The return of the A380

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It is the story of a success transformed into a failure, only to end up becoming a success again for the carriers capable of making it profitable. Its story began with a sketch in 1988 because, at the time, it was necessary to position oneself against a triumphant Boeing. However, it took 7 years to start the project in 1995 and another 10 years before making the first flight on April 27, 2005. The first airline delivered was Singapore Airlines, which made the first commercial flight on October 15, 2007.

The development cost was staggering: in total, including penalties for late deliveries, it amounted to $26.5 billion, while the first estimate was, so to speak, only $8 billion. These huge investments were not all supported by Airbus; engine manufacturers and major equipment suppliers also took their share. And the beautiful bird flew away. I remember very well the first time I saw it fly—it was at the Paris Air Show, and what was striking was both its enormous size and very low noise compared to other large aircraft, like the Boeing 747/400 at the time.

The first market study indicated a potential for 2,046 aircraft over 20 years, quickly reduced to 1,300. This was without taking into account the development of twin-engine aircraft capable of carrying between 200 and 400 passengers over distances of 7,000 to 15,000 km. According to experts, including Tom Enders, the former head of Airbus, this aircraft arrived on the market 10 years too late—a bit like the famous Lockheed Constellation at the end of the 1950s, which was literally killed by the arrival of long-haul jets, starting with the Boeing 707. So, sales collapsed, and only 251 A380s were built and delivered to 13 operators, the largest of which was Emirates with 123 orders—half of the fleet. The last A380 was delivered in 2021.

Then, COVID hit air transport, reducing it to almost nothing in just one month, as states closed their borders in a hellish game of dominoes. All fleets were stored in deserts, where aircraft could be best preserved, and as countries gradually reopened, airlines returned their aircraft to service with great caution. There was no question of flying the largest model because they did not have confidence in their ability to fill it. Major airlines such as Air France, Asiana, China Southern, Malaysian Airlines, or Thai International have simply taken the A380 out of their fleet and condemned themselves to never operate it again.

But the demand for transport soared again. The first signs were felt in 2022, and traffic exploded in 2023. Admittedly, it was not homogeneous, as major Asian markets only opened up late, but when they did, customers rushed back to air travel. However, one of the two major manufacturers, Boeing, found itself in a truly catastrophic situation, which prevented it from delivering aircraft urgently ordered by operators when they realized the need to deal with an unexpected surge in demand. As a result, airlines had no choice but to put their large aircraft back into service, capable of replacing two good-sized twin-engine jets, such as the Boeing 787.

Thus, gradually, 10 companies have put all or part of their A380s back into service. To their credit, Emirates, which has always believed in this aircraft, has put 95 A380s back into operation and even bought 5 of them from a Guernsey lessor for only 200 million dollars, while the list price, never applied, was 437 million dollars each. Curiously, Emirates has always considered the A380 a cash machine, while its competitors have struggled to make it profitable. Nevertheless, British Airways has restarted its 12 aircraft, Lufthansa the 8 that remain, Qantas 8 out of 10, and Singapore Airlines half of its 24 aircraft. Most recently, Etihad Airways announced the resumption of its A380 flights between Abu Dhabi and Paris.

What can we learn from all this? First of all, the demand for air transport, far from weakening, remains very dynamic. From then on, the capacity of the A380s became essential to compensate for Boeing’s delivery difficulties, which we do not know when they will end. It is possible that carriers who have removed this model from their fleet will regret it. Finally, it is clear that air transport will need a very large aircraft, on the order of 1,000 seats, to solve the impossible equation of satisfying the demand for transport while achieving the decarbonization objectives announced for 2050.

Saving the boeing soldier

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The question is beginning to be seriously asked: is the giant Boeing in danger and is its survival assured? Won’t the avalanche of bad news lead to the fall of the emblematic manufacturer? The new boss: Kelly Ortberg, who replaced Dave Calhoun during the summer, is facing a huge work stoppage of 33,000 employees, which is bringing down production of the 737 MAX, 777 and 767. We don’t see where the descent will stop.

It really started with the American manufacturer’s denial about the malfunctions of the latest born, the B 737 MAX, which was supposed to compete with Airbus’ A320 NEO. Several hundred Lion Air and Ethiopian Airlines passengers lost their lives and even worse was the reaction of Boeing executives who implied a little heavily that these disasters were due to errors in the operations of “exotic” carriers. This contempt was the consequence of the arrogance of the manufacturer which tried to mask a strategy intended to preserve the company’s results even at the expense of safety, in order to serve copious dividends to shareholders.

The downturn began in the spring of 2020 and since then it has only worsened. The US Department of Transportation (DOT) fined $2.5 billion in early 2021, presumably partly to hide complicity between federal controllers and the automaker. We thought that the difficulties would end there, but this was not the case. First, whistleblowers came forward inside Boeing and its main subcontractor, Spirit Aerosystems. Two of them were also stricken with sudden death before being able to testify. And then we noticed manufacturing defects in some B 787s. As if that wasn’t enough, the door of a B737 came loose in mid-flight from Alaska Airlines, fortunately without casualties, which led to a new investigation by the U.S. Congress and finally the change of CEO Dave Calhoun in July.

The financial consequences have come to sanction the operational difficulties. Currently, Boeing is dragging a loss of $58 billion and announces disastrous figures in the third quarter of 2024: a new loss of $6 billion, all after having to reintegrate its main subcontractor Spirit Aerosystems into the parent company for $4.7 billion and the resumption of losses. And finally, Kelly Ortberg has to face the biggest strike in Boieng since 2008 with the work stoppage of the production lines of the main devices after announcing the elimination of 17,000 jobs.

Any company would have disappeared in the face of this avalanche of bad news, even the Defense sector is impacted, and we wonder if the list is over or if we won’t discover new problems. Is Boeing too big to disappear? We have not said the past of air transport giants such as Pan Am or Swissair, and yet many major companies have now disappeared, despite the widely affirmed support of states. However, there are finally enough carriers to handle a constantly growing demand, but there are currently only two major manufacturers, Airbus and Boeing, while waiting for the arrival of Comac in China and perhaps the return, one day or another, of the Russians.

It should be remembered that Boeing has an order book of more than 6,000 aircraft and that Airbus’ is close to 9,000. However, air operators make their service plans several years in advance according to the delivery dates of the aircraft ordered. A long delay can have catastrophic consequences, and that’s why Sir Tim Clark, the iconic boss of Emirates, is so. He is still waiting for the delivery dates of the aircraft he ordered in … 2013.

Boeing’s bankruptcy would be a huge disaster not only for the United States, but for global air transport. To survive, this sector of activity needs manufacturers capable of delivering around 200 aircraft per month, while currently the figure remains close to 100. And producing an aircraft is such a complex operation that a manufacturer cannot be replaced overnight as it can happen for airlines.

The airline world has no other solution than to support the manufacturer in difficulty and to bend its back while waiting for the machine to get back on track. The coming months will be difficult for all operators. It will probably be necessary to return to service many aircraft grounded during the Covid crisis. In any case and by all means, the Boeing soldier must be saved.

Air transport needs a new model

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Modern air transport dates back to the end of the Second World War, it will be 80 years old next year. Since then, it has undergone a tremendous evolution, driven by the manufacture of increasingly efficient aircraft models, highly reliable air traffic control, all to keep up with a demand for transport that continues to increase as a middle class arrives on the market on the most populous continents. But, while technological progress is permanent and impressive, the airline model has remained fixed around two concepts: traditional carriers and “low-cost” airlines. However, it seems that a new model must be invented.

Incumbent operators are facing the increase in their production costs as a result of the growing demands on their staff. This is also the role of the unions, which have become very powerful, even capable of blocking a corporate strategy, as we saw a few years ago in the Air France/KLM group, where the growth of the group’s “low-cost” operator was blocked by the unions. Since then, things have fortunately been settled. We have also seen in the United States, the unions take over the management of United Airlines, one of the three American majors, with the disastrous consequences that have led the company to reorganize. Faced with rising costs, traditional airlines have had to face the arrival of “low costs”, the other new concept of air transport. This is based on simplicity and better productivity, and aims to attract new layers of customers by lowering sales prices, which has been made possible by a reduction in costs that is at least equivalent.

