Re: markets (was Re: Space Access Update #112 9/19/05)


Henry Spencer wrote:
> In article <sEJ3NMBrPNZDFwLm@xxxxxxxxxxxxxxxxxx>,
> Dr John Stockton <reply0510@xxxxxxxxxxxxxxxxxx> wrote:
> >>...The creation of the 747, in particular, was a massive act
> >>of optimism -- there was *NO WAY* that the existing market could possibly
> >>justify such an enormous increase in capacity, given that Boeing needed to
> >>sell 400 of the things just to break even. That decision was made at a
> >>time when jet airliners still served the luxury market...
> >
> >There was an existing market; it only needed expansion for the 747 to
> >break even.
>
> Except that the existing luxury/business market was demonstrably incapable
> of such a huge expansion. The 747 could break even only if air travel
> became a routine thing for the ordinary public, which it *wasn't* at the
> time. This was an airliner for a new market, not a predictable expansion
> of an old one.
A few notes:
1. The 747's size, range, and costs meant that its market was confined
to long range travel between major airports. It required routine
trans-oceanic/trans-continental traffic.

2. Market growth became particularly critical with the announcement of
the DC-10 and L-1011, that could compete with the 747 in the same
market segment with lower numbers of passengers.

2a. Note all three airlines essentially ignored growth in
intracontental flight, i.e. the aircraft designs were too large for
many airports. This left a gap in the market that was (eventually)
filled by the Airbus.

3. Boeing's concerns were reduced when early in the design phase PanAm
placed a large advance orders for 747s and TWA decided it need to place
an order for a smaller number of 747s to remain competitive.

4. The DC-10 and L-1011 also had commitments from other airlines such
as American.

5. The first 70's oil shock arrived and air travel plummeted for a
couple of years, and airplane orders dried up just as manufacturing in
earnest started up for the DC-10, L-1011, and 747.

6. Fortunately for the DC-10, the L-1011's preferred engine, a Rolls
Royce engine that was to be the first to make heavy use of composites,
ran into flying chicken problems. All (uncommitted) early large jet
orders went to the DC-10. Still the initial low order numbers caused
Douglas to merge with McDonnell.

7. The engine problems caused Rolls-Royce to be taken over by the
government, and split up. I believe Lockheed ended up in Chapter 11 for
awhile.

8. Boeing barley got by on the 747 orders from PanAm and TWA, after
cutting its workforce to the bone. PanAm was destroyed by the 747
commitments it couldn't or wouldn't get out of. TWA was crippled.
>
> People take it for granted now that long-distance travel is done by air,
> and forget that a mere fifty years ago, air travel was almost exclusively
> for the rich and the business traveler. When the 747 was conceived, there
> were hints that this was starting to change, but it still took a bold man
> (or a crazy man, like some of the people who ran airlines... :-)) to bet a
> billion dollars on massive, radical change within a decade. Only in
> uncritical hindsight does this look obvious and inevitable.
> <snip>

Given that Boeing, Douglas, Lockheed, PanAm, TWA, American Airlines,
and some of the other majors all placed heavy bets the same way in the
early 70's it must have seemed obvious to many insiders at that time.
What was not obvious, at first, was that, as a result, the competition
would be widespread from the start, and that the oil shock would occur
so a particular premium would be paid for energy (in)efficiency.

.

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