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Boieng and airbus.
1. Running Head; Boeing Vs. Airbus 1
(NAME)
BOEING VS AIRBUS
(COURSE)
(PROFESSOR)
(DATE)
Total World count; 6386
2011
2. Boeing VS Airbus 2
Abstract
The demand facing aircraft manufacturers for new orders is in principal derived from
the perceived future demand for commercial aviation. Several key external economic factors
are likely to outline demand for new aircraft. These factors are accessed from the perspective
of decision makers in the airline industry, Airbus and Boeing, in this paper. Also analysed in
the paper are the relevant strategies employed by both airliner makers to manipulate this
factors or manoeuvre around them in order to survive in the market. The relevant theories of
strategic management are also analysed in the paper. The paper is also divided into two
distinct parts one tackling on contemporary business issues and strategic management.
3. Boeing VS Airbus 3
Part A; Contemporary business issues
Introduction
Wilbur and Orville Wright, in Ohio, made the initial successful flights in 1903, and
two years later, they assembled a well-controlled aircraft1. This original success in the
centuries-long reality of flight cleared the way for the start of the road to the emergence of
the aircraft commerce; which is the United States’ most profitable market and industry,
having generated about 140 billion dollars in sales in 1999, as well as 62 billion dollars in
exports to other countries2. An essential section of this industry entails the commercial
aircraft manufacturers. Consequently, it is very important to re-examine the constituents and
the past of this industry to analyze the effects various public policies and economic factors
could have on the producers in addition to the buyers of aircrafts.
A Brief History
In 1903, the Wright brothers thrived in flying the primary plane, Kitty Hawk,
establishing the onset of the aviation industry3. Previously, the community did not take on
aircrafts as reliable ways of transport owing to the insight that it was unsafe. Nevertheless,
this discernment was altered, when Charles Lindbergh effectively transversed the Atlantic
Ocean in 1927, generating an immense interest in flying4.
In 1909, the Wright brothers formed the Wright Company, which began by creating
airplanes prior to losing it in an astringent competition to another airplane producer in New
York known as Glenn Curtiss5 . Curtiss’s company built such premium planes that the Wright
1
Heppenheimer, T. A. “The U.S. Aircraft Industry – An Overview,” U.S. Centennial of Flight Commission.
http://www.centennialofflight.gov/essay/Aerospace/AeroOV1.htm.
2
William Col. “Industry Studies: Aircraft,” The Industrial College of the Armed Forces.
http://www.ndu.edu/icaf/industry/2000/aircraft/aircraft.htm.( 2005)
3
Devani Boyd, “Safety and Profits in the Airline Industry.” The Journal of Industrial
Economics, 34 (3) (2000): 305.
4
Ibid..pp 310
5
Heppenheimer, T. A. “The U.S. Aircraft Industry – An Overview,” U.S. Centennial of Flight Commission.
http://www.centennialofflight.gov/essay/Aerospace/AeroOV1.htm.
4. Boeing VS Airbus 4
Company could not fight, resulting to changing its name to Wright Aeronautical Company
and turning to creating aircraft engines.
With the break out of World War I, The industry experienced a decline in demand,
and this low demand persisted all through some years after the war. However, one of the
leading features in the expansion of the air transport industry in the post-war era was the
advancement of the mail transport system by the U.S. Postal Service6. The Kelly Airmail Act
of 1925 permitted private airlines to operate as mail transporters through competitive bids.
The airmail proceeds aided private carriers to develop into taking other types of cargo, as
well as passengers. Prospects for new profits also led to the expansion of previously new
producers such as Donald Douglas, William Boeing, and Alan Loughead to go into business.7
An investment corporation by Boeing, United Aircraft and Transportation
Corporation, achieved a major advantage over other producers in 1926 by constructing a
single-engine plane that was able to carry mail and commuters over the Rocky Mountains.
Subsequent to this accomplishment, both airline corporations and aircraft producers aimed at
commuters to increase the income from the airmail system8. The demand for commercial
planes carried on to augment progressively all through the 1930s, but again endured another
demand downturn when World War II broke out. Conversely, the war assisted in generating
support for military aircraft research and expansion, which expanded to commercial aviation9.
The end of war brought a fall down in the aircraft industry as a considerable number of army
orders were rescinded10.
In the 1950s, the aptitude and comfort of commercial aircrafts advanced significantly
as planes were modernized, including the introduction of jet service in 1959; facilitating
6
Devani Boyd “Safety and Profits in the Airline Industry.” The Journal of Industrial
Economics, 34 (3): (20000 311.
7
Ibid 312
8
Ibid 312
9
Ibid pp 315
10
Heppenheimer, T. A. “The U.S. Aircraft Industry – An Overview” U.S. Centennial of Flight Commission.
http://www.centennialofflight.gov/essay/Aerospace/AeroOV1.htm.
