The worst kept secret at this years Farnborough International Air Show was the expected – and now executed – order of the Airbus A350 by Virgin Atlantic. The deal was consummated with the traditional Richard Branson flair as he arrived on board an A350 and posed for photos with cabin crew before signing the contract for 12 of the –1000 variant to be delivered. The order was the most hyped of the first day and arguably rivals the hype of AirAsia’s 100 A321neo order which is somewhat surprising to me. After all, it is only 12 planes. But is there more to it than just this specific order?
Virgin Atlantic plays above its weight when it comes to media hype but in this case it might jut be following the rest of the industry. In that context it might be possible to read more in to the A350 order, especially when it comes to the large and very large aircraft markets. United Airlines ordered the A350 to replace its 747s. Delta did the same. So did British Airways. And while the 747-8i is an option, Lufthansa is the only carrier betting big in that direction. At this point Virgin Atlantic’s order pretty much cements the position of the A350-1000 as the heir apparent to the 747-400 for most airlines, at least those trying to maintain capacity levels.
— Seth Miller (@WandrMe) July 11, 2016
Virgin Atlantic also has a handful of A380 orders on the books. This is an order that, much like Delta’s 787s, few in the industry expect will actually see delivery. In theory this new order for the A350s was a good opportunity to convert the A380 order. And yet that’s not what happened. At the same time, Virgin did not commit to a timeframe on a decision about the A380s, essentially leaving the order orphaned. Airbus and Emirates have been in discussions about improvements which would improve the A380 CASM, either a “neo” option or other independent options like denser seating and a smaller rear stair area. Airbus COO John Leahy believes that the “burning demand” for such improvements is “no longer burning” given lower fuel prices, though most in the industry agree that those costs are already ticking back up from lows earlier this year. That burning sensation may return sooner than not.
There is also something to be said for the Virgin move vis-à-vis hedging against Heathrow third runway decisions and the Brexit situation. Future demand and capacity remains much harder to predict right now but Virgin needs to replace its 747s soon. This move leaves the company in a strong position with future options still open.