The air transportation market’s global division between two mega-corporations could be seen as the industry’s next major challenge, coming after the development of heavier-than-air flight and jet-powered planes.
Currently, Airbus and Boeing control around 90% of the air transportation market, with only a few major competitors. However, Bombardier, a Canadian company, is steadily gaining ground in the business jet sector. As stated in Bombardier’s press release on December 4, 2003, they currently hold a market share of 27%. Thus, the competition between Airbus and Boeing is crucial in determining the current state of the air transportation industry. Furthermore, their future strategic decisions provide valuable insights into the industry’s potential trajectory.
Both Airbus and Boeing have different ideas about the future of air travel, as shown by their latest models: the A380 and the 7E7. According to an economic analysis conducted by Drs. Irwin and Pavcnik, it is predicted that the A380 will lead to a 14.8% decrease in Boeing’s market share of the 747 (Irwin & Pavcnik, 223). Consequently, it is expected that Airbus will maintain its dominance in the market for at least ten years while Boeing’s market share continues to decline.
The ongoing renegotiations of the 1992 US-EU subsidies agreement aim to equalize the competitive landscape between Airbus and Boeing. However, their rivalry goes beyond financial matters as these global corporations significantly influence policy choices made by nation-states. With no other company disrupting the dichotomy established by Airbus and Boeing, their competition can be seen as a clash between the emergent European Union and the United States, along with their respective air travel policies. Thus, examining Airbus and Boeing’s histories, competitive factors, and future plans provides insights into globalization’s impact on the aviation industry and its prospects. Airbus quickly became a leading force in air transportation after consolidating as a single entity in 2001 while headquartered in Toulouse, France. Its market share grew from 16% in 1988 to 37% by 1996 (Dempsey & Gesell, 85).
In 2004, Airbus delivered a total of 305 jets, surpassing a market share of 50%. The company communicated to its suppliers that it aimed to deliver 310 jets in 2004 and increase this number to 400 in the following year (Reuters, 9/8/2004). Despite economic challenges during the late 1990s and early 2000s, Airbus experienced substantial growth thanks to its integrated approach and global presence. Their customer-centric approach and innovative designs played a crucial role in their success. Additionally, their commitment to addressing environmental concerns within aircraft manufacturing demonstrates their international perspective.
Starting in 1969 at the Paris air show, Airbus showcased their A300B aircraft, marking the beginning of their accomplishments. In particular, in 1972 they introduced the A300, which was both a twin-aisle and twin-engine commercial jet. Another significant milestone occurred in 1982 when they revealed the A300FFCC, making it the first commercial aircraft with a forward-facing crew cockpit. Then, in 1988, Airbus launched the A320 as an innovative commercial aircraft incorporating ‘fly-by-wire’ technology. Looking ahead to 2006, Airbus is preparing for the debut of their revolutionary four-aisle and double-decker commercial aircraft called the A380 (Airbus, Our Advantages).
Chicago-based Boeing has established itself as a worldwide frontrunner in aircraft manufacturing through several mergers and acquisitions. These include joining forces with Rockwell International in December 1996, merging with McDonald Douglas on August 1, 1997, acquiring Hughes Electronics in January 2000, obtaining Jeppesen Sanderson in September 2000, and purchasing Hawker de Havilland in October 2000.
Boeing is engaged in multiple industries, including air traffic management, commercial airplanes, broadband services for airlines, integrated defense systems, and research and development. The company has a rich history that can be traced back to the time of the Wright Brothers when William Boeing participated in the first American air meet in 1910. In 1916, he formally founded his aircraft manufacturing firm under the name Pacific Aero Products Company. Subsequently, in 1917, it was renamed as Boeing Airline Company.
Since its establishment, Boeing has gained recognition for various groundbreaking achievements. These include the delivery of the initial international airmail in 1919 in a C-700 aircraft, the introduction of the Model 247 in 1933 as the first modern passenger plane, the utilization of the 707 for the inaugural transcontinental jet route in 1959, the deployment of the Lunar Roving Vehicle on the moon in 1971, and Boeing’s significant role as the primary contractor for the International Space Station (ISS), evidenced by the one-year anniversary of sustained human habitation in space aboard the ISS in 2001 (Boeing, History – Chronology).
