The Culture Of Demand Chapter 7: Leadership Creates Demand Everywhere

The twist and turns of who is leading whom is the saga of every going concern. Boeing’s business history has had it all and found out what works and what doesn’t work. Listing all of Boeing’s past leaders would be an exercise for the reader or the writer but this story is about a philosophical perspective and will discuss in general terms using one of Boeing’s pst leaders named, Alan Mulally.

Wikipedia reports this on Alan Mulally: 

“Mulally was hired by Boeing immediately out of college in 1969 as an engineer. He held a number of engineering and program management positions, making contributions to the Boeing 727, 737, 747, 757, 767 and Boeing 777 projects. He led the cockpit design team on the 757/767 project. Its revolutionary design featured the first all-digital flight deck in a commercial aircraft, the first two-man crew for long range aircraft, and a common type rating for pilots on two different aircraft. He worked on the 777 program first as director of engineering and, from September 1992, as vice-president and general manager.^”

He retired from Ford Motor Company as its CEO in 2014. He led Ford to a resurgence. He led Boeing on everything during the first decade of the 2000’s as provided briefly above. So what’s the magic of Alan Mulally? He was an engineer in an engineering world. There are different type’s industrial leaders. Those coming from the field of work experience, the accountants, and those trained as an example, engineers, in a specialty like aerospace.

Boeing was in the midst of “business storm" as early in the first decade of this century. The conventional wisdom said, "have an accountant as your leader and you will prosper as a company." Others say, "have a financial wizard and you will prosper, and finally the 911 call goes out and says get me somebody who knows what we are doing!"

Boeing went through these stages before settling in on Alan Mulally as its leader and then promptly lost him to a dying Ford Motor Company who is became a leader today in the auto industry while customers came flocking to Ford in droves. A "Sea Change" happened and it was part in due to an Engineer and partly due to Alan Mulally a Leader.

Demand for your product starts at a company's head, and Boeing had lost its head to financial metrics. The engineer wants a work bench or a cad. They talk to people who have grips about what works and what doesn’t. An engineer also has a vision of what could be made and what shouldn’t be made. Alan Mulally is an engineer. The problem here they ignore costs and only want a positive outcome regardless of costs. In comes the accountant leader who knows how to measure progress into oblivion with financial efficiency of a Scrooge. 

In Boeing’s case an airplane begins to look like a suit an accountant would wear. They look at every piece of the program's puzzle. If an electronic switch costs too much, then find a cheaper switch and give up some of the first switches capability.

The problem becomes a conundrum between those who can invent and those who will prevent. Alan Mulally, threaded the needle leading with an inventor’s attitude. Accountants before Mulally had failed to save the company from loss. However, Alan was on the leading edge of spending Boeing’s capital through all its programs, including the 787 project. 

Accountants had to find a way towards financial efficiency with an Engineer at the helm. Going the route of miser loses and going the route of a dreamer loses. Hence, a Dreamliner made a $30 Billion deferred costs pit. A balance had to be found and Boeing missed the balance between the two worlds until success could be found with its products.

The legacy Alan Mulally leaves is a company who does not want another moon shot like the 787, but it needs to keep pace with its obvious market demand or just get out of making airplanes when it can’t keep up with that market demand. Both Ford and Boeing have retained much of what Alan Mulally envisioned but they both keep a wary eye on over-doing it with its customers. 

Both accountants and engineers can make a good or a great leader from its own expertise, but the best results come from a leader having the talent from within themselves in spite of their own subject matter training.

The Culture Of Demand Chapter 6: Boeing Finally Wants A NMA

Boeing has stubbornly held off on a New Medium Aircraft (NMA) replacing its successful 757 since 2005. Airbus, its competitor, has made “Bank” on its A321. It was a direct assault on a cancelled 757 segment. Boeing had a “duh moment” and lost the single aisle wars for a generation of people, not just a decade, but a generation of 20 years. The stockholders demanded profitability, hence the gamble on high priced wide body aircraft which would infuse a flow above $200 million a unit sold and delivered. 

This is a marked contrast having only $100 million for each 757 replacement it could get in the market since 2005. Boeing bet its future on wide body development and it shows on the comparative balance sheets between Boeing and Airbus. Boeing reigns supreme over Airbus with its wide body offering and Airbus reigns supreme with its A321 single aisle offering.

Boeing stalled when coming out with a NMA, because of the 787, Max, and finally the 777X family emergence. Boeing’s strategy was clear, "build-big and they will come". The Max program was a stop gap exercise in manufacturing dominance.  It bought more time as it said it needed to do some customer surveys for a NMA. It wanted to find the right fit for its “customers”.  Boeing already knew what it needed through the results Airbus had achieved with its A321 program. Boeing just needed to build a better and greater A321 than Airbus had managed.

The last thing on Boeing’s to-do list since 2003 was a NMA and it has yet to announce a formal offering of such an aircraft. It now dithers over timing of when it must announce. It has the plan-in-hand for the NMA which awaits final tweaks. 

