Bloomberg News reports that Boeing Co. (NYSE: BA) set another sales record in 2007. While it's not yet clear whether Boeing sold more than its competitor, Airbus, the 1,413 commercial jets Boeing sold last year highlight the power of effective competitive strategy.
I'm in the middle of writing a book about Boeing and have found it fascinating to examine the competition between Boeing and Airbus. In the 1990s, Airbus decided that it could beat Boeing by building the biggest jumbo aircraft on the market. By contrast, Boeing -- which was then under pressure from Airbus -- listened to the airlines and heard them say that they were facing competitive pressure from low-cost, point-to-point airlines like Southwest Airlines Co. (NYSE: LUV) -- whose strategy I analyzed in Value Leadership -- and needed mid-range aircraft that were more fuel efficient.
The result was that Boeing introduced a very popular aircraft, the 787 Dreamliner, and Airbus produced -- after several big delays -- the Airbus A380 -- which has not done as well. It turns out that Boeing bet correctly on meeting airlines' changing needs. And since jet fuel is the second-biggest cost for an airline, Boeing benefited from oil prices creeping up to $100 a barrel. Meanwhile, the long range, jet-fuel guzzling A380 has been less appealing to many airlines.
The issues facing investors are:
- Whether Boeing -- whose stock trades 19% below its 52-week high -- can build enough 787 Dreamliners by the deadlines it's given to those customers; and
- Whether Boeing's announcement that it will sell fewer than 1,000 aircraft in 2008 is a negative surprise.