This is the landscape in which air transport must move. At the same time, the manufacturers have grouped together and there are only two left: Airbus in Europe and Boeing in the USA, at least for aircraft with more than 100 seats while waiting for the arrival of the Chinese. However, one of them, Boeing, is facing considerable difficulties largely due to a management that has favoured the distribution of real or supposed dividends to shareholders, to the detriment of the obligation of safety. The consequence is that instead of delivering around 100 aircraft per month, which was the goal, the American manufacturer is only releasing less than half of them. This comes at a time when, after emerging from the terrible Covid era, passengers are scrambling to travel and companies are placing orders by the hundreds. The portfolio of the two major companies is currently around 15,000 aircraft, which represents 100 months of production, i.e. more than 8 years, all while orders continue to pour in. However, operators make their medium-summer long-term operating plans according to the delivery date of the aircraft ordered and this can no longer be respected. Engine manufacturers are not keeping up, maintenance workshops are struggling and the 400 or so subcontractors needed to manufacture the aircraft are struggling to provide their services on time.

And what do passengers think? There is no doubt that they are sensitive to the communication of the companies who promise to make them travel at fares well below their cost prices. Of course, everyone knows that this promise is fallacious, it only concerns at best a very small number of seats and if not, the “low cost” seat, it is compensated by the extreme modesty of the service, which forces customers to buy, often very expensive, services that should be included in the price of the ticket. Basically, companies don’t care about the expectations of customers who are, in professional language, only “pax”, i.e. consumer units.

However, it should be acknowledged that, although widely criticized in some of their aspects, the two concepts have brought about the results we know: nearly 5 billion passengers per year and a level of safety close to perfection. However, we now have to deal with a doubling of demand in the next fifteen years, while equipment is having great difficulty keeping up, whether on the ground with airports or in flight with aircraft.

It is high time that air transport invented a new model that is both respectful of the environment and of passengers, who should really become customers with the quality of service that this requires. This would perhaps slow down the development of the sector, but is it not necessary at a time when we are having so much trouble absorbing growth? The solution is certainly not easy to find, but after all, it was not either when the “low costs” were created. So let’s trust the imagination.

Are air alliances still useful?

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The three main airline alliances date back to the late 1990s: 1997 for the Star Alliance, 1999 for Oneworld, and 2000 for SkyTeam. They have now been in existence for a quarter of a century, and it is possible to make an assessment of them from the outside.

First of all, it should be noted that they have not weakened over time, whereas competition between carriers in the same alliance could have led to their disintegration. This has not been the case, and they continue to weigh heavily in global air transport. Between them, the 60 member airlines operate 11,909 aircraft and fly 1.89 billion passengers, covering almost all countries. Basically, the 60 carriers—25 for the Star Alliance, 20 for SkyTeam, and 15 for Oneworld—represent a third of the world’s air transport, while they account for only 6.7% of the 900 or so scheduled airlines.

So, no doubt, this is an imposing force. How, then, is it that they have very little weight in the organization of air transport? Admittedly, the current Director General of IATA comes from British Airways, one of the founders of Oneworld. But apart from that, what roles do they play in the management of the business sector?

The first limitation of the power of alliances lies in the absence of solidarity between members. Since their creation, many member companies have been liquidated without their colleagues in the same group coming to their rescue. In no particular order, we can mention Malev, Mexicana de Aviación, Air Berlin, Spanair, and even Alitalia, to name just a few of the defunct operators. Closer to home, CSA, the Czech airline, refurbished into Czech Airlines, will disappear very soon. This is because each carrier is willing to participate in the benefits of a closed club but without losing its independence.

We also see airlines changing alliances through groupings with other carriers, such as LATAM, which left Oneworld for SkyTeam following the entry of Delta Air Lines into its capital.

Finally, while an alliance should be a defensive means vis-à-vis competitors from another alliance, nothing prevents an operator from signing interline or even code-share agreements with companies belonging to either another alliance or simply outside a group. This singularly weakens the power of alliances.