Given their numerous achievements, it is not surprising that Airbus and Boeing are driven by various competitive factors that fuel their innovations. The primary competition arises in the domain of wide-bodied commercial aircraft, which not only involves a rivalry between the two companies but also leads to frequent trade disputes between the US and the EU. In 1992, the Bilateral Agreement for Large Civil Aircraft was established to restrict government subsidies due to concerns from the US and Boeing regarding what they perceived as an unfair advantage for Airbus in the market. As a result of this agreement, research conducted by Irwin and Pavcnik indicates that both Airbus’ and Boeing’s prices have experienced a 3% increase in both the wide-body and narrow-body markets (Irwin & Pavcnik, 225). Currently, this agreement is being further renegotiated with the aim of eliminating all government subsidies. The US continues to accuse Airbus of possessing an unfair advantage, while the EU accuses Boeing of receiving equal, albeit indirect, subsidies. In case negotiations fail, both parties express willingness to bring up matter before World Trade Organization (WTO) for arbitration. However insiders from industry believe this threat is merely empty since both companies would benefit most without any oversight from WTO.
Both Airbus and Boeing have different perspectives on the future of the aviation industry, as reflected in their newest aircraft models. Airbus is focused on addressing the increasing traffic between major hubs with their A380. The A380’s features are designed to reduce operating costs, increase range, minimize fuel burn, and decrease noise and emissions (Airbus, Aircraft Families – Introduction A380 Family). On the other hand, Boeing’s solution for non-stop flights between secondary cities is the 7E7. This aircraft aims to offer the range of large jets to mid-size airplanes while consuming 20% less fuel at Mach 0.5. It prioritizes passenger comfort through higher humidity levels and boasts a composite material body with open architecture systems (Boeing, Boeing 7E7 Dreamliner Will Provide New Solutions for Airlines, Passengers). These contrasting approaches showcase the different visions each company has for the future of air travel. Airbus focuses on larger passenger liners and the strategic use of major and secondary hubs, while Boeing places emphasis on smaller passenger liners and direct flights to secondary cities instead of relying on overcrowded hubs (Reuters, 7/22/04).
This can be described as the conflict between manufacturing larger capacity aircrafts and shorter distance jet transports. Regardless of how the rivalry between Airbus and Boeing unfolds in the coming years, it is certain that there will be a rise in intricacy when it comes to navigating through various aspects such as national and international policy creation, tensions between suppliers, airline workers, and corporations, passenger expectations, technological advancements, market unpredictability, and continuously expanding economies of scale.
Airbus currently holds an advantage over Boeing in the near future, but the trend could be reversed with the new agreement between EU and US. Additionally, Boeing’s efforts to restructure in response to Airbus’ threat may further contribute to a change in the situation. However, if the market becomes overly complex due to the existing oligopoly, the consequences of one company monopolizing aircraft production would be detrimental. Hence, policymakers must carefully examine the air transportation industry and its impact on both national and international air travel choices.
As stewards of the public transportation system, their crucial responsibility is to counterbalance the purely profit-driven motivations and objectives in air transportation. If re-regulating the industry is the preferred approach to address the decline and chaos of US airlines, then a similar solution may be needed to prevent a potential catastrophe on both sides of the Atlantic due to potential severe failures in understanding and responding to market demands by the current industry leaders.
References
- “Aerospace Firms Battle it out at Upbeat Air Show. ” Reuters. 2004. Internet online. Available from AirWise News . [21 September 2004].
- Airbus Eyes Production of 400 Jets in 2005. ” Reuters. 2004. Internet on-line. Available from AirWise News . [8 September 2004].
- “Aircraft Families – Introduction A380 Family. ” Airbus. 2004. Internet on-line. Available from Airbus-Aircraft Families-Introduction A380 Family . [2004].
- “Boeing 7E7 Dreamliner Will Provide New Solutions for Airlines, Passengers. ” Boeing. 2004. Internet on-line. Available from Boeing, Boeing 7E7 Dreamliner Will Provide New Solutions for Airlines, Passengers . [no date].
- “Bombardier Aerospace highlights market leadership, innovative aircraft at Dubai air show. ” Bombardier Press Release. 2004. Internet on-line. Available from Bombardier < http://www. bombardier. com/>. [4 December 2003].
- Dempsey, Paul Stephen, and Laurence E. Gesell. Air Transportation: Foundations for the 21st Century. Chandler: Coast Aire Publications, 1997. “History – Chronology. ” Boeing. 2004. Internet on-line. Available from Boeing:History – Chronology . [no date].
- Irwin, Douglas A. , and Nina Pavcnik. “Airbus versus Boeing revisited: international competition in the aircraft market. ” Journal of International Economics 64 (2004): 223-245. “Our Advantages. ” Airbus. 2004. Internet on-line. Available from Airbus-Media-Our Advantages . [2004].