5. Boeing VS Airbus 5
faster cross-country flight service. During this period, Boeing launched Boeing 707 while
Douglas manufactured its DC models, DC-8 being the latest model in that decade .11In
subsequent years, Boeing and Douglas competed profoundly to vend their planes by
proposing conventional deviations of a basic design that would serve airlines’ particular
needs such as big wings for long variety. These customizations were expensive, which aided
Boeing win a significant advantage over Douglas since it was capable of making larger
investment, since it was selling planes to the Air Force in large numbers. In the 1960s,
Boeing launched 727 while Douglas also stayed in the game by bringing its DC-9 to the
market.
Towards the end of the Vietnam War, Boeing, Douglas, and Loughead all endured
economic difficulties.12Gradually recuperating from post-war economic circumstances,
Boeing launched airliner 747. However, this model was too huge, which gave Loughead and
Douglas the chance to manufacture smaller airliners. Loughead manufactured L-1011 while
McDonnell Douglas presented DC-10. However, this was a blunder since there was just room
for one model of miniature airliner in the market13. This ended in both corporations losing
capital and shoved Loughead in leaving the commercial aircraft development, becoming a
solely military designer. Douglas continued the business but was monetarily feeble from the
competition with Lougheadand thus it could not support the research and development of
new planes.
These issues raised the likelihood of Boeing to become a near monopoly in the
aircraft industry. Although this outlook made Airline executives provisionally concerned,
during the late 1970s, European plane producers totally altered the nature of the industry.
France and UK, which had powerful aviation industries, had created the Concorde, the
11
ibid
12
ibid
13
ibid
6. Boeing VS Airbus 6
world’s single supersonic aeroplane.14These countries united with West Germany to form the
Airbus Industries. During the 1980s, Airbus competed dynamically with Boeing, capturing a
big number of orders and becoming an influential rival to Boeing in the industry. Some
mergers made the airliner business even more concentrated. Boeing ultimately bought
McDonnell Douglas and another aircraft producer, Rockwell International, becoming the
solitary major commercial aircraft producer in the United States. Today, the Boeing
Commercial Aircraft Company and Airbus Industry control the commercial aircraft
industry.15
Factors that may affect demand for a new aircraft
A major factor that can lead to demand of creation of new aircraft is an economic
crisis. This refers to a major fiscal catastrophe in a country or transversely many countries
that affects the banking scheme, the stock market, and the steadiness of a government. An
economic crisis can happen owing to many factors but it is frequently due to an
amalgamation of reasons that merge to generate financial insecurity. It does not only affect
the international trade but also the domestic businesses in an economy. The recent recession
in the US market and the international meltdown referred to as Global recession, have
overwhelmed total world economy with a varying measure of digressional effect. World over,
the impact has varied and its effect can be scrutinized from the very truth of falling Stock
market, recession in jobs accessibility and companies ;following downsizing in the existing
accessible staff and reduction of the bonuses and salary amendments16.
In the globalized market circumstances, the effect of recession at one-sector
percolates down to all the associated sectors and this can be accurately construed from the
14
Devani Boyd “Safety and Profits in the Airline Industry.” The Journal of Industrial
Economics, 34 (3): (2000) 318.
15
Shad H Shokralla, “Boeing 777 Case Study”, Synthesis Coalition.
http://bits.me.berkeley.edu/mmcs/b777/main.html. (1997)
16
Chris Harman Zombie Capitalism: Global Crisis and the Relevance of Marx (London: Bookmarks
Publications 2009) ;498
7. Boeing VS Airbus 7
current market condition that is faced by the world. The badly hit sector is the financial
sector, with Liquidity Crises being a major issue in the international markets17. Countries with
current account shortfalls and strong credit cycles are discovering it hard to reduce cost of
capital within this existing environment. The equilibrium of Payment deficit, at a time when
domestic credit demand is elevated, results in a ferocious circle of decreased access to
liquidity, slowing expansion, and amplified risk-aversion in the monetary system18.
Altogether, the recession has reduced the growth process and stability of the market,
which is needed for the smooth running of the economy. Companies especially the
international corporations including the Boeing and Airbus require continuous flow of
liquidity, which is derived from the market, and without this, they contract in order to cope
with the current business atmosphere. So on order to survive in the business world at the
current climate, the two companies are necessitated to comply with the demands of cheaper
to maintain and more efficient aircrafts that can reduce operational costs and increase
profitability. Boeing has had plans of launching the Boeing's futuristic, fuel-saving
Dreamliner as Airbus release the A330.
As in most oligopolies, public policies have a key role in the performance of the
producers of commercial aircrafts. Especially, some of the policies that the European
countries have undertaken toward Airbus have affected the nature of the competition between
Boeing and Airbus. Therefore, it is crucial to reassess some of these policies in order to
understand their impact on this industry. One of the main factors, which have assisted Airbus,
the European aircraft manufacturer, in competition with Boeing, is the great amount of
technological cooperation that has occurred among the European countries19. Over the years
following World War II, technological collaboration increased noticeably among European
17
Ibid. pp. 500
18
Mritunjai kumar, expert economist and prolific writer.2010
19
Keith Hayward “Airbus: Twenty Years of European Collaboration.” International Affairs, 64 (1) (1988): 11
8. Boeing VS Airbus 8
countries to put up with important national interests of several states. Although such
associations have not been ideal and competitive and cooperative forces coexist,
collaboration has become a schedule for most European companies. Cooperation has been
exercised as a normal industrial tactic to aid European countries cope with large growth costs
for products and tolerate international market forces. This has especially been true in the
aerospace industry where key technologies are very closely linked to military and economic
security. At times, such assistances have ignited criticisms that countries were forfeiting
effectiveness in certain cases for the sake of functioning in a definite program with other
Europeans.
