By Khondker Faraz Shafiq
A few decades ago, the landscape of the aerospace industry was quite different than it is now. There were quite a number of manufacturers involved in the manufacture of passenger aircrafts. American manufacturers – Mcdonnel Douglas, Boeing, and Lockheed Martin – often dominated this space. In 1997, Boeing took over its main competitor Mcdonnel Douglas in a $14Bn merger. Boeing now had almost two thirds of the global passenger aircraft sales and the clear market leader by a huge margin.
Airbus meanwhile was founded in 1970 as Airbus Industrie – a consortium between Germany, France and the United Kingdom governments. They realized that in order to reclaim their former glory of making advanced aircrafts, they needed to cooperate and pool their resources together. Boeing and Mcdonnel both had great successes with their 707 and DC-9 and 10 airliners, which were touted as workhorses of their time. To fight against these behemoths, the consortium introduced the A300B, and later more and more advanced offerings to sway the market.
Fast forward to present day and the two aircraft manufacturers clearly sit at the top with each holding nearly half the market each. Up until last year Airbus maintained a five-year streak in terms of netting new orders each year. Despite having more orders per year, it was Boeing that actually delivered more planes annually since 2012. But one bright side was that Airbus’s deliveries rose by 11 percent shortening the gap by which Boeing had previously led. Even then, the European consortium was struggling to retain market share. Orders fell by 33% since last year despite the boost from the sales of the newly acquired A220 series jet, previously known as the Bombardier C-series. As Airbus’s management would admit, a number of problems prevented the company from performing optimally in the near past. Airbus may have become one of the two dominant players.
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FIGHT FIRE WITH FIRE
On February 14, 2019, Airbus declared that it would no longer take new orders for the superjumbo jet A380 effectively ending production once the current orders are fulfilled. This means that after next year, the behemoth of modern engineering marvel will no longer see any more addition to its global fleet. The decade long production only resulted in 335 models ever being produced, owing to a shortage of orders for the plane.
Airbus initially had great difficulty in entering the American market. Despite having good offerings, the firm just could not penetrate a market that had been dominated by the likes of Boeing, Mcdonnel Douglas and Lockheed Martin. After spending a decade trying to enter the American market, the company finally saw success. However, Boeing’s iconic jumbo jet, the 747, was a favourite amongst many airlines in America. It’s large passenger capacity and ability for long haul flights made for great cost reductions and made flying more affordable for the American masses. Boeing introduced the highly appealing and very lucrative 747 Jumbo jet in 1970 revolutionizing the industry for decades to come.
Needless to say, Airbus wanted a slice of that pie. John Leahy, the then president of Airbus North America, successfully entered the American market in 1988 by convincing a loyal customer to Boeing to try Airbus models. Soon after Airbus began seeing success, first with its A300 series and then the A320-30 series, John Leahy and Airbus had their sights set on developing a superjumbo jet that would dwarf the poster child both in terms of size and success.
SAME PROBLEM, DIFFERENT APPROACH
To address the needs of the future and the expected rise in market size, Airbus and Boeing approached the problem differently. Thus in around 2007, both companies showcased their latest aircraft and thus their answer to the problem. Airbus had developed the A380, a superjumbo jet that can dwarf the likes of Boeing’s 747. Boeing on the other hand unveiled the 787 series of aircraft touted to be fuel efficient and made for long route travels.
The idea behind the A380 was that it would be large enough to seat almost as many as 800 passengers and carry them from hub to hub. This would make flights much more cost effective and thus make it a coveted product for airlines around the world. However, as the initial fanfare surrounding the plane died, the company started realizing that their plane was perhaps not the solution of the future. Emirates had been the prime customer for the A380 having almost half of the A380s ever produced in their inventory. Emirates was the only airlines that had a need to move large doses of passengers from its middle eastern hubs and Emirates had to do it in style to satisfy their affluent customer base. Other than Emirates, the other airlines around the world had difficulty maintaining such a large aircraft and were reluctant in taking on large airliners as they often had difficulty selling tickets for so many seats. A380s were filled with luxuries that made the costs even more sky high. There was also a shift in the industry towards smaller passenger aircraft with long haul capabilities as these aircrafts allowed greater flexibility to its operators.
Towards this end, Boeing’s gamble paid off. Having profited from the cost cutting revolutionary air travel that the 747 initially offered, Boeing realized this would not be sustainable as increasing fuel costs would become an issue. Boeing realized that the market would eventually shift towards point-to-point flying. Thus, Boeing’s design philosophy took a completely new direction leading to the development of smaller and fuel efficient 787 series. Whilst the market has not shifted to direct flying, the demand is starting to gain traction. Boeing’s fuel-efficient long-range aircrafts seem to be the more coveted choice. Alan Joyce, CEO of Qantas Airways stated that flying two of Boeing’s 787 Dreamliners were cheaper than operating a single Airbus A380.
KNOW WHAT THE MARKET REALLY WANTS
Whilst Airbus had a very straightforward response to the market statistics and data, Boeing was able to catch on earlier than its rival about the future of the commercial aircraft industry. Airbus’s management had their sights set on defeating Boeing’s jumbojet. They were too shortsighted to realize whether that is what the market of the future really needed. Many argue that the A380 came to this world a little too late. Meanwhile, Boeing listened to the market. It’s Strategic Analysis Department (SAD) analyzed what the loyal and regular flying customers wanted most in an aircraft and air travel. Through the insights that they gained, they decided to focus on the mid-range market and strategize and develop their offerings accordingly. The end of the A380 should serve as a cautionary tale for Airbus in the future. They should never lose sight of what the market wants as they get caught up in a fruitless race with their competitor.
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