Feathers are going to fly!

A report in The Australian by Derek Sadubin says that the entry of the A380 into “revenue service” will prove to be nothing less than a watershed in the annals of commercial aviation.

More than simply a big plane, the newest industry flagship will change forever the way the industry operates and with the amount of capacity and the level of unit-cost savings it will bring to the market, the competitive equilibrium will be thrown into disarray.

The period of adjustment will see shifts to long-standing airline strategies as the carriers that have ordered the A380 integrate it into their fleets and determine how to use the aircraft’s unprecedented size to maximise route and system profitability.

Those who have not made orders will likewise have their work cut out determining how to use their conventional fleets to counter the new behemoth.

In the early 1970s, the B747’s arrival was a commercial negative because it doubled capacity just as the world went into recession. To operate a daily service at the time meant doubling capacity over the B707/DC8 at a time when frequency, capacity and entry were carefully regulated.

The A380’s first effect has been to focus the established airlines on the premium market, as a way of differentiating them from the commoditised low-cost carrier (LCC) market. We are seeing a flurry of premium-product initiatives as the A380 and the B787 (from late 2008) arrive.

The major global aviation battlefront is now between the commoditised economy class/low-yield (and price-conscious business traveller) and the quality-conscious/high-yield traveller

As a result, two product differences are now arriving; the economies of a big aircraft and the potential of a long-haul, cost-efficient point-to-point operation.

Each has revolutionary implications. Both aircraft types (and other long-haul models) are arriving – by contrast with the B747 – at ideal times for market expansion.

The market is liberalising quickly (so that airlines are much more able to operate commercially sensible services) and there is genuine high demand as the Asian market continues to surge.

Meanwhile, the A380 delays have had an important impact in the short term, especially regarding the competitive balance of the Asia-Pacific industry.

For Qantas and Singapore Airlines, the delays have enabled them to use the unanticipated capacity shortfall to raise prices and post greatly improved profitability figures, results that will provide them with a valuable war chest in the future.

It also has given them longer in which to formulate a response. Both have decided that the best way to combat the incursion into their key market will be to focus on high-yielding premium traffic.

Singapore Airlines and Qantas are putting fewer seats on board the A380, which the manufacturer originally marketed as a 555-seat aircraft, in a concentrated focus on premium classes.

Singapore Airlines has unveiled a range of premium seats/products that further reinforces its position as industry standard-bearer while Qantas is adding a fourth class, its first foray into the premium economy game, to its offerings.

Meanwhile, Emirates will, as anticipated, use the giant floor space of the A380 to install more seats, with its long-haul configured aircraft featuring 4 per cent more total capacity (18 seats) than Singapore Airlines, 9 per cent more (39 seats) than Qantas and a remarkable 90 per cent more than the planes Emirates currently uses to connect Dubai with Sydney.

Indeed, when Emirates has all 55 A380s delivered, the influence it will carry in the key intercontinental markets will be game-changing. Although Dubai is home to only 1.5 million people, its flag carrier’s strategy of using the Emirate’s central location to connect all the world’s busiest markets with just one stop gives it a global catchment.

For such a strategy to work, the carrier must have a considerable cost advantage on the competition. With the A380’s seat-kilometre costs 15-20 per cent lower than the B747-400, Emirates will have the ability to put the type of prices on the board that will draw passengers away from the competition en masse, particularly when its high-capacity (over 600 and eventually 800-plus seats) A380s enter the market.

Although most of the mainstream press has focused on the aircraft’s delays in production for the past two years, as of October 25, that will be irrelevant.

If the A380 performs as anticipated, the stalled deliveries will be but a minor footnote in a long, successful story.

More Asia-Pacific aviation updates are available daily at http://www.centreforaviation.com/

Derek Sadubin is the chief operating officer of the Centre for Asia Pacific Aviation

The Mole will be reporting from the arrival of the first Singapore Airlines Airbus A380 in Sydney this Thursday.

A Report by The Mole from The Australian