For example, France got one such condemnation when it maintained on the progress
of two editions of Concorde and the allotment of Tornado equipment agreements to German
companies in spite of their insufficient experience20. However, European economists have
responded by asserting that just like the production of aircrafts, learning curves are also
applicable to collaboration; in other words, by “practicing” collaborations, countries are
capable of gradually moving toward more efficient collaborative projects. Airbus Industries
has been considered the European organization that has come closest to this integrated
approach to collaborative programs. The Airbus collaboration is unique in that it has united
the three major European countries in the aerospace industry, France, Germany and Great
Britain, to a significant degree on a large-scale program. This integrated collaboration is one
of the reasons why the relatively young European aircraft manufacturer quickly became a
major competitor to Boeing. This can also be a major player in demand for a new aircraft.
Another factor, which has had a major influence on the nature of the rivalry between
Boeing and Airbus, has been European government financial supports that have permitted
Airbus to expand new technologies21. The Airbus Industries came into being with the
20
Ibid pp 13
21
Shad H Shokralla, “Boeing 777 Case Study,” Synthesis Coalition.
http://bits.me.berkeley.edu/mmcs/b777/main.html. (1997)
9. Boeing VS Airbus 9
generous financial help of EU governments22. Europeans justified the subsidies that covered
the launching costs of the first Airbus model, the A-300, by relying on the “infant industry”
argument and the monopoly of the United States in the industry. However, while Airbus has
grown from a small firm into a powerful manufacturer effectively competing with Boeing,
subsidies have continued. These subsidies have caused Airbus to enjoy from a long-term
competitive advantage, which enables them to afford research and development without
having to pass on the costs to the customers.
Major European countries’ continuous subsidization of Airbus has been a key issue
that has put Boeing at a drawback to participate in the world market. Frequently in cases of
arguments concerning major companies in a concentrated business in the same country, the
government may have a little interest in the conclusion of the disputes. However, the
commercial aircraft business is a global industry with its two main firms situated in two
different continents. In this perspective, international trade take part in a major role in this
industry23. Large economies of scale as well as the learning curves in the industry require
producers to look beyond domestic markets, relying on export markets to lower their average
production costs. Since components of demand for aircrafts is limited, this scenario could
initiate Boeing to react by either creating a more stylish or more efficient plane in order to
still compete with Airbus.
Another factor would be; increasing jet fuel costs and inadequate infrastructure
development in less developed countries are serious obstacles to continued growth24. World
markets are critical to both Boeing and Airbus, and aircraft manufacturers need to penetrate
these markets in order to increase sales as well as making air travel more accessible to a
larger population. In addition, governments with aircraft manufacturers require throwing their
22
Pavcnik, Nina.. “Trade Disputes in the Commercial Aircraft Industry.(Blackwell Publishers; United Kingdom
2002) ;35
23
Ibid. pp 37
24
William Col, “Industry Studies: Aircraft,” The Industrial College of the Armed Forces.
http://www.ndu.edu/icaf/industry/2000/aircraft/aircraft.htm. (2005)
10. Boeing VS Airbus 10
support behind the research and development of substitute fuel, such as the fabrication of jet
fuel from agricultural produces or via clean coal technology in order to decrease fuel costs.
These ventures will not merely promote the companies, in the industry, in making aircrafts
more lucrative in the market, but their ventures will also be advantageous in other sectors
such as automotive industry. Consequently, both companies will maintain their pursuit of
budding technologies that offer cost savings and greater operational efficiency. Development
of aircrafts that use cheaper fuel is expected to immediately gain considerable favour in the
world market due to high worldwide oil prices. Hence, aircraft producers have a genuine
incentive in the development of substitute fuel and aircrafts with the machinery to use such
fuel. This definitely affects the production of less fuel consuming and much efficient aircraft
to cater for their rising demands.
Another factor that can affect demand in terms of both the key players, Airbus and
Boeing, making new planes is the aspect of looming terrorism in the world. High hijacking
levels have been witnessed all over the world. In a recent study, “effects of the recent terrorist
attacks in America on Virgin Atlantic”25, It is evident that Richard Branson’s airline, Virgin
Atlantic Airways, has suffered terribly because of the recent terrorist attacks in America.
Once a prosperous and expanding airline, Virgin Atlantic resorted to a number of stringent
measures which would optimistically consequence in the carrier not only avoiding a loss but
helping the airline in reaching the breakeven point and ideally, though improbable, making a
profit.