However, they are far from useless for passengers and companies. The latter, especially very large groups, are looking for a global offer that can better cover their needs than one of the three alliances, each of which covers almost the entire planet, or at least all the main markets. This can be decisive in discussions between a carrier and a potential customer. Thus, the members of an alliance can benefit from the commercial establishment of the member company in its own territory. However, what is an advantage in one country can turn out to be a weakness in another. Only the United States and China have a representative in each of the alliances; this is not the case in Europe. Air France/KLM are certainly dominant in the French and Dutch markets, but they carry much less weight in Germany, Switzerland, Belgium, or Austria, where the powerful Lufthansa group, a member of the Star Alliance, is so dominant.

There remains the interest for consumers in the validity of the Frequent Flyer Programs with all the airlines of the same alliance. The loyalty capacity of this system, which has retained all its appeal for the past forty years, cannot be underestimated. The problem arises when an airline leaves one alliance to join another, which can cause great disappointment for some frequent travelers.

I note that the best international airline is not one of the three groups; I am talking about Emirates, and this has not prevented it from becoming the world reference in air transport.

For years, the concept of wedding rings—that is, the benefits they provide to their members and consumers—has not changed. We would like the facilities offered by artificial intelligence and the incredible development of social networks to be better utilized to develop the concept.

Airline failures – How to be protected from them?

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The subject regularly comes up in the news as soon as a new bankruptcy is pronounced against an airline. This time, it is the case of Air Belgium, which will leave 11,000 customers without a solution unless they buy a ticket on another carrier. And even since 2023, a prosperous year if ever there was one in air transport, several dozen airlines have had to cease their activity. This sector of activity is inherently very fragile, and this weakness spares no one, including the very large carriers. It should be remembered that the three largest American and therefore global groups—Delta Air Lines, United Airlines, and American Airlines—have also gone through Chapter 11, which has allowed them to recover at the cost of colossal efforts and the dismissal of tens of thousands of employees. SAS and Avianca, to name but two, owed their salvation only to the use of this same means.

It is clear that each company must take responsibility for itself and that the sanction of failing management or even external circumstances results in its disappearance. This is the rule of the economic game, and every manager is well aware of this risk. In this unfortunate scenario, creditors have little chance of recovering their money, and shareholders lose everything. This is one of the consequences of our capitalist system, which we have not yet found how to replace.

Only air transport has an additional specificity: its relationship with its customers and distributors. It is organized on a global concept with a very powerful association of airlines, IATA, at its head, which has the right to choose its distributors: travel agents. However, in order to be accepted into this group and to have the right to sell the airlines’ tickets, travel agents must provide bank guarantees to ensure the payment of the sums they hold on behalf of the airlines to the carriers via IATA. There is no doubt that this very restrictive procedure has significantly improved the economic reliability of this network, which is nevertheless essential for air transport. It should be remembered that 70% of sales are still made through intermediaries, whether they are physical or virtual travel agents, with the massive use of the possibilities of the Internet.

However, if the funds intended for operators are well protected, the same cannot be said for the latter with regard to their commitments to their customers. The latter buy the right to use their services, but they do not benefit from any protection in the event of the failure of the company they have chosen. However, since the mid-1990s, carriers have been waging a fierce war to display the lowest fares with a simple mechanism: the earlier you buy, the more competitive the fares are. Thus, customers are required to ensure the cash flow of the airlines, without which carriers could not survive. Except that what must be called a cash advance is not protected by the carriers, who, quite rightly, demand that it be protected by their distributors. Thus, the risk of default increases with purchases made often six months before their execution.

So what happens when a company fails? It’s very simple: the customer loses everything. However, the most affected are often the most vulnerable, those who save a whole year to pay for their annual trip, often to join a family from whom they are separated most of the time. The solidarity of the IATA member companies should then be exercised. It is nothing. At best, competing carriers agree to open low-cost fare classes if they have sufficient seat availability.

How can airlines be forced to create a solidarity fund to compensate for shortcomings in their profession? IATA’s response is consistent: “We are an association and we depend on the decisions of our members, and they don’t want to hear about such a solution.” So there is only one way out: that decisions are taken at the political level, in plain English by the European Commission and the American FAA. After all, these same organizations do impose their ecological rules; why don’t they care about the protection of passengers?

A new European Commission is being set up. After the formalities of acceptance of the Commissioners by the European Parliament, it will become operational in 2025. This is a welcome subject that would be widely appreciated by customers and distributors unless the companies finally decide to create real protection for their customers in the meantime.

The power of the unions weakens carriers

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The American manufacturer certainly didn’t need this. A major Boeing union, IAM, with its 30,000 members, has just launched a strike that could be short-lived if management accepts the demanded wage increases for a return to work. Jon Holden, the head of IAM Boeing, aims to take advantage of the manufacturer’s current weakness to quickly achieve their demands. The halt in deliveries of Boeing’s flagship models—the 737, 777, and 767 freighters—would be a severe blow to a company already struggling with inextricable difficulties.

The new CEO, Kelly Ortberg, inherits not only a severely damaged image and meticulous oversight by U.S. authorities but also a $60 billion debt, largely created by previous managements who sacrificed the company’s future to pay dividends to shareholders using financial resources the company didn’t have. All this, along with a share price that has dropped 40% since the start of 2024.

Boeing’s complicated situation mirrors the broader challenges facing key players in air transport, including manufacturers, airlines, and air traffic controllers. Under constant pressure from powerful unions, large groups have been forced to concede wage increases and benefits incompatible with the need to control costs in a fiercely competitive industry. Some sectors, such as air traffic control, are protected, and their unions wield considerable power over management. The last significant challenge to this power was during Ronald Reagan’s presidency, when U.S. air traffic controllers were tested, but only at the cost of severe airspace disruption for months. In Spain, a royal decree succeeded in forcing striking controllers back to work. These are the only two cases where the unions’ tug-of-war didn’t end in victory for the strikers.

Airlines are perhaps the most vulnerable target. Flying a plane safely requires a complex organization, comprising a variety of roles from pilots to baggage handlers, any of whom can bring operations to a halt. Pilots, being the highest-paid employees, can hold out the longest during work stoppages, but airlines are not immune to demands from every employee category. To maintain a fragile economic balance while satisfying their workforce, airlines have subcontracted a significant portion of their operations. Service providers, with much lower wage costs, can perform the same tasks for far less than carriers. This benefits airlines by giving them substantial bargaining power over subcontractors, lightening their payroll and improving cash flow since outsourced services are often paid for much later—something not possible with direct employee salaries.

As a result, large portions of the air transport industry are now in the hands of external suppliers. This is particularly true for MROs (Maintenance, Repair, and Operations) companies, which are essential to airlines, providing not only maintenance but also painting and engine repairs. In another area, General Sales Agents (GSAs) have replaced the sales teams of airlines, handling bookings and sales at a fraction of the cost by pooling services and being paid based on results.

Gradually, airlines that, up until the late 1970s, handled all their operations in-house have been forced to offload many of them. In doing so, often without realizing it, they’ve entered a dangerous spiral, weakening themselves from the inside while allowing external operators to grow stronger. The shift has occurred, and it’s almost impossible to reverse. Bringing these operations back in-house would have disastrous consequences for costs at a time when airlines are battling to offer fares lower than their competitors’.

For now, the subcontractors are not yet economic giants—they remain fragmented and have little influence over their clients. However, if they were to merge, which seems increasingly likely, they could become a negotiating force comparable to that of the airlines, potentially shifting the balance of power.

Towards the end of low-cost airlines?

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Last June, an event went a little unnoticed and yet it marks an important change in the air transport sector. The activist fund Elliott Investment Management has invested $1.9 billion in Southwest Airlines, which represents a little more than 10% of the capital, with the aim of getting rid of the current management, which in the eyes of the investor is incapable of changing the company’s business model.

This is not insignificant. Southwest Airlines is the creator of the concept and the largest low-cost airline. Founded on June 18, 1971 by Herb Kelleher, who managed it until 2008, the Texan carrier really invented the “low cost” model based on simplicity of operation: a single model of aircraft, a very efficient operation and very low fares offset by the sale of many complementary products or services. And it worked tremendously from 1978, the year in which Jimmy Carter, the President of the United States, signed the “Deregulation Act”, in other words, the freedom of traffic and marketing of air transport within the United States. The system has since been copied in Europe from 1992 and is now expanding to Asia and Latin America.

