It’s no secret that the struggles of the airlines affect more than just the airlines themselves. The food chain, as in any industry, shifts all the way down to eventually, of course, potential customers like you and me.
Considering that, news today that Boeing’s profit has shrunk is no surprise, but there is an interesting nugget in its recent announcement. Boeing didn’t reduce its production to match the declining orders it was given, leaving the airplane manufacturer less margin and analysts flabbergasted.
Why did Boeing do that?
Maybe Boeing is (blindly) optimistic. It said it will reduce some production, but very little. (So far, the only announcement is reducing the production of its 777 minijumbo from seven per month to five.)
Boeing seems to have misunderstood how the market has changed – and not just because the airlines themselves are dealing with increased costs. They don’t seem to understand that the idea airlines will suddenly bounce back and start ordering new planes is foolish.
There are two reasons I believe this: One, I do believe how we all approach our spending – including the spending of companies – has changed for a relatively long term. It used to be, when things were booming, we all looked for the things we wanted, which meant we were often looking for “best.” Now, we only buy what we “need” (or convince ourselves we need it) and something less than the best may fulfill that. (That’s one reason Wal-Mart is doing so well.)
For the airlines, the right thing to do (fulfilling needs with something that’s not the best) is often to just not order new planes or order planes that are less than the top-of-the-line Boeing wants them to order. (Airlines no doubt asked themselves, “Who needs a 787 Dreamliner?”) In first quarter 2009 alone, Boeing booked 28 orders – and had to remove 32. What kind of business model is that?
The “want” vs. “need,” and “right” vs. “best” may seem like semantics, but they are the drivers in today’s economic climate.
However, there’s a second reason why I don’t think airlines will suddenly order new planes, although I hope I’m wrong on this (speaking as a frequent flyer). To change, airlines would need to change – and I don’t think it’s in their DNA to do that.
Airlines would have to start thinking ahead and ask the manufacturers for innovation. That is the only way the airlines are going to get out of this hole for the long-term. Yes, costs have risen and passengers are flying less. But passengers are flying less in part because it’s an industry that hasn’t changed a lick in decades.
While technology has transformed the world in so many areas it leaves your head spinning, the airline industry has stood still – and many of us are getting fed up with it. The passengers who travel the most are looking for alternative ways and are frustrated with the lack of choice. They have no preference for an airline and are usually trapped by loyalty programs and the hub system.
That’s not likely to change unless the airlines themselves start thinking creatively. Maybe canceling orders isn’t the solution. It’s forcing manufacturers like Boeing and Airbus to be truly innovative – instead of chugging along like nothing has changed.