In the report, it was also evident that Virgin Atlantic had decreased the number of
flights it operated. This consequently proposed that there was a decrease in demand; a
collapse in consumer confidence and, consistent with this, reduction in the number of flights
thus diminishing the total variable costs, for example fuel, foodstuffs, and airport costs. It was
25
No Author,” Effects of the recent terrorist attacks in America on Virgin Atlantic.” Aerospace
Corporation(2005)
11. Boeing VS Airbus 11
also noticeable that the airline had to decrease its workforce; it intended to make 1,200
members of staff redundant26. By cutting the dimension of its personnel, Virgin Atlantic was
to reduce the cost of labour. Both of these two reductions proposed that the airline was
reducing supply in order to meet declining demand, this is the fundamental law of demand
and supply; as demand increases, so does supply; price is probable to fall. As demand
decreases, so does supply; price is likely to increase. Between this period and the recession of
2008, the airline also had to retract all Virgin Atlantic orders of acquisitions new aircrafts to
its suppliers, Boeing. In line to this, there will be no surprise if either Boeing or airbus in
future were to create planes, which were burglar proof to curb such acts, and in the end
promote demand by increasing safety, so customers feel secure. On the other hand, this issue
of terrorism could increase demand for military planes to counter the acts. The key players
could also be inclined to create powerful and efficient jets for such purposes.
Commercial aircraft industry has become one of the key global industries over the
decades after World War II. Its elevated concentration is a sign of the economies of scale
engrossed in the business. As Boeing and Airbus carry on their dynamic rivalry to control the
world market, they have confrontations that they require to conquer, both in terms of rivalry
with one another, but also in terms of universal difficulties. Governments also require to work
together in making policies that would aid the expansion of the industry as a whole and
encourage competition. Only by surmounting these challenges, will the business have
continued development and amplified demands for their brands in the world market.
Part B; Strategic management
Introduction
26
ibid
12. Boeing VS Airbus 12
Aviation forecasters are familiar with the diverse outlooks of more frequencies
against more capacity. With aircraft producers proffering aircraft with more range but also
with more capacity, airlines are at the present influential in determining whether the hub and
spoke values or the point to-point idea is the best approach to follow. The other strategic
management methodologists include pestel analysis and Porter 5 forces,
Altering factors and trends within the airline business does not only revolutionize
airlines, but route arrangements plus the demand attributes of fleets; making the 101- to 180-
seat aeroplane the sector of interest in the future27. It is also evident that Airline alliances are
shaping into the next element in collaboration. In many ways, these collaborations will be the
airline. Truly, the airline affiliates will become the lift-contributors, Comair or Mesaba; are
non-brand lift providers to Delta28. That denotes that the intent should be to line up ones
community with entry to all three international airline coalitions. As this continues, there will
be a stop to an American, United, or US Airways product in support of an international
alliance trademark. In fact, the coalition arrangement is entirely shifting airline market and
fleet strategies as is evident in Airbus industries29.
On the issue of post recession, the airline industry is projected to have a slow recovery
that will also see the industry continued decline through 2010. The main reason being that,
the demand for aircrafts will return faster than capacity. This would almost certainly be a
good thing since that would signify rise in airfares.
According to a forecast, it is indicated that both entire passengers and enplanements
will be go down 2.6% and 2.9%, correspondingly, to 548,360 and 727,369 in 201430. Hub
27
Simonson, G. R. 1960. “The Demand for Aircraft and Aircraft Industry, 1907-1958.” The
Journal of Economic History, 20 (3): 361.
28
Ibid 366
29
Simonson, G. R. 1960. “The Demand for Aircraft and Aircraft Industry, 1907-1958.” The
Journal of Economic History, 20 (3): 376.
30
Simonson, G. R. 1960. “The Demand for Aircraft and Aircraft Industry, 1907-1958.” The
Journal of Economic History, 20 (3): 361-382.
13. Boeing VS Airbus 13
sites would also drop by 2.1% while large non-hubs will drop by1.4percentage. However, the
principal loss will be in the regional markets, which will fall by 5%.31 Included in the forecast
was also a likelihood of a completely new fleet economics .Denoting That Boeing’s 747 may
be replaced by the smaller A33032, That ERJ-145 will see more of the desert, That C-Series
might be the new 737 and that 34-seat turboprop will never return once it gets parked. In
addition, Noted was that the re-fleeting has already started, albeit slowly33. In fact, it
articulates, less than 70-seat aircraft are currently experiencing the same decline in demand as
the eight, 15, 19, 30 and 50 seaters have already endured34.
In regards to Regional aviation, whether delineated by airline or plane, it appears to
have in general a desolate outlook, according to another forecast35. Boyd Group International
perceives an international demand for 12,847 airlines between 2010 and 2019 with China, the
number two international market, needing 3,292 new aeroplanes36. It also observes the
broadened presentation covers of new airlines prompting what is expressed a category
overlap37. As for substitution equipment, they will come in the 2010-2013 period38.
Turboprops will develop in demand but still be restricted, Boyd pointed out39, and adding that
demand for lower capacity aeroplanes will go on to decline. In 2011, the entire fleet will
reach 18,023 traveller airliners and will develop to 23,791 by the end of 2019 for a net
31
Vicki L Golich, “From Competition to Collaboration: The Challenge of Commercial-Class Aircraft
Manufacturing,” International Organization, 46 (4) :( 1992): 901.