The economic results were up to the mark, with Southwest Airlines becoming the airline of record in terms of the number of passengers carried and the company’s bottom line. But with the help of history, a drift was taken: the company gradually lost its fundamentals, going so far as to employ 74,800 employees for a turnover of 26 billion dollars, a ratio close to the Air France/KLM group for example, while the latter represents the quintessence of traditional airlines. And the results have been affected, from more than $2 billion in net income between 2015 and 2019 to only $465 million in net income and $224 million in operating income in 2023

Add to this the catastrophic management of the huge operating irregularities of December 2023, admittedly due to catastrophic weather on American territory, which has greatly deteriorated the company’s image. It was also subject to an official investigation by the DOT (Department of Transport) which resulted in a fine of 140 million dollars for having mishandled passenger compensation claims.

The story of Southwest Airlines is representative of the forward march of air travel. Initiator of the only major evolution of this sector of activity with the creation of the “low cost” concept, it has gradually been led to bring its model closer to that of traditional carriers. Because the latter, after a moment of stupefaction in the face of this unprecedented competition, have put themselves in a position to regain control by putting such low fares on the market, even if they only concern a very small number of seats, and by adopting a price model based on one-way trips and not return trips as was previously practiced,  while keeping a minimum of services that ensure a certain difference compared to the pure “low cost” concept.

We can therefore wonder if what is happening to Southwest Airlines with the entry of Elliott Investment Management into its capital and the latter’s demand to change the model, will not be repeated with other companies in Europe or Asia or even in Latin America. Why should not the same causes produce the same effects? Is there a real difference on short/medium-haul flights between the services and fares of traditional carriers and those of “low costs”?

Since the end of Covid, we have seen a move upmarket in the product of traditional airlines and at the same time a clear rise in fares, without customers having deserted flights. Basically, we see the incumbent carriers regaining strength and regaining new prosperity by bringing back to them a clientele that they had lost to their new competitors. They still have one last step to take, to take over the commission of travel agents, who are indeed the essential partners to keep rates at a reasonable level.

The models that had converged are starting to separate. Traditional companies have taken the turn and are strengthening their product even if there is still a lot to do. The “low costs” must also renew themselves if they want to maintain the enviable position they have conquered. This is undoubtedly the meaning of Elliott Investment Management’s message. Customers are now asking for something other than basic transport. Who will meet their expectations?

Back to basics

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Over the past 25 years, we have seen a huge wave of outsourcing in air transport. This allowed them to grow faster without incurring the associated fixed costs. As a result, airlines have gradually abandoned a large part of their activities such as catering, aircraft cleaning, ramp handling, check-in counters, and even airport lounges. However, they were not allowed to handle security operations, which were outsourced to airports. To mention only the carriers, we must add the massive use of computer possibilities, which has enabled them to transfer a large part of the operations to passengers. In other words, customers are now asked to do the work that has been done by the companies until now. This strategy has also been very effective because it has allowed operators to continue their growth while significantly reducing their payroll.

I am not sure that this approach, which is largely prompted by the famous “Cost Killers”, is beneficial to air transport. First of all, let’s note that customers, even if they appreciate being able to make their own reservation, issue their ticket and issue their boarding pass, are frustrated not to meet any agent of the company when they have a question to ask. They are then directed to impersonal telephone platforms, which are not able to answer passengers’ questions. It should be noted that almost all the sales and information desks of the airlines at the airport have simply disappeared. And not all air transport users are equipped with the latest technological tools: phones, computers or tablets with which carriers think they can regulate their relations with their customers.

This is how, gradually, air transport lost its magic to become nothing more than a machine for creating turnover. The dematerialization of services, as they say, is certainly not progress for this activity, which is gradually losing its prestige to the point that recruitment has become difficult, especially since the end of Covid.

Airlines are not the only ones to make massive use of subcontracting. Manufacturers have long since abandoned the manufacture of devices to become only assemblers. If we are to believe the statements of the Airbus President, no less than 400 subcontractors contribute to the manufacture of the aircraft. However, each of them can be a bottleneck. Each piece is essential in the assembly of the formidable puzzle that is aircraft construction, and it only takes one of the 400 subcontractors to fail to call into question the entire manufacturing chain. As a result, Airbus is unable to deliver the aircraft at the planned rate. We are talking about 770 aircraft against the 800 planned. Let’s keep in mind that on average an aircraft is worth $100 million.

