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Last Updated: Tuesday, 15 February, 2005, 22:31 GMT
Boeing targets point-to-point market

By Stephen Evans
BBC North America business correspondent

Boeing 777-200LR
Boeing is pinning its hopes on smaller planes, with long range
If it's hoopla you want, Airbus has the edge over Boeing.

When the American company unveiled its new, longer-range 777-200LR in Seattle this week, it was a low-key event compared with the party Airbus organised a month ago in Toulouse to show off its "super-jumbo" A380.

In Seattle, it was mostly industry people; in Toulouse, there was a band, trapeze artists and four heads of state and government.

The arguments from either side of the Atlantic are as different as the style of presentation.

Boeing is adamant that the market won't be there for Airbus' very big, long-haul aircraft - despite an early rush of orders from14 airlines.

The A380 will demand some adaptation of airports to cope with its size so only a few around the globe will be able to take it, Boeing argues.

Boeing thinks the market has changed so passengers are increasingly reluctant to fly from big airport to big airport and then transfer to smaller planes to get them where they really want to go.

Better, Boeing reasons, to have planes flying from smaller airports near where people live to smaller airports near where they want to be.

There is an obvious logic to that. Who can doubt that people want to fly to where they want to go?

Making profits

It's not as simple as that, though.


Cost is clearly important. A cheap ticket to nearly where you want to go might be more attractive than an expensive ticket to the hotel foyer.

So if Boeing is wrong, it will be because of Airbus' economics. The A380 is big, but it is also cheap to run for what it does.

There are economies of scale to handling more passengers - though there may be costs too if those passengers feel like they're being herded like cattle.

The result is that an A380 should be able to make a profit with a much smaller proportion of its seats filled than even the biggest Boeing.

Boeing is expanding the range of its existing aircraft with the new 777-200LR which will be able to fly non-stop from London or New York to Sydney

And the group is also putting its faith in the 787 - formerly called the 7E7 - which will be able to carry only 200 to 250 passengers, but over long distances and at low cost - in other words, between a myriad combinations of small airports.

High hopes

At the moment, Boeing is losing the battle.

For the second year in a row, Airbus has out-sold it. Boeing's market share in 2004 was 43%, compared with 67% at the start of the decade.

But that may pass.

Airbus is flying high but with some turbulence ahead (to over-use the metaphor).

B-52 Stratofortress bomber aircraft
The military is also a huge part of Boeing's business, accounting for more than half of its earnings

It is hedging its bets on mid-size aircraft by developing the A350 from an existing jet and that could be seen as a concession to Boeing's argument that big may not be better.

And there is growing political pressure from the United States against using large amounts of European tax-payers' money to develop Airbus' aircraft, all of which makes it harder for the next generation to get off the ground.

(Washington and Brussels accuse each other of handing out illegal state subsidies to Boeing in the US and Airbus in Europe.)

Airbus is a business operating in a political environment. Each country in the consortium gets a bit of the production pie.

As the British and French discovered with Concorde, good politics (or good engineering) doesn't necessarily make good profits.

On top of that, Boeing has for some time been considering developing its 747 (the original Jumbo) to contest the market for the very big jets.

Such a new aircraft would have low development costs and so could be offered cheaper than the A380 to counter the lower running costs of the Airbus.

So all the hoopla at Toulouse may be premature. The aircraft company founded in Seattle by William E Boeing nearly a century ago still has some cards to play.





BBC NEWS: VIDEO AND AUDIO
Thomas Pickering, Boeing international relations
"People want to fly on a comfortable, middle-sized plane."



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