32
The Airbus A330 is a large-capacity, wide-body, twin-engine, medium- to long-range commercial passenger
jet airliner
33
Vicki L Golich, “From Competition to Collaboration: The Challenge of Commercial-Class Aircraft
Manufacturing,” International Organization, 46 (4) :( 1992) 932.
34
ibid
35
Vicki L Golich, “From Competition to Collaboration: The Challenge of Commercial-Class Aircraft
Manufacturing,” International Organization, 46 (4) :( 1992) 935
36
Boyd international group (2000)
37
ibid
38
ibid
39
ibid
14. Boeing VS Airbus 14
augment of 24.2% or 5,768 aircraft. Substitution will explain 52.1% of the demand attaining
6,688 aircraft while development will justify 47.9% or 6,159 airliners40.
In another forecast on category, the narrow bodies between 126 and 180 seats will
explain the maximum demand at 4,282 aircraft or precisely a third41. The forecast predicts
180+ seats representing 20.3% of demand or 2,611 aircraft42. Fascinatingly, Malian sees the
101- to 125-seat as gaining 19.6% of demand or 2,521 aircraft43, which is precisely the sweet
spot for the C-Series.it continues to predict that Seventy five to 100-seat aeroplanes will
represent 15.4% or 2,110 aircrafts while 61- to 74-seaters will observe a demand for 1,008
airliners, or 7.8%. The regional-cabin planes will be merely 2.5% of the demand at 315
aeroplanes over the forecast interlude. In addition, North America will have the uppermost
demand, however, at a diminished percentage at only 30% or 3,851 planes, subsequently,
China at 25.5% or 3,282 and Europe at 23.6% or 3,03244. Africa will be positioned at 6.3% of
the market at only 810 jets as Asia and Latin America accounting for at 9.4% or 1,206
aircraft and 5.2% or 666 aircraft respectively.
The huge transformations the industry is experiencing; that is the standard method of
using historical data to forecast the future no longer applies; is also major factor. Existing
traffic and O&D allotment are inventions of current service levels, and not air service
consumer demand. Airline service that was sustainable 10 years ago is frequently out of reach
today. Projections of powerful less-than-75-seat demand are attractive, but incorrect. No
company is manufacturing them, albeit demand. Economics have eradicated the 15, 19, and
40
ibid
41
Simonson, G. R. 1960. “The Demand for Aircraft and Aircraft Industry, 1907-1958.” The
Journal of Economic History, 20 (3): 361.
42
Simonson, G. R. 1960. “The Demand for Aircraft and Aircraft Industry, 1907-1958.” The
Journal of Economic History, 20 (3): 361.
43
Simonson, G. R. 1960. “The Demand for Aircraft and Aircraft Industry, 1907-1958.” The
Journal of Economic History, 20 (3): 369.
44
Simonson, G. R. 1960. “The Demand for Aircraft and Aircraft Industry, 1907-1958.” The
Journal of Economic History, 20 (3): 370.
15. Boeing VS Airbus 15
30 seaters including any other aircraft below -70-seat capacity45. The proposed demand for 70
to 100 seaters is doubtful. The new economics may make big aircraft more sector-efficient
and in fleet efficient.46
In another projection, the arrival of the 70- to 90-seat Mitsubishi local plane, the 75-
to 95-seat Sukhoi Super jet and the Embraer E-Jets at 70- to 120 seats, brings the
practicability of that section into question47. Embraer is by now in the market productively
and it lingers to be seen whether the other two will be significantly economic. Boeing is also
foretelling a market for 2100 RJs, though; no consumer is likely to invest in an aircraft only
to sell them for $20 million48. The report also illustrated the complexity of defining regional
jets when they are being managed in such markets at Houston or Atlanta and Chicago. The
dimension of the aircraft has nothing to do with local markets and one describes it as less
than 110 seats then the 707 was an RJ49 along with the A318. The indication is the idea of the
RJ was a development jet for the regional airlines and it is not related size, markets, or
producer.
New competitors could change the 101- to 180-seat field. A demand for 2,700 aircraft
between 2016 and 2019 in this group is predicted with China accounting for 52550. There is a
good prospect that the China market will be contrived to buy only Chinese airliners making it
extremely uncertain that it will actually be a part of global demand. That also brings into
query the manufacturer conjectures that count China as possible customers including
Embraer, which has claimed that Chinese production will not be able to meet demand, at least
in the short term51.
45
Golich, Vicki L. 1992. “From Competition to Collaboration: The Challenge of Commercial-
Class Aircraft Manufacturing.” International Organization, 46 (4): 934.
