Tuesday, December 23, 2014

Will Airbus Give Up on the A380?

 Two strategic bets
When Boeing committed to the Dreamliner (AKA the B787), it made a very different strategic bet from Airbus which had made its own huge bet on the A380.  Both manufacturers forecast world traffic growth of near 5% per year over twenty years.  The demand for planes is a demand derived from air travel. Thus the straegic question:  How were the duopolists' customers–the world's airlines–going to meet a doubling of passenger miles/kilometers in less than two decades? 

Two different answers
Airbus decided they airlines would move more people through the key international hubs with a bigger jumbo jet that would increase those hubs' throughput capacity.  Their solution was the A380 which could both fly 8-10,000 nautical miles and hold up to 950 people. The massive size of the plane would also allow it to be marketed with a smaller seating capacity and hitherto undreamed of luxuries like an airborne gym, three cocktail lounges, and other amenities.

Boeing predicted that the world's airline would meet the growing demand with more point-to-point flights.  The Dreamliner would have a similar long range, but would hold only 250-350 passengers.  Boeing bet the airlines would try to attract their most lucrative customers with direct flights maximizing the time value of flying executives rather than the luxury that also required large numbers of the unwashed masses to meet load factors. Boeing also committed later than Airbus and may have gone to school on the European's putt.

With hindsight is there a winner?
So are the results in yet?  No, but there is preliminary evidence Boeing may have made the better bet.        
So far Airbus has failed to get a single new buyer this year.  And now in this video, Bloomberg's Benedikt Kammel suggests Airbus's might discontinue its A380 superjumbo as soon as 2018.  

Has Airbus misjudged the market? 

(Source: Bloomberg, Dec. 11)

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