The two companies under analysis, Boeing Business Jets & Honda Aircraft Company, operate in the airline industry, though in different capacities. The Boeing Business Jet operate in the corporate jet sector as variant of Boeing jet airlines. The Boeing series provide air travel services to corporate travelers, with a luxurious configuration. The company provides products under the Boeing’s airline brand. Conversely, Honda Aircraft Company is a United States-based aircraft manufacturer, which produces the HondaJet aircraft. The company was conceptualized as a clandestine research project within Honda research and development department. However, it started to deliver customer products in 2015. Presently, the company leads in marketing of twin-engine light jets. Although the two companies operates in two different stages of the product life cycle, they are both in the global airline industry, particularly in the business jet segment.
The global business jet segment of the airline industry has been growing steadily over the years. In 2018, the industry is estimated at USD 23.57 billion with about 703 jets operating therein. Current estimates indicate that the industry will grow at over 3% every year by 2025. The growth will be driven by ongoing wealth creation in leading economies and the increasing acceptance of private jets by corporate travelers. The industry has experienced a growth in advanced aircraft models that further fuels the growth in the industry and increase the number of actors (Siegert & Ulbricht, 2020). Emerging economies also experience a growth in the demand for business jets, making the global business jet market highly competitive. Current operates continue to introduce new business models, such as fractional ownership in which the company provides customers aircraft ownership for business usage. Such models have driven the demand for the jets across the world, leading to further growth. The industry has a high number of players with considerable market share. The analysis includes the nature of the airline industry, including the corporate jets sector, within which Boeing Business Jets & Honda Aircraft Company operates.
The global business jet sector is a very competitive market, but the majority of companies are existing ones since new players find it hard to enter the market.. However, the industry has few companies that occupy a considerable market share. While the industry has a few dominant actors, new startups have been entering fast, especially in the production and use of light jets. The new companies are a serious competitive challenge for the leading competitors due to the commercialization of urban air mobility. The trend has driven the demand for corporate jets operating in inter and intra-city movements. Besides business travelers, the jets are used by public and government officials and military officers for many purposes, such as passenger travel and parcel delivery (Siegert & Ulbricht, 2020). As a result, the industry witnesses and increase in the demand for the services, making the industry more competitive by attracting more new operators.
Regardless of major changes in the corporate jet industry and the airline sector in general, such as the entry of new players, it remains largely an oligopoly. An oligopoly is a type of market that is controlled by small faction of companies, mostly due significant entry barriers, such as the cos of establishing new firms. The airline industry is a capital intensive sector, meaning that not many companies manage to enter and compete with the existing firms. The barriers discourage potential rivals from entering the airline sector, especially in the corporate jets segment. In the US, as of 2019, four major companies were the main competitors for others, such as Boeing Business Jets & Honda Aircraft Company. The four companies were “American Airlines, Inc. (AAL), Delta Air Lines, Inc. (DAL), Southwest Airlines (LUV), and United Airlines Holdings, Inc. (UAL)” (Segal, 2020). The four dominate the local and international travels in the country. The International Air Transport Association (IATA) suggested that in 2015, North American airlines had the leading market share, earning $15.7 billion in net profit. The company’s net profit margin was 7.5%, which is two times the global average. The company’s market share was 17.6% in 2015, competing closely with others, such as Delta with a market share of 17.5%.Southwest Airlines and United Airlines Holdings took a market share of 16.9% and 14.9% respectively (Segal, 2020). The market has not attracted any new competitor since 2007 due to the barriers to entry.
Leading competitors in the airline sector enjoy the privilege of government and private sector support due to the importance of the industry and its contribution to the economy. Thus, the market has encouraged the oligopoly model by supporting current players to continue dominating the leading market share, with minimal chances of new ones to enter the market. Main rivals in the US and globally enjoy strong financial capabilities, making it challenging for new ones to enter the market and compete at the same level and maintaining the oligopoly competition model (Aguirregabiria & Ho, 2012). Besides, the leading competitors can easily enter new routes, increase the number of national and internal flights, and change their charges increasing their revenue and profitability to control the market.
Besides, over time, the airline sector experienced considerable consolidation, the merging of major players to create leading competitors in the market. With such consolidation, major companies remain strong and deny opportunity for new rivals to enter the market and compete at the same level. The main rivals continue to dominate the industry by controlling huge market share (Aguirregabiria & Ho, 2012). Thus, competition is largely between the leading actors, while new ones find it difficult to enter. As a result, competition in the industry has been declining, giving the leeway for current competitors to change their fares and operation modes as they desire.
The airline industry, especially the corporate jet market, is very critical due to the need to provide services to individuals and companies in the corporate world. While some companies operate in the industry by providing the jets for operators, such as Honda Aircraft Company, others provide the actual travels for customers, such as Boeing Business Jets. Although the two companies belong to two different stages of the product life cycle, they operate in the airline industry, within the corporate jet market. The industry is highly competitive, although the leading competitors are existing companies, such as “American Airlines, Inc. (AAL), Delta Air Lines, Inc. (DAL), Southwest Airlines (LUV), and United Airlines Holdings, Inc. (UAL)”. The four hold the leading market share in the industry that does not attract new players since it is an oligopoly. Being a capital intensive market, the airline sector does not incentivize new firms to enter and compete with existing firms. Thus, Honda Aircraft Company and Boeing Business Jets continue to compete with current airline giants in the airline sector.
References
Aguirregabiria, V., & Ho, C. Y. (2012). A dynamic Oligopoly Game of the US Airline Industry: Estimation and Policy Experiments. Journal of Econometrics, 168(1), 156-173.
Segal, T. (2020). The North American Airline Industry Is it an Oligopoly, retrieved from https://www.investopedia.com/ask/answers/011215/airline-industry-oligopoly-state.asp
Siegert, C., & Ulbricht, R. (2020). Dynamic Oligopoly Pricing: Evidence from the Airline Industry. International Journal of Industrial Organization, 71, 102639.
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