46
Vicki L Golich, “From Competition to Collaboration: The Challenge of Commercial-Class Aircraft
Manufacturing,” International Organization, 46 (4) :( 1992) 935
47
ibid
48
ibid
49
For the purposes of this forecast an RJ is an ERJ or CRJ only
50
ibid
51
ibid
16. Boeing VS Airbus 16
The trend is also perceived as towards a larger and more costly aircraft pushing the
revenue bar elevated than it is currently. In the early 1980s, the B-1900s, the C99s,
EMB-120s all made a lot of money. In the 1990s, the miniature turboprops became
unprofitable and were substituted by the RJs with new market submissions not to substitute
turboprops. The new dynamic RJs are on the verge of exiting, as are the assignments they are
operating52. Air service dynamics have primarily changed since the economics of the
machinery has transformed and there are no prospective economic substitutes for lesser
turboprops or RJs on the perspective. The smallest airline in circulation in the West is 70
seats and they are expensive. These new aeroplanes can fly longer while Airbus is leading the
way in the very huge capacity sector. Airbus asserts there is still life in the hub and spoke
system particularly between large city pairs between Asia, Europe, and North America53.
Airbus and Boeing have dissimilar outlooks on the international market forecasts.
However, on some points both aircraft producers share the same analysis. International travel
depends on the financial system and the economy. As the Gross Domestic Product (GDP)54 in
many countries is gradually escalating and liberalization of markets augments the
accessibility, the air traffic expansion is gradually stabilizing .Globalization and international
trade can initiate more wealth, which in turn has its outcome on international travel.
Differences are seen between the major players when Boeing projects an annual
passenger traffic increase of 4.8%between 2005 and 2024, contradicting Airbus’s projection
of a slightly higher annual increase of 5.3% between 2004 and 202355. As Boeing foresees an
international passenger fleet of35, 300 aircraft by 2024, Airbus sees an increase to 21,759
aircraft by 202356. Boeing also predicts about 22% will be in the midsize twin aisle category
52
Sturmey, S. G. 1964. “Cost Curves and Pricing in Aircraft Production.” The EconomicJournal, 74 (296): 955
53
Sturmey, S. G. 1964. “Cost Curves and Pricing in Aircraft Production.” The EconomicJournal, 74 (296): 955
54
GDP is the amount of goods and services produced in a year, in a country.
55
Helen Milner and David Yoffie, “Between free trade and protectionism: strategic trade policy and the theory
of corporate trade demands.” International Organization,43 (2) (1989): 261
56
Sturmey, S. G. 1964. “Cost Curves and Pricing in Aircraft Production.” The EconomicJournal, 74 (296): 978
17. Boeing VS Airbus 17
such as the 787and A350 while the 747 and larger aircraft will only take up 4% of the total
fleet according to Boeing57.
In addition to the rise in number of aeroplanes, Airbus also projects a boost in the
number of seats per aircraft in the proximity of 20% that is from181 to 215 seats58, in
anticipation of the year 2023. According to Boeing, in the next 20 years, Cargo aeroplane
numbers will twofold to 3.530 full carriers projecting a typical growth of 6.2%59. Airbus also
observes the distribution of full freighters augment to 3,139 full freighters60, an increase of
5.9% in the same period. The variation is the prospect vision that Boeing and Airbus have,
point-to-point versus hub & spoke.
Boeing and Airbus are seeing the need for longer distances being flown by twin-
engine aircraft. With this trend, they hope to operate more non-stop flights between more city
pairs; Boeing and Airbus are also hoping aviation authorities will endorse even higher
ETOPS61 evaluations that would increase such aircraft potential. ETOPS is particularly vital
for point-to-point traffic where Boeing tenders the 787, 777, and Airbus, the A330 and
A350.62At present Boeing embraces the record for the premier ETOPS score with 207
minutes ETOPS qualifications on their 777 model63. On the other hand, Airbus has its four-
engine A340, which needs no ETOPS rating64. This makes Airbus striking for airlines that do
not desire ETOPS. Airbus is competing openly with Boeing’s 787 and the 777 with the A350,
57
Helen Milner and David Yoffie, “Between free trade and protectionism: strategic trade policy and the theory
of corporate trade demands.” International Organization,43 (2) (1989): 262
58
Airbus website
59
Helen Milner and David Yoffie, “Between free trade and protectionism: strategic trade policy and the theory
of corporate trade demands.” International Organization,43 (2) (1989): 265
60
Full Freighters are cargo planes
61
Extend Twin-engine Operations (ETOPS) is the rule that implies a twin-engine aircraft must be able to land
within 90 minutes if one of the two engines fails. Obtaining this rating requires the certification of the reliability
of the airframe/engine combination as well as the airline’s flight operations maintenance.
62
Helen Milner and David Yoffie, “Between free trade and protectionism: strategic trade policy and the theory
of corporate trade demands.” International Organization,43 (2) (1989): 263
63
Landler, Mark. 2006. “Airbus Edge in '05 Sales Comes With an Asterisk.” The New York Times. January 18.
64
ibid
18. Boeing VS Airbus 18
their newest twin-engine aeroplane that will also mark next generation engines comparable to
those presented on the 787.
With 529 aeroplanes ordered so far65, Boeing has confirmed their 777 aircraft family
has so far been an immense success in the medium to long-range point-to-point travel. The
latest777 model, the 777-200LR is able of carrying 301 travellers up to 9,420 nm. Its rival,
the four-engine A340-500 can ferry 313 passengers on a distance of 9,000 nm66.
