The first prototype of the Airbus A380 was revealed to the world at Toulouse 16 years ago on January 18th, 2005. It was a giant, much larger than Boeing’s 747 whose market it was designed to take. It was a gamble, and it failed. Airbus thought that larger capacity, typically 525 seats (with more possible), would lower costs per seat on a hub-and-spoke operation. They estimated a demand for over 1,500 such aircraft over a 20-year period.
Boeing, facing falling demand for its 747s, estimated future demand for very large passenger aircraft might be in the 250-300 range, thinking that people would prefer fast and frequent point-to-point travel without having to change planes. They bet on the smaller, lighter, cheaper 787 Dreamliner, using lighter composites and twin engine configuration to achieve lower running costs, rather than going for big capacity.
The rest is history because Airbus lost, selling about 300 of its A380s and losing money. The initial budget of €9bn doubled to €18bn, with Airbus ultimately losing money on each A380 made. Finally they pulled the plug. Tts chief executive Tom Enders put it succinctly, “If you have a product that nobody wants anymore, or you can sell only below production cost, you have to stop it.”
I watched one take off when it appeared at the Farnborough Air Show. It was an impressive giant of a plane, but a scientific and engineering success does not by itself mean market success. I flew on a BA one to Miami and disliked it. It took ages for everyone to board, and took even longer to get through security, immigration and customs on arrival, amid many hundreds of others.
It’s a story of markets at work. Innovators take a gamble that people will want the product they plan, and they are up against competing producers. They succeed if customers buy it and fail if they don’t. Its trial and error methodology parallels that of scientific discovery. Rival theories go head to head, and the ones that win are those that pass the test of experiment and predict more accurately what we shall observe. In the case of markets the test is whether consumers will buy it.
It’s been tried where governments, rather than consumers, decide what shall be produced, and eliminate what they call “wasteful” competition. It’s been tried and it doesn’t work. In a head to head contest, markets have won and governments have lost. The failure of the A380 is a victory for the market and for customers. Airbus took a gamble on it, and when customers preferred the competition instead, they lost.