In the text, “Managerial Economics and Business Strategy,” Baye and Prince (2014) elaborate on the five forces of managerial economics that are integral in maintaining the sustainability of industry profits within companies. One of the five factors is related to the relationship between rivalry in firms across the industry and how it stabilizes profits (Baye & Prince, 2014, p. 8-10). In 2004, Irwin and Pavcnik (2004) evaluated the development of wide-body and narrow-body airplanes that have been in demand for some time. This paper seeks to examine the respective positions of the Boeing company and Airbus as their new products fulfill demand in the industry. Irwin and Pavnick (2004) analyze both companies and concludes Boeings’ advantageous position with both wide-body and narrow-body planes, particularly due to its 787 and the supplier relationship it gained as a result (p. 30-31).
Boeing and Airbus have approached the aircraft market in different and similar ways. The competitive landscape of this facet of the aerospace industry is colored by the difficulty and time required to research and develop, strategize, and launch a new product. It is multifaceted and companies like Boeing and Airbus are faced with the issue of client loyalty. When the 787 launched some customers that worked with Airbus for a considerable amount of time decided to buy planes from Boeing instead. Since industry supply is limited and demand is overwhelming their clients distinguish between which companies are producing innovative and efficient products that satisfy their needs (Harned & Sheehy, 2006, p. 13). In estimating demand both Boeing and Airbus conduct research and compile their forecast of demand over a 20-year period. It is very hard to think that their estimates are as accurate as they would like because it is difficult to know how airlines will evolve. There have been several instances where products have been released to the market and are successful in reshaping the industry, however, this could not have been predicted. When model 767 was introduced it was with the intention of creating a plane that worked well for transcontinental flights. Instead, the plane was used by Japanese carriers for high-density routes. This shows how predicting demand can assume the needs of one client and once in the market it reveals the products’ other capabilities.
There have been other plane models developed that have contributed to the expansion of airlines. For example, the longer-ranger model allowed JetBlue to develop its route structure and later its success. Nonetheless, discussions of demand in the industry often involve predicting aircraft size preferability over the next 20 years. Harned and Sheehy (2006) state that, “The high-demand segments are almost always those that coincide with each company’s most competitive products” (p. 6). Knowing where the demand lies is important for these companies to capture profit.
The relative strengths and weaknesses of both companies in the industry are attributed to their different market approaches. Boeing launched its 787 three years before the release of Airbus’ A350. Boeing’s advantage was its ability to capture the demand before Airbus’ new product releases. Harned & Sheehy (2006) argued that Boeing’s ability to produce 14-16 787 models per month and deliver the demand for midsize wide-bodies to their clients before Airbus could deliver its A350 put them in considerable lead (p. 13). As a result, this has caused Airbus a disadvantage in capturing the demand in the industry and resorting to them selling discounted older models to sustain profit. However, the success of Boeings’ 787 has signaled to Airbus the demand for improved performance as shown by their recent model 777. Also, Airbus’ A330 remains a model with solid contemporary technological capabilities despite it being an older model (Harned & Sheehy, 2006, p. 10).
Boeings’ strengths have been in wide-body plane production as it placed itself as the leader in this regard. Narrow-bodies are still a source of revenue for the company but at the moment its niche in the market is wide-bodies. Some believe that Boeings’ position in wide-bodies now may allow it to move forward as a leader in producing narrow-bodies as well (Harned & Sheehy, 2006, p. 10). With the wide-body popularity in the market and Boeings’ domination in this regard, it has made it difficult for Airbus to compete. Many blame A380 as the reason for Airbus’ difficulties in the market. However, Harned & Sheehy (2006) argued that the A380 may prove to be beneficial for the company as it is likely to be better for airlines’ that cater to dense routes (p. 4). Additionally, Airbus has long been a narrow-body plane producer in the industry. Its long term placement should allow for it to remain the preferred producer of narrow-bodies (Harned & Sheehy, 2006, p. 16). Boeings 777 despite its technologically old mainframe is in direct competition with A350’s largest models. In 2014 the largest model with 350 seats will be available and in service.
In the meantime, those that used the 777 beforehand cannot wait for its replacement allowing Airbus to sell its A350 to that segment of the market. As differences among the two companies have distinguished them in parts of the market, similarities have developed because of crossovers in the industry. Since Airbus first started it has maintained commonality across all platforms including flight decks, aircraft maintenance, and other facets. To engage customers in products ranging from A230 to A380 it has argued that airlines could decrease training and maintenance requirements with the use of its products. Also, Airbus has promoted mixed-fleet flying which gives the pilot a chance to switch between aircraft if they are common. Airbus has had this distinctive advantage over Boeing for some time until now. As a result of its positive effect Boeing has enhanced its ability to provide commonality to its clients similarly to Airbus. Additionally, it sought to minimize training time and use its competitive position in producing mid-size and wide-bodies as its platform to introduce such changes (Harned & Sheehy, 2006, p. 9). Both companies have seen the value of providing additional services to save customers money. The rivalry between the two companies has increased competition in the aerospace industry overall. They have respectively become industry standards for other competitors or new entries. The strategies both companies have employed include the creation of new products to meet demand and the enhancement of products by providing services. Furthermore, both companies introduced how supply chain strategy is effective through their production of both the Boeing 787 and the Airbus A380. This engagement has created a trend in the aerospace industry to implement supply chain strategies.
The outcome of the ongoing competition can only be assumed to enhance the industry by creating industry standards, introducing new strategies and engaging in cutting edge-technology fueled by increased research and development. There have already been considerable changes in the industry that have tapped into the access of global supply chains. The collaboration allowed by enhanced technology can decrease the time it takes to create efficient products. In the aerospace industry, more manufacturers are outsourcing activities to suppliers located in nontraditional regions of manufacturing such as Asia and Eastern Europe. The collaboration of premier suppliers with supply chain partners in these regions minimizers risks for companies like Boeing and Airbus, but also allows for the decrease of cost and efficiency as a result (Horng, 2006, p. 125-6). In conclusion, Boeing and Airbus have had similar and different strategies in the aircraft market and these strategies have been recreated by other companies as they represent the industry standard. Boeing and Airbus are setting a precedent for the revolutionizing of the aerospace industry to move into the future.
Baye, M., & Prince, J. (2013). Managerial economics & business strategy. Boston, MA: McGraw-Hill Education.
Harned, D. S., & Sheehy, F. (2006). Boeing and Airbus: Next-Generation Products – Demand Continues as the Advantage Shifts Toward Boeing. White book - Boeing & Airbus: next-generation products - demand continues as the advantage shifts toward Boeing, 1-40. New York, NY: Sanford C. Bernstein & Co., LLC, a subsidiary of AllianceBernstein L.P.
Irwin, D. A., & Pavcnik, N. (2004). Airbus versus Boeing revisited: international competition in the aircraft market. Journal of International Economics, 64(2), 223-245.
Horng, T. C. (2006). A comparative analysis of supply chain management practices by Boeing and Airbus: long-term strategic implications (Doctoral dissertation, Massachusetts Institute of Technology).