Airbus is also assessing a higher gross weight (HGW)67 version of the A340-500 and
-600 to amplify its range more. With more than 200 787s requested so far, the outlook of this
all-new aircraft is looking hopeful. The 787-800 will encompass a capacity of 223 passengers
in a three-class design and has a range of 8,500 nm. The elongated 787-900 is expected to
carry 259 passengers over the same range according to Boeing68. Airbus’s A350-800 will take
up to 253 in a three-class design with a range of 8,800. The elongated A350-900 can carry
300 passengers in a three-class layout with a range of 7,500nm.
According to Airbus’s website, there are firm orders for 28 A350s from three airlines
with commitments signed by seven other airlines, including Leasing companies and an
undisclosed customer, for 115 A350s69. Board approval has also been provided on the order
for 60 A350s by a Middle Eastern airline is still pending. While, Airbus also proffers its ultra
long range A340-500, this four engine aircraft is getting mounting competition from Boeing’s
exceedingly triumphant 777 in the structure of the777-200LR ,which is getting more orders
lately as interest from airlines for twin-engine operations is escalating70. With the vaguely
higher range coalesced with lower operating costs, two engines instead of four, Boeing still
65
ibid
66
ibid
67
ibid
68
Helen Milner and David Yoffie, “Between free trade and protectionism: strategic trade policy and the theory
of corporate trade demands.” International Organization,43 (2) (1989): 266,
69
Landler, Mark. 2006. “Airbus Edge in '05 Sales Comes With an Asterisk.” The New York Times. January 18.
70
ibid
19. Boeing VS Airbus 19
has an advantage. More airlines are seeing the benefits of operating twin-engine aircraft over
longer distances.
In addition to twin-engine operations, Airbus is also working towards getting its
largest aircraft, the A380-800, into commercial service. Some see the volume of the A380 as
the drawback of the A380 while others see the larger number of passengers carried in the
A380 as an advantage. Boeing launched its smaller but new invention 777 on November the
15th. These large aircraft are more striking for the busier routes between crowded airports.
With the 747-8, Boeing is intending to fill at the gap between the 777/A340/A350 and the
A380-800.With orders for 18 new generation 747 full freighters and negotiations still
ongoing with several customers, Boeing is confident the new generation 747 will become a
success71. The Airbus double deck A380 will be able to carry 555 passengers in a three-class
layout over a distance of 8,000 nm. The 747-8 will carry 34 more seats in a three-class layout
and carry 14 percent more cargo compared to today’s 747-400. The range of the 747-8 will
be similar to that of the A380-80072.
While both Boeing and Airbus see an augment in the number of aircraft according to
their market forecasts, Airbus also sees intensification in the number of seats per aircraft,
which would explicate their development of the larger A380. On the air cargo side, both
Boeing and Airbus have an analogous vision with Boeing seeing an increase in the number of
full freighters of 5.9 % and Airbus seeing an increase of 6.2 % for full freighters. These
numbers would not be as shocking as these market forecasts are closely linked to the
dissimilar views Boeing and Airbus have.
It is lucid the A380 is the right resolution for overcrowded airports in Europe, Asia,
and North America. Airlines will have no alternative other than to present more seats per
aircraft to these overcrowded airports. Even though this market sector is not very big yet, the
71
ibid
72
Helen Milner and David Yoffie, “Between free trade and protectionism: strategic trade policy and the theory
of corporate trade demands.” International Organization,43 (2) (1989): 269
20. Boeing VS Airbus 20
proposed traffic expansion over the coming years may make the A380 more attractive over
the years.
Simultaneously the related dimensions of the Next Generation 747 contrasted to the
current 747-400, may be more attractive to airlines. Pooled with the 787-based technologies
and plan, the Next Generation 747 becomes attractive to airlines that do not automatically
need the capacity and the size of the A380. In this reverence, the new 747 will find its home
between the777/A340 and the A380. Together, the advances regarding ETOPS, point-to-
point, and husband-spoke in the future are factors that have its sway on the accomplishment
of the 787/777 and theA330/A350.
Airlines can also decide to fly ETOPS free; picking Airbus’s A340. Even so, the
aeroplane producer with the highest ETOPS rating will have key advantage over its rival.
Both larger capacity and more frequencies are attractive resolutions. The accomplishment of
which one will be the better resolution depends on the location where the airlines and airports
find themselves in over the years and the development of ETOPS ratings for twin-engine
aircraft73. Overcrowded airports can use larger aircraft but at the same time, the pressure these
overcrowded airports are experiencing can be incompletely removed by distributing more
flights from neighbouring airports. The accomplishment of point-to-point and hub-and-spoke
depends on market and economical developments all over the world that will establish the
achievement or failure of these new generation aircraft and their ranging capabilities.
As it regards Porter 5 analysis of Boeing and Airbus, Threat of New Entrance is
considered. As seen, the threats are Low. It is not simple for new companies to penetrate the
market of developing large commercial airplanes. As seen, Substitutes are also Low. There
are numerous substitutes available like ship, and land transport. However, these alternatives
cannot compete with air transport since the price-performance transaction in this case is not
73
Landler, Mark. 2006. “Airbus Edge in '05 Sales Comes With an Asterisk.” The New York Times. January 18.
