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  • Comment: The future is big

Comment: The future is big

Two airlines which at first glance bear nothing in common reported financial results last week that should give pause for thought to Airbus and Boeing.

At one extreme strode bold, expansive, luxurious, full-service Emirates. Full-year to end-March revenue leapt more than a quarter to Dh51.3 billion ($14 billion), outstripping rising costs - including fuel - to lift profit by 42% to Dh4.72 billion. Emirates added eight Airbus A380s during the period and has 214 aircraft on order, including 75 A380s.

A different story came out of EasyJet: still cheap and orange, but increasingly less cheerful. Revenue for its first half was up 8% to £1.27 billion ($2.1 billion), but fuel costs and taxes doubled losses to £153 million.

No surprise, Stelios Haji-Ioannou - founder, largest shareholder and a persistent critic of the management - was less than thrilled. But he did offer some praise to the board for having "recognised that by not growing the fleet size beyond the current levels of just over 200 aircraft, the company will make more money than by buying more aircraft". Now, he says, sweat the assets.

These carriers follow different but equally compelling business models: EasyJet is the model low-cost carrier, Emirates leverages Dubai's gifted geographic location as the ultimate long-haul hub. Why, then, does growth mean profit for Emirates but not for EasyJet?

The answer may be one that should keep Seattle and Toulouse awake at night. EasyJet is losing money operating Airbus A319s, A320s and a few Boeing 737s. Emirates is cleaning up with A330s, A340s, A380s and 777s.

More to the point, Emirates runs bigger aircraft. The economics are easy; any aircraft costs a lot, but a bigger one costs only marginally more, so its per-seat costs are lower, especially as fuel costs rise.

This effect explains why it costs a fortune to fly on a business jet, why 50- to 70-seat regional jets are a dying breed, why Bombardier is going beyond its sub-100-seat market to develop the 100- to 149-seat CSeries and why low-cost Southwest says it can't wait until 2020 to replace its 122-seat 737-500s and 137-seat 737-300s.

And, it raises questions about Airbus's decision to redevelop the 150-seat class A320 as the A320neo, featuring a new generation of more-efficient engines.

Boeing may take on the more difficult task of re-engining its 737 to keep up. But don't be too surprised if the airframer instead opts for an all-new aircraft seating about 180 - near the top of the 145- to 185-seat range it calls the "heart of the market".

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