image missing
Date: 2024-05-27 Page is: DBtxt003.php txt00016586

Business Economics

How much profit does an airline make from Dubai to New York with the A380?


Peter Burgess
How much profit does an airline make from Dubai to New York with the A380? About 15 hours flight between Dubai and New York costs over $300,000. A return trip would cost twice as much i.e $600,000. To achieve break even at 80% seat factor (440 seats occupied including first class and business class), average ticket price should be about $700 one-way or $1400 return trip. The lucrative markets are already saturated, and the supply is higher than demand. You may also remember that empty seats are perishable, therefore, operating an empty aircraft would cost almost as much as passengers on board the aircraft. This is because various operating cost categories are fixed. To fill up an aircraft, quite a few seats have to be sold below operating cost to attract passengers from other airlines competing on the same route. A chain reaction of cutthroat prices results among competing airlines to focus more on recovery of cost—breakeven—than profit. About 50% of the passengers, flying between Dubai and New York, are cheap ticket holders flown in from nearby regions like South East Asia, South Asia, and African Continent etc. Therefore, a flight between Dubai and New York may have as many as fifty nationalities or more on board the aircraft. Same would be the case on a return flight from New York to Dubai. Such a system is also called the hub-and-spoke system, and airlines as hub-airlines. Qatar Airways, Etihad Airways, and Turkish Airlines also do exactly the same what Emirates does, albeit, between their home airports and New York. Lately Saudia has also jumped on the bandwagon. Such airlines are called sixth freedom carriers—a term used in aviation law for the airlines that use hub-and-spoke system for the carriage of international traffic. All the five sixth freedom carriers, therefore, compete each other for the same category of passengers in the nearby regions. Hence, both competition and capacity are excessive. Consequently competing airlines using larger aircraft such as A-380 have far more difficulty filling them up, at desired price, than airlines using smaller ones such as B-787 or A-350. Moreover, some of the national airlines in the target markets (nearby regions), have now ordered B-787 or A-350 aircraft of their own, giving passengers, origination from their country, an option to fly direct route to New York rather than flying indirect route through a third country airport—Dubai, Abu Dhabi, Doha, Jeddah and Istanbul. This would save them time and hassle of switching over to another flight in a third country. As a result, there will be further downward pressure on prices for the sixth freedom carriers, forcing them to fill the aircraft like A-380 at marginal cost. This explains why only 13 airlines in the world have opted for A-380s. Emirates is the largest operator of A-380s in the world. Almost half of the total A-380s manufactured have been inducted by Emirates in its fleet, which may have been operating them at breakeven seat factor until now, but no more. Therefore, A-380s will soon go out of production for lack of demand by the airlines. Airlines are notorious for lack of profit. In this business $ billions of revenues are closely tracked by equally high costs, with very little profit margin, if any. Competition and capacity are both excessive in the market. Hence, larger the aircraft, larger will be the problem to fill it at the desired price. You may also check up the following link. Muhammad Afsar Malik's answer to How are Micheal Porter's Five Forces relevant to an airline business?
SITE COUNT Amazing and shiny stats
Copyright © 2005-2021 Peter Burgess. All rights reserved. This material may only be used for limited low profit purposes: e.g. socio-enviro-economic performance analysis, education and training.