On Boeing’s side, it’s no better. All the difficulties facing the American manufacturer come from its strategy of massive subcontracting which has escaped the control of both the manufacturer and the American authorities. The price to pay is staggering to the point of even endangering the American giant, which would have a hard time getting by without its military and space branch. So the two major manufacturers decided to take the bull by the horns by buying their major subcontractor Spirit AeroSystems. This company, created in 2004 to take over the activities of Boeing’s Wichita plant, had become an essential partner not only of the American manufacturer, which accounted for 60% of its turnover, but also of Airbus, which entrusted it with part of the fuselage of its planes. In total, Boeing will have to pay $4.7 billion and take over a debt of $3.6 billion and Airbus, which does not want to depend on its direct competitor, is also forced to put its hand in its pocket.

So gradually we see common sense regaining its place, at least among aircraft manufacturers. Let’s hope that carriers will take a step back by replacing or supplementing everything subcontracted and digitalized with a human relationship that customers, always a little stressed at each trip, need so much.

The best airlines

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Air transport has regained its previous colours, and the results for 2024 will be historic, even if the wall of 5 billion passengers and 1,000 billion in revenue will not be broken this year. It will probably be very close. And the growth continues without us knowing very well where it will stop. Gulf airlines are still in demand for more aircraft under pressure from Saudi Arabia, the newcomer to the exclusive club of very large airlines, and the return of Etihad in better shape. Asia is continuing to develop, and Africa is starting to show up in earnest. In short, everything would look good if there weren’t two huge hurdles to overcome: decarbonization and the manufacture of devices.

We can be confident about the progress made by the aviation sector on the road to decarbonization, even if the date of 2050 seems utopian for achieving carbon neutrality. Colossal investments in research will be required to achieve this, and air transport customers will have to pay well. No doubt they will do it if they have to, even if they complain.

On the other hand, the wall of aircraft deliveries is a completely different story. Let’s line up a few figures to understand the stakes; they are taken from the analyses of the IDAERO firm. Airbus estimates that in 2040 it will take nearly 47,000 aircraft to meet demand, but in 2020 there were only 22,800 in service. They have all been put back into operation, and in the deserts, there are only 3,900 aircraft left, compared to 15,200 in 2020. And orders continue to pour in. The order book is at an all-time high with more than 15,000 aircraft, but deliveries from the two main manufacturers are down compared to 2023. If between January and September Airbus had garnered 645 net orders and Boeing 272, a total of 917 in only 3 quarters, Airbus deliveries are estimated at only 770 in 2024, and Boeing’s are struggling to take off. The American manufacturer only delivered 13 aircraft at least in November, 4 times less than the previous year.

So how can we make up for the production deficit in relation to the demand for transport and the ever-increasing order book? This is where the impasse lies, especially since the engine manufacturers, and in particular those who supply the very large engines, are also struggling. However, without an engine, there is no aircraft, and without avionics, there is no aircraft either, and without a perfect production line, nothing is possible. So airlines will have to deal with a shortage of equipment for years. This is a particularly difficult equation to solve. Carriers make their operating schedule several years in advance based on their market analysis and expected deliveries based on their order book. However, since the end of the terrible Covid episode, they have been confronted with delivery delays for their production facilities. It’s like the builder of a house postponing its delivery indefinitely because he would be unable to complete it. We can see the disastrous consequences for an individual, so for large machines such as airlines, the stress is even greater. Sir Tim Clark, the CEO of Emirates, is the first to complain that he still does not have the delivery date of the Boeing 777s ordered in … 2012.

To tell the truth, we do not see how to get out of the impasse. Of course, there are still a few slightly old aircraft to be put back into service. This is particularly the case for the A380s capable of carrying more than 500 passengers, but this will be far from enough, especially since the new aircraft are much more efficient than the old ones, and the airlines have made their calculations on the basis of the economic and operational performance promised by the manufacturers.

