Business Model Case Study

BOEING: Betting High on Freighters

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Abstract:
"The global civil aviation market was strongly dominated by Airbus and Boeing. Both Airbus and Boeing had contrasting views about the future of the aviation market. While Airbus promoted a hub to hub method of air transportation and thus preferred long haul flights, Boeing preferred a point to point method of air transportation. Since the inception of these two companies both the companies launched aircrafts with various designs, features and specifications to suit the changing dynamics of civil aerospace industry and the demand of airline operators. However, in 2000, Airbus unveiled 'Project A380' to manufacture the largest commercial aircraft (A380) and cargo aircraft (A380F) with an initial investment of US$13 billion. Against Airbus, Boeing unveiled its 747-8 model of both commercial and cargo aircraft. Though, the A380 model was widely accepted and recognised by both airline operators and cargo operators, repeated delays in introducing the aircraft made its customers sceptical. Leading airline operators like Singapore Airlines, Emirates, Virgin Airways and Qantas were looking out for other alternatives. On the other hand, cargo operators like FedEx, Nippon Cargo Airlines and Cargolux Airlines gave orders for Boeing's 747-8 freighter models. The delay of the A380 had been pushing the order book of Boeing and for the first time in the history of Boeing, the new freighter version (747-8F) comprised 17% of Boeing's total aircraft sales. Analysts projected that the emergence of China and other Asian countries as the primary manufacturing hubs globally escalated the demand for air freight. It was projected that air freight would grow at 6.4% annually compared to 4.5% annual growth of passenger freight and 3.2% average annual growth of world GDP (gross domestic product) between 2005 and 2020. Although in the aerospace industry the airlines and the aircraft leasing companies dictate price, as Airbus had been struggling, Boeing leveraged on its competitor's crisis. With the help of its new pricing power, Boeing was expected to enjoy higher margins on its freighter sales. This case gives a glimpse of how Boeing planned to leverage the growing demand of cargo aircraft and the delay of Airbus in launching the freighter version of A380 with its freighter version of 747-8. It also highlights the marketing strategies adopted by two companies to popularise their respective models, and how Airbus planned to substantiate its delay in launching the A380 and thereby retaining customers.

Pedagogical Objectives:

Keywords : Boeing; Airbus; Project A380; Fedex; UPS (United Parcel Service); Cost per seat; Cost per trip; Fuel burn per seat; Fuel burn per trip; Cost per tonne; Cost per trip; Revenue payload tonne; Aerodynamic efficiency; Propulsion efficiency; Structural efficiency