Emirates conundrum: Boeing 777X or 787?

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As Emirates reportedly decided to switch up its Boeing orders to put more emphasis on the smaller Boeing 787, rather than the larger yet-to-certified 777X, could it also mark a future where less emphasis is marked on its Dubai hub?

Whenever someone mentions Emirates airlines, the sight of luxury, behemoth aircraft and the ever-growing Dubai International Airport (DXB) hub appears on the horizon. Ever since it was established in 1985, it bullied and muscled its way into the spotlight of airline brands and became a powerhouse in aviation. DXB, as a hub and an airport, grew hand-in-hand with its home airline: from 5 million passengers in 1990 to 86.4 million in 2019.

While the airline had faced its fair share of criticism and concerns of anti-competitive behavior from U.S. airlines, alleging that it had received illegal state subsidies to fuel its growth, Emirates has managed to stay profitable, unlike some of its neighbors.

The current pandemic, however, seemingly ripped its business model apart. With international travel in constant limbo, coupled with no narrow-body or smaller wide-body aircraft in its fleet and no domestic network to fall back on, the company saw its traffic numbers plummet. In March 2020 alone, the airline lost AED3.4 billion ($925.6 million) due to the COVID-19 crisis. In FY2020, the company earned AED90 billion (24.5 billion) of revenue, of which AED75.5 billion ($20.5 billion) was attributed to passenger revenue throughout the year.

“Emirates will and have to look at expanding its point-to-point services. In other words, they can’t rely on that previously successful operating model over the past 15 years anymore,” stated Linus Bauer, Founder and Managing Director of Bauer Aviation Advisory, an aviation & strategy consultancy. If the airline wanted to remain competitive in the coming years, it had to shift more towards point-to-point traffic, rather than rely on the competition-intense transfer traffic, he added.It still operates a downsized network. Pre-COVID, Emirates marked 157 destinations in its network. As of August 19, 2020, the number was 75, according to a press release issued by the carrier.

More emphasis on point-to-point

Its profile of operations, at first glance, has already changed. Adel Al Redha, the Chief Operating Officer (COO) of Emirates, noted that prior to the break out of the virus, 70% of its traffic was transfers. Now, it is a 50% split between transfers and point-to-point operations, as Al Redha told Bloomberg.

Foundations to further increase demand for local traffic into Dubai have been laid out, as the city is an attractive “destination for tourism, meetings, incentives, conferences, and exhibitions (MICE), business and the EXPO2020 next year, which was postponed due to COVID-19,” noted Bauer.

The COO also indicated that the airline is in active discussions with Boeing to swap more 777X orders for the smaller 787 Dreamliner, as the latter “offers better seat capacity.” Emirates has previously engaged in such an ordeal, as it swapped the order for 777X for 30 Boeing 787-9s during the 2019 rendition of the Dubai Airshow. 24 777Xs were crossed off Emirates’ backlog back then. Boeing’s Orders and Deliveries data showcases that it still has 115 unfilled 777X orders from the Dubai-based airline.

Timeline for the folding-wingtip wide-body and the start of deliveries of the Dreamliner to Emirates is very similar. After Boeing once again pushed back the 777X entry date, it is expected that a Dubai-bound 777X would happen in 2022. Meanwhile, the first 787s are set to join the carrier’s fleet in 2023. But Al Redha stated that the airline was still wary of the industry’s ability to return to demand levels that would facilitate the largest twin-engine wide-body by that time.

“We don’t want to dump capacity in the airline when the airline can’t absorb capacity.”

Boeing’s 787 is much less capacity-intense aircraft. According to a press release dated November 2013, Emirates planned to deploy the 777-9 with 440 passengers, while the 777-8 would seat 342. A typical two-class configuration would seat 296 passengers on the 787-9, which Emirates’ chosen model.

The range difference between the 777-9 and the 787-9 sways towards the Dreamliner, with a maximum flown distance of 7,285 nmi (13,500 km) and 7,530 nmi (13,950 kilometers), respectively.

But the lower capacity is a much more attractive proposition given the current market circumstances, whereupon the demand for air travel is still in shambles. Emirates’ own president Tim Clark stated that if worst-came-to-worse, passenger levels would only return in 2023 or 2024.

Boeing 777X or 787 Dreamliner: Cost advantage

The Boeing 787-9 would naturally come with a cost advantage, as the base list price is much lower ($442.2 million versus $292.5 million) and the 787 is much lighter than the 777-9, as it is smaller. In such a case, the ability for Emirates to make a flight profitable would become much easier, as it would have fewer seats to fill for a much lower cost. The Dreamliner would allow Emirates to be much more flexible in their routing, as the wide-body could be deployed on much “thinner” point-to-point routes, while the 777X would require quite a few seats to be filled, once again, possibly forcing Emirates to go back to its hub-and-spoke model in a time when such a model is in peril.

“In other words, a larger aircraft like the 777-9 would be more costly to operate if not all seats could be sold, or if seasonal demand disappears. Therefore, Emirates’ decision to swap the 777-9s for 787-9s is fully reasonable since they’ve learned a lesson from the current pandemic,” according to Bauer.

However, the 787 is a new family to Emirates’ fleet. As it currently only operates the 777 and the A380, the airline would have to either hire or re-train its pilots, cabin crew and other personnel, including engineers. Building up spare parts resources, in addition to the training and hiring procedures, is a capital-intensive procedure.

The 777X offers no such trouble, as the aircraft is certified under the 777 family, much like the 737, for example:

“On April 19, 2017 (for the Model 777-8 airplane), and May 12, 2015 (for the 777-9 airplane), Boeing applied for an amendment to Type Certificate (TC) No. T00001SE to include the new Model 777-8 and 777-9 airplanes,” stated a ruling by the Federal Aviation Administration (FAA) in May 2018.

For Boeing, the fact that Emirates, despite its major association with the A380, would cut its 777X order for the 787 would deal another reputational blow to the program. The airline’s COO shares the same point of view, as to his own opinion, “Boeing would prefer to deliver the 777s before 787 because that is a new program for them,” stated Al Redha.

The 777X, plagued by delays due to issues with its frame and engines, was initially scheduled to enter service in 2020. Now, with the entry scheduled for 2022, questions arise of what kind of market it will enter: poised for recovery or grasping for demand and still down-scaled? The former would be detrimental to its success – already plagued by low order numbers of only 350 units, the program needs a break. However, the only break currently on the horizon is the one that breaks Boeing’s financial back, as various customers look to delay the deliveries of the 777X.

“In the post-COVID-19 era, the entire aviation landscape will change network-wise. Further consolidations and JV partnerships will lead to decentralization and a higher proportion of point-to-point traffic,” concluded Bauer.

This article was originally published on August 24, 2020.

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