However, Boeing does not want Airbus to announce an upgraded A321 coming out of its stable. It does not want to over-tax financial resources until the 777X is well on its program way. It’s approaching a debutante 777X start by 2018. Boeing does want a thirsty market for its NMA and awaits “market tensions” for a launch time. In other words the clamor for having a 797 is not loud enough yet, but is closing in on that loud assessment, even as the aviation world puts its demand boot on Boeing’s neck.

What Boeing lacks at this time is available money and airline demand. The passengers can just wait since they don’t have a dog in this fight. Or do they? 

The passenger/customer is the paying part of an airlines fortunes. Boeing is waiting for the passenger crescendo for a NMA which will sweep Airbus off its feet and make Boeing Stockholders happy at the same time. 

The passenger demand is a critical component to this scenario and the Boeing hype machine hasn’t stopped for three years regarding a NMA. Airbus shrugs at a Boeing NMA concept. What else can they do but send John Leahy out saying, "Boeing’s NMA concept is over-rated"?

So the passenger does have a dog in this fight and Boeing is going to make a passenger centric NMA. It should include wider seats, better pitch and cabin flexibility for any greedy airlines who insist on 30” pitch by 17” wide seats. In fact, the human being needs at least 34” pitch and 18” wide seats, which is a coincidental aspiration of an NMA, which may allow for such arrangement. 

Boeing's airline customer may try to wedge in a 30" X 17" seat but a proposed NMA may be designed for a 34" X 18" arrangement. The airline customer may control the pitch dimension but a duo aisle would be hard to go 8 across from a proposed 7 across cabin concept. Unless, Boeing goes a few inches wider on the cabin allowing airline greed to manifest itself with 17’ wide seats enabling 8 across seating on a proposed NMA.

Customers demand both room and low price options for travel. This is a difficult passenger demanded proposition, which the manufacturer may meet the passengers halfway while appeasing its airline customers at the same time. It may trickle down to a 220-270 NMA seat flexibility for both the airline and the passenger's ticket price depending on what business model Boeing’s direct customers may want. 

No matter what is said about what should or should not be offered, Boeing will offer its “Customers”   a chance to name their own poison in that seating range and then say it isn’t our fault, it’s the airlines fault for cramming in seats.

Therefore, "demand" is a nebulous term when designing a new-medium-aircraft. It all depends what position you are in a line at the board room, the terminal, or the Airshow announcement stage.

   

The Boeing vs Airbus Estimated Backlog for July Ending

Below are the backlog comparisons in units and list price values as shown by each manufacturers websites.

Fig 1. Wide Body Summary Recap

Fig. 2 Single Aisle Summary Recap:

The Culture Of Demand Chapter 5: Ignoring The Passenger Supply Stream Is Silly.

A long time ago passengers were considered an infinite supply without limits to airline growth. It was just a matter of time before passenger demand pushed airplane supply forward. However, the passenger supply has a limit and it now demands its participation in whole scheme of things. The “industry” somehow knows what’s best for its passengers when presenting its profit making plans. It has failed to recognize passengers have a dog in this fight.

Once again pitch is mentioned as the battle line between the Airline and its potential customers. The airline sets a pitch standard thus forcing its configuration by seat count scheme giving the passenger little to squawk about, because they want a cheap ticket. The airlines produce supply by seat count and the passenger demands a low seat price. Everyone is happy? That is how supply and demand is not supposed to work. Passengers should cause a demand for a supply of tickets which competition is built upon. However, it won’t work that way if airlines are seeking a profit solution over the backs of its customers, as it approaches the 30” pitch line in the sand.

An old sentiment arose with the three class configuration. Economy paid for the flight, first class gave the trip its profits and Business class was a bonus to the airline. Essentially, First class seats were for stockholders and the like. When operational and fuel costs rose, the number of economy seats had to increase much to the delight of low fare paying travel addicts. The squeeze towards 17” wide seats with a 30” pitch arose to pay for the costs of current single aisle routes in play.

A new conundrum has arrived. What happens when you don’t have a first class or even a business class on a LCC operation like Ryan Air? How does a profit arrive at a destination when everything is an economy seat?  Ryan Air has opted for ancillary profit centers which won’t fly, as one solution for its lack of high end ticket prices. It will simply make the equivalent first class revenue replaced by its other ancillary products it will be offering.

    

The case in point, is every terminal has a seating area near the gate before boarding. The long waiting passengers are in an anxious situation and going to a restaurant or shop causes additional tension as a passenger is always listening, watching and rushing to get back to their terminal boarding area seat. A proposal is offering gate kiosks for passenger snacks, meals, and other services for the trip. Everyone forgets something and it’s too far or risky to walk for trip supplies. Have a credit card, the airline has a machine or place to spend your slippery money.

You could be renting a car for your destination from the Airline

So what’s an airline to do when it has only economy seats at $99 each? The 8 or so First or Business class seats costs four times the economy class seats. If economy class is around $99, