Opinion: Airbus Can Coast On Its Product Line; Boeing Cannot
One of incoming Boeing CEO Dave Calhoun’s first actions has been to order a rethink of the company’s new midmarket airplane (NMA). This is the right move. It has never been clear how the NMA, a twin-aisle design, could match the economics of the single-aisle A321neo.
Yet Calhoun should keep in mind three realities that weigh on Boeing’s new product strategy. First, the middle market is booming, and Airbus is winning it with the A321neo. Second, Airbus can expand and update its single-aisle and midmarket product line. The third is that Boeing cannot do that. There is a lot at stake for Boeing and not much time.
First, airlines clearly want midsize jets. Last year, there were just 673 net orders for all Airbus and Boeing jets; 476 of these were for the A321neo. This is more than just upgauging; much is due to increasing airline route fragmentation, a trend that will keep growing for years to come.
This midmarket growth also reflects a shift away from twin-aisles (Boeing’s strongest position) and toward single-aisles (where Airbus is strongest). Airbus has sold 3,255 A321neos since the type was launched in 2011, or three times as many as the 1,049 Boeing 757s sold over 25 years. By contrast, Boeing has sold around 650 737 MAX 9/10s (the company does not break out variant orders). The A321neo is winning by a 5:1 ratio.
While the 737 MAX 8 has done well against the A320neo, as the A321neo continues to grow in popularity, it will bolster Airbus’ smaller single-aisles, as airlines seek commonality across their fleets.
Second, Calhoun should remember that there is quite a lot that Airbus can do with its single-aisle product line. In addition to increasing commonality between the A220 and A320 families, it could stretch the former C Series, creating a 145-150-seat A220-500, likely offering lower seat-mile costs.
While an A220-500 would take away demand for the A320neo, Airbus could compensate by making the A320neo and A321neo more capable models. The A220’s wings use resin transfer infusion (RTI) composites. Adapting this technology for the A320/321neo, perhaps with an engine update, would produce 150-240-seat jets with greater range and superb economics.
Most intriguingly, if the A321neo can be stretched, Airbus would have an even greater midmarket category killer. With new RTI wings and new, more powerful engines, an A322neo would be a true global route-fragmentation machine, building on the Boeing 787’s remarkable work in creating new thinner routes.
Third, by contrast with this incredible menu of Airbus possibilities, Boeing can do nothing more to the 737. The MAX 9/10 and MAX 200 are clearly outclassed by the A321neo, and there is probably nothing that Boeing can do to make them more competitive.
Most of all, the 737 family has clearly reached the end of its evolutionary line. After the MAX program, there will not be a fifth 737 incarnation. Boeing needs a new clean-sheet, single-aisle model eventually.
Analysts, including me, point to the McDonnell Douglas experience as an example of what can happen when a jetmaker neglects new product investment. But there is a difference. When McDonnell absorbed Douglas in 1967, it inherited a single-aisle jet—the DC-9—that proved reasonably well-suited to updates. And its MD-80 series was a success, staying in production through 1999. This also allowed McDonnell to address the core of the single-aisle market, albeit in a declining way, without having to launch any new products.
But if Boeing is to copy McDonnell and neglect investment in its jetliner business, it will not have 30 years to coast. The 737 MAX will have 10-12 years before it needs replacement.
And unlike during the McDonnell sunset years, the market is shifting upward. If Boeing does not build a clean-sheet midmarket airplane, it will lose at least 15%, and perhaps 20%, of the market. What was a 50/50 duopoly will become a 65/35 duopoly, or perhaps even a 70/30 one. In an industry that is heavily dependent on volume to achieve the lower costs that airline customers demand, such a market-share decline would be tough to recover from.
Whether Calhoun remains as CEO or not, Boeing needs to digest the clear conclusion from these three realities: Product development inaction is a recipe for Airbus market dominance, possibly for decades to come.