Boeing Wins Qantas Business Worth US$10 Billion

Boeing and Airbus have had a pretty good year considering they have both received record orders in the last twelve months. That said, Airbus lost out to Boeing on a hefty piece of business from Qantas earlier this week. The Australian carrier, the world’s eighth largest passenger line, announced that it was ordering 65 of Boeing’s new 787 Dreamliners, with an option for 50 more. The total for this will be about US$10 billion.

That figure, of course, is the list price, and when a company buys 115 of anything, let alone a big ticket item like a passenger jet, it gets a discount from the manufacturer. Nonetheless, Boeing has passed Airbus for the most ordered aircraft this year, 800 to 644. Yet Airbus does enjoy 45% of the jet market, and has sold Qantas 46 aircraft this year (either on order or delivered), including 12 A380s, the “flagships” of the Qantas fleet.

So why did Qantas opt for Boeing? The 787 hasn’t even flown yet; it’s first test flight is scheduled for 2007. The Airbus A350 is a comparable craft; both are designed for flights of around 15,000 kilometers. Simply, Qantas has learned the art of leverage.

Boeing’s press release announcing the order included “Our relationship with Qantas dates to the very start of the jet age.” Indeed, just five years ago, Qantas was an all-Boeing fleet. Since then, though, Qantas has discovered that making suppliers compete serves its financial purposes. Peter Harbison, managing director of the Center for Asia Pacific Aviation said, “If they [Boeing] had lost this one and you extrapolate, Boeing would virtually be out of Qantas.”

Aviation fanatics are better prepared to argue the merits of each craft, but to economists, there was a strategy here that is worth considering. When confronted with two largely interchangeable options, take the business to the less-favored supplier. It ensures the other supplier remains alert and attentive. The proof here will be the kind of deal Airbus makes next time Qantas needs to buy some planes.

© Copyright 2005 by The Kensington Review, J. Myhre, Editor. No part of this publication may be reproduced without written consent.
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