
The ideal jet for most of the projected long-haul budget flights does not exist. It calls for an airplane slightly larger than current single-aisle models like the Boeing 737 MAX-10 and Airbus A321 and yet smaller than the most efficient smaller wide bodies, the Boeing 787 Dreamliner and Airbus A350.
Boeing has been developing such a jet, clunkily called the New Midmarket Airplane, or NMA. It would carry between 230 and 270 passengers on routes up to 5,000 miles long—the typical range of budget long-haul routes.
However, this idea won’t work unless Boeing can deliver a new, state-of-the-art jet with twin aisles to airlines that costs no more than current single-aisle jets, around $130 million. Analysts estimate that to develop and deliver the NMA could cost as much as $20 billion, the same kind of white knuckle investment that faced Airbus with the A380.
By all accounts, Boeing is about to take that plunge.