21. Boeing VS Airbus 21
striking. In addition, Bargaining Power of Suppliers is also deemed as Low to Moderate. The
supplier sector in this industry is sectioned, so it is comparatively simple for the aircraft
producers to switch suppliers. However, some parts entail a high measure of concentrated
knowledge and are distinguished from others like the engine, thus mounting bargaining
power of this group. Inclusive in the factors is the Bargaining Power of Customers, which is
high. There are comparatively few buyers of huge commercial airplanes. In addition, the
airlines that buy aircraft make low profits thus making them price responsive. Also, each
client signifies a huge segment of the producer’s categories. Finally the Competitive Rivalry,
which is really high. Boeing and Airbus compete powerfully in the huge passenger jet airliner
market. Since industry growth is slow, both companies fight for market share. So as per this
porter 5 analysis, Boeing plans to introduce the Dreamliner, 787.It is supposed to address all
the factors and challenge the Airbus’s A330.
A pest analysis is merely a way of examining characteristics of the ellipsis PEST:
political, economical, social and technological aspects of a certain environment. It is
significant to conduct an airline pest analysis in the world because there are so many diverse
concerns to notice. Political factors can manipulate the approach in which a company works.
If an airline is integrated within a country with a cruel political climate then politics plays a
huge function in influencing the range of business the company can handle. For example,
airlines that fly to the Middle East have to reflect on potential dangers of doing business in a
latently hostile climate; terrorism and piracy. According to economic data, it is advantageous
to verify whether or not economic objectives are being met. Other things that can be
established from this analysis comprise rate of inflation, budget limits, salary structure,
equipment maintenance, and how business will be conducted in the future. The airline
business requires high overhead costs therefore, economic scrutiny is extremely significant,
for example the various players did the changes discussed above during the recent recession.
22. Boeing VS Airbus 22
In view of social aspects in the airline business, it is significant to keep in mind that
safety is an essential concern. The events of September 11, 2001, have changed the way the
airline industry works, as seen in the case of virgin Atlantic. For example, security has
become the focal point behind how airlines function. Apprehensions over preceding security
workforce have made many airlines reassess their hiring practices. The last characteristic of a
PEST investigation is the technological realm of conducting business. In the airline industry,
technology is a key aspect. Due to the high price of petrol due to the oil prices, many airline
business directors are eager that new and cheaper types of fuel are generated for use. In
addition, there are more computerized ticketing cubicles than before; enabling business to be
streamlined.
23. Boeing VS Airbus 23
Appendix A; Bibliography
1. Boyd, Devani L, “Safety and Profits in the Airline Industry.” The Journal of
Industrial Economics, 34 (3): 305-318, 2000
2. Col, William F. “Industry Studies: Aircraft,” The Industrial College of the Armed
Forces. http://www.ndu.edu/icaf/industry/2000/aircraft/aircraft.htm, 2005.
3. Hartley, K, “The Learning Curve and Its Application to the Aircraft Industry.” The
Journal of Industrial Economics, 13 (2): 122-128, 1965
4. Hayward, Keith. “Airbus: Twenty Years of European Collaboration.” International
Affairs, 64 (1): 11-26, 1988.
5. Heppenheimer, T. A. “The U.S. Aircraft Industry – An Overview,” U.S. Centennial of
Flight Commission.
http://www.centennialofflight.gov/essay/Aerospace/AeroOV1.htm.
6. Golich, Vicki L, “From Competition to Collaboration: The Challenge of Commercial-
Class Aircraft Manufacturing.” International Organization, 46 (4): 899 934, 1992
7. Landler, Mark, “Airbus Edge in '05 Sales Comes With an Asterisk.” The New York
Times. January 18, 2006
24. Boeing VS Airbus 24
8. Milner, Helen V., and Yoffie, David B. “Between free trade and protectionism:
strategic trade policy and the theory of corporate trade demands.” International
Organization, 43 (2): 239-272. 1989
9. No Author.. “Current Market Outlook.” Boeing Corporation. http://www.boeing.com/
commercial/cmo/pdf/cmo2005_OutlookReport.pdf. 2005
10. Pavcnik, Nina.. “Trade Disputes in the Commercial Aircraft Industry.” Blackwell
Publishers. United Kingdom. 2002
11. Shokralla, Shad H.. “Boeing 777 Case Study.” Synthesis Coalition. 1997
12. Simonson, G. R.. “The Demand for Aircraft and Aircraft Industry, 1907-1958.” The
Journal of Economic History, 20 (3): 361-382. 1960
13. Sturmey, S. G.. “Cost Curves and Pricing in Aircraft Production.” The Economic
Journal, 74 (296): 954-982. 1964
Appendix B: Case Studies and theories
1. Airbus Industries
2. Boeing International company
3. Virgin Atlantic
4. Porter 5 factors
5. Pestel analysis
6. the hub and spoke values
7. point to-point idea