Business Case of Airlines: Boeing 787

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Table of Contents

Introduction
Executive Summary
Economics in the Airline Industry
The Features of Boeing 787
Conclusion
References

Introduction

The Boeing 787 has been praised as the most fuel efficient airliner by its manufacture. The Boeing Dreamliner has two engines, which are of medium size and has the ability to travel for long distances; it is manufactured by Boeing Commercial Airplanes. The plane has a carrying capacity of about two hundred and ten to two hundred and ninety passengers depending on variations in the size of the plane.

The Boeing 787 is mainly constructed using composite materials, making it the first airplane to be constructed using this type of substance as the main one. Boeing has also stated that the 787 dreamliner fuel consumption is twenty percent less compared to other previous models of the same size like the Boeing 767.

The features that make the Boeing 787 stand out from other airplanes include its smooth nose contour, four-panel windshield, and exceptionally silent engines fitted with noise reducing chevrons (Vos & Henk 2011).

Executive Summary

The technological advancement witnessed in the Boeing 787 was meant to address some of the challenges faced by airline transport industry. One of the common challenges faced by airlines is high operating costs, which is a factor of both labor expenditure and the fuel expenses incurred to keep it running. This has made most airlines to make meager profits of about one to two percent.

The Boeing 787 addresses some of these challenges by using twenty percent lesser fuel to cover a greater distance, and to enable the transportation of more cargo.

This reduces the operating costs of airlines because fuel is the second largest expenditure incurred by airlines. The increase in cargo transportation increases airlines’ revenues. The technological advantages of the Boeing 787 made various airline companies to procure the 787 Dreamliners shortly after its launch.

Economics in the Airline Industry

The airline industry needs huge capital to run and this makes it a capital intensive service industry. This high cost is associated with the fact that airline companies require specialized and expensive equipments such as maintenance hangars and flight simulators. The vast capital required by airline companies is obtained through selling stocks and loans.

Regardless of how an airline finances its capital needs, it must make consistent profits in order to stay in business. Airlines are labor intensive businesses because most airlines require a wide range of personnel for them to operate, and this can consume more than one-third of the daily revenue they get.

Due to the high operating costs, airlines have been known to have a net profit of about one to two percent of what they get as gross income. The airline business is known to be seasonal, and it registers a good performance during the summer, the period when many people are going on vacations; they experience low business during the winter season (O’Connor, 2001).

With regard to revenue, seventy-five percent of airline revenue in the US is generated from sale of tickets, with approximately fifteen percent being made by transporting cargo. The remaining ten percent of the revenue is obtained from other transportation services offered by airlines.

A large portion of revenues obtained from ticket sales, approximately eighty-percent, comes from domestic travels, while the remaining twenty-percent is obtained from international travel.

In terms of costs of operation, labor constitutes the largest portion of airlines expenditure, with labor consuming up to thirty five percent of the total operating cost. The second largest source of expenditure for airline companies is fuel, which constitutes ten to twelve percent of the total airline expenditure (Doganis 2002).

Another important aspect of the airline transport industry is pricing. Airlines have been given pricing liberty like other companies since the deregulation of the airline industry. Ticket price and fright rates are normally set by airlines according to the demand, and the current prices by their competitors. This has made airline fares to change more quickly than in the initial periods.

The maximization of revenue from every flight is the driving force when it comes to setting airline fares, and this is normally achieved through availing a right mix of discounted-tickets and full-fare tickets. When the demand is low, a few discounted tickets can lead to a situation whereby the plane travels with empty seats.

On the contrary, if too many discounted tickets are issued, selling of all seats in advance is likely to occur, thereby locking out last minute passengers who are willing to pay more. The process of striking a balance for each flight is known as revenue management (Doganis 2009).

Scheduling is another important aspect of the airline industry; and since deregulation was adopted, airlines have been at liberty to operate in any market they feel appropriate for their services.

Price and scheduling are two great considerations for airline customers; airlines create their schedules in line with the demand for transport services and marketing goals. Airlines also heavily rely on fleet planning, which entails selecting the right plane for the right market. Generally, it has been observed that newer airplanes cost less to operate and are more efficient compared to older models (Doganis 2010).

The Features of Boeing 787

The 787 dreamliner developed by Boeing is considered to have technological features that are capable of solving some of the challenges faced by Airlines. The Boeing 787 is designed to carry two hundred and ten to two hundred and ninety passengers, depending on the model. The Boeing 787 will also be able to cover a distance of about 7,650 to 8, 500 nautical miles depending on the model.

The dreamliner is a mid-size airplane with the capabilities of a big-jet, which makes it have great fuel efficiency resulting in excellent environmental performance. The aircraft consumes twenty percent less fuel compared to other jets of similar size.

The cost of fuel is the second largest expenditure incurred by airlines, meaning that Boeing 787 will enable airlines to significantly reduce their operating cost, resulting into a higher turnover (Norris, Geoffrey, Mark & Christine, 2005).

The Boeing 787 has a speed similar to that of the modern fastest wide bodied aircrafts. This feature is expected to boost the cargo capacity of airlines. Currently, only twenty percent of airlines’ total revenue is obtained from transporting cargo; hence, the airlines that will invest in Boeing 787 will have their revenue from transporting cargo greatly increased.

The Boeing 787 will enable customers to experience a higher convenience and comfort that has never been seen before in the aviation industry. The interior of Boeing 787 has a higher humidity that is more comfortable compared to other planes. The Boeing 787 also has cabin windows that are larger than those of any other aircraft in the civil aviation.

This enables passengers to maintain the view of horizon during flight. The interior design of the Boeing 787 enables passengers to enjoy enhanced comfort that is not available in other aircrafts. Airlines that will invest in 787 Dreamliners will attract more passengers especially business people who are normally willing to pay more for quality services (Turner 2010).

The reason behind the excellent performance by Boeing 787 is its advanced technology. A half of the material utilized in the construction of the aircraft is composite, and it is also used in the construction of wings and fuselage. Modern architecture has been greatly utilized in the construction of the Being 787 that makes it simple compared to other modern airplanes, but offers efficiency and increased functionality.

For instance, any mechanical anomalies in the Boeing 787 will be detected by an in-built health-monitoring system that reports them to a computer system on the ground. This reduces the airlines’ operating costs by reducing the expenses incurred in routine checks and maintenance.

The fuel efficiency in Boeing 787 is as a result of the new engines installed in the jet that are manufactured by Rolls-Royce and the General Electric Company. Analysts have stated that these new engines represent advancement in aviation technology by two generations (Norris & Wagner 2009).

The Dreamliner program was started in 2004 and All-Nippon Airways is the company that purchased the largest number of planes. The subsequent years saw at least fifty-eight airlines across the globe, making orders of 851 aircraft with a value of one hundred and seventy five billion dollars. This made the introduction of the Boeing 787 the most successful airplane launch in Boeing’s history (Norris & Wagner 2009).

Conclusion

The Boeing 787 has been one of the most successful aircrafts in the twenty first century because of its technological advancement that offer numerous benefits to both airlines and their customers.

The main benefits the Boeing 787 offers to airlines is reduced operating costs, increased revenue, and a competitive edge. Reduced operating costs are mainly achieved through the fact that the Boeing 787 consumes lesser fuel compared to other models of similar size.

Increased revenue is realized in the fact that this model carries more cargo, hence increasing the revenue obtained from cargo shipment. Boeing gives airlines an edge over their competitors by providing customers with a high level of comfort that has never been witnessed in any other airplane.

References

Doganis, R 2002, Flying off course: the economics of international airlines, Routledge, London.

Doganis, R 2009, Flying off course: airline economics and marketing, Routledge, New York, NY.

Doganis, R 2010, Flying off course: airline economics and marketing, Routledge, New York, NY.

Norris, G & Wagner M 2009, Boeing 787 Dreamliner, Zenith Press, Minneapolis, MN.

Norris, G, Geoffrey, T, Mark, W & Christine, FS 2005, Boeing 787 Dreamliner: flying redefined, Aerospace Technical Publications International, Perth.

O’Connor, WE 2001, An introduction to airline economics, Westport, CN Praeger.

Turner, E 2010, The Birth of the 787 Dreamliner, Andrews McMeel, Kansas City, MO.

Vos, R, & Henk, H 2011, Boeing 787 Dreamliner: De droom die uitkwam, De Alk, Cop. Alkmaar

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