Friday, October 10, 2014
Boeing’s Long-term of Airplane Demand
Forecasting demand is the prediction of future performance based on available information about past performance, political as well as economic condition, competitors’ behavior and so forth. Devoting resources to demand forecasting allows companies to shape the supply chain strategy and guide long-term business planning, which contributes to their performance in the competitive markets and increases the likelihood of success. Therefore, forecasting demand can be applied to any industries, from petty retail trade to large chains, from business to manufacturing industry. The following discussion will be on the “Current Market Outlook(2014-2033)”, a long-term forecast of air traffic volumes and airplane demand of Boeing.
Given the significance of forecasting demand, it embraces numerous influential factors like economic growth, fuel prices, different modes of transport, competitors, and so forth.
Economic growth, as measured by GDP, is a crucial element in forecasting demand. An ascending economic condition indicates that the government could invest extra capital in the aviation industry, and customer spending will also increase due to robust income growth.
As the major component of airline cost, fuel is an influential factor as well. The rise of fuel price together with technology development stimulates the manufacture of aircrafts with low energy, such as the 787 and the 737 MAX, which are more in line with market demand and thusly be highly consumed.
Moreover, different modes of transportation could also influence the future demand of Boeing.
The tremendous expansion of low-cost airlines spurs demand of airlines such as Boeing. Low-cost airlines typically means “operating at secondary airports, flying a single airplane type, increasing airplane utilization, relying on direct sales, offering a single-class product, avoiding frequent-flyer programs, and keeping labor costs low”. Compared to traditional carries, low-cost airlines reduce fares significantly and correspondingly stimulate traffic.
Air freighter is the other mode of transportation which is commonly used for shipments of high-value, time-sensitive, or perishable goods. As international trade has intensified and business scale has enlarged, demand for air freighter becomes more intensive and thusly request more airlines.
And for network carries, the primary mode of transportation, like American Airlines or ANA, the order is always constant without dramatic fluctuation to some extend.
Apart from the above, there are few other elements that have impact on forecasting demand, including competitors, short-term effects like political issue and so forth. Under the combined effect of these factors, Boeing arrives at the conclusion that demand for 36,770 new airplanes, valued at $5.2 trillion. “15,500 of these airplanes will replace the older, less efficient airplanes. And the remaining 21,270 airplanes will be for fleet growth, which stimulates expansion in emerging markets and development of innovative airline business models. Single-aisle airplanes continue to command the largest share of the market. Approximately 25,680 new single-aisle airplanes will be needed over the next 20 years.”
Question: Will Boeing and Airbus, the world's two largest aircraft manufacturing companies, share the same forecasting process and outcome?