Moreover, the shortage of pilots is also on the horizon. There are about ten pilots per aircraft. It therefore remains to find at least 400,000 new drivers by 2040, knowing that the current crews will have to be replaced when they reach the end of their careers. But how can crew training be adjusted to that of aircraft deliveries when there is no visibility as to the dates of acceptance?

However, customers do not want to know about the difficulties of the carriers; they demand that the operating programs be respected. Ultimately, the only way to resolve this impasse would be to curb demand, at least until manufacturers are able to deliver orders on schedule. There is only one way to do it: increase tariffs to reduce demand. Is it really such a bad solution?

Air transport – fare madness

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Air travel was built on two fundamental principles: first, to move passengers and cargo from one point of the world to another safely. This is what he has managed to do, because he strives for excellence. Plane crashes and even incidents are becoming increasingly rare. In 2023, scheduled airlines recorded only one fatal accident: Yeti Airlines whose pilots made gross mistakes on approach to Pokhara from Kathmandu. This is a performance that should be commended. The second principle is the universality of the principles that govern this activity. In other words, the same rules apply to each of the countries and those who do not follow them have their carriers banned from flying in the other countries. This is enough of a deterrent for governments to make every effort to follow the procedures laid down by the international authorities that govern the activity, I have named ICAO and IATA.

At the time of the construction of air transport and its real development, roughly between 1960 and 1980, airlines had no room for manoeuvre in pricing. The prices were agreed, admittedly between potentially competing carriers, but under the aegis of IATA, which enforced them under the threat of very strong economic sanctions. In 1960, the only two booking classes were “first” and “economy.” In the mid-1970s, “business” class was added before the arrival of a “first economy” in the early 2000s, all corresponding to the expansion of aircraft. The Boeing 707 had 130 seats and it has been replaced by very large jets that can carry 400 passengers.

The fare revolution really began with the “Deregulation Act” signed by President Carter in 1979, establishing on the territory of the United States the total freedom for airlines to operate any route of their choice at the fares of their choice. This facility has gradually been extended to Europe, then to Asia, and fare flexibility has become the rule, which has allowed the arrival and growth of “low-cost” carriers. This evolution has also been made possible by the enormous IT advance that has been at the origin of distribution via GDS and “Yield Management”.

But in the DNA of airline managers, safety is first and foremost, and almost all of their energy is devoted to ensuring its perfection. Moreover, with the support of their governments, the managers of carriers have not acquired a culture of competition as has been the case in other sectors of activity. However, this has come as a blow to them and the “low-cost” carriers have further destabilized their approach to customers by putting fares on the market that are impossible to compete with the structure of regular airlines. So they tried to find a solution by using what they called “Yield Management” which made it possible to display very low prices, let’s say at a level comparable to that of “low costs” while limiting their access to buyers. And tariffs have multiplied under the impetus of the brains who have flocked to the pseudo trading floors, which has robbed the directors of the companies based in the countries where they operate of the ability to negotiate with their potential customers. On the one hand, an infinite number of fares have been created, none of which are decided by the direct approach of the markets, but by computer engineers who manage lines or networks and whose mission is to maximize the revenue from each flight.

As a result, tariffs have multiplied. Thus, we could see several dozen fares on the same flight in the same class of service. And the customer doesn’t understand anything anymore, and even the airlines’ sales managers are struggling to explain the algorithms that are the basis of pricing. And we’ve complicated the price offer at leisure by cutting up the service. To display lower and lower prices, while they don’t pay the costs, we had to find additional revenue by selling the drop-off of luggage in the hold or in the cabin, access to wi-fi and many other small pieces of product on the ground or in the flight.

However, now that airlines, freed from GDS constraints by the generalization of NDC (New Distribution Capability), will be able to further refine their price range, in other words make it even more complex. This is called “Continuous Pricing” and “Dynamic Pricing”. Aren’t we losing common sense? How will customers be able to trust companies that are unable to offer stable and understandable rates?  Can we imagine restaurateurs applying the same ways?

I bet that the first company to return to a simple price range, announced several months in advance, while commissioning the distribution channel at least for the highest prices, will have a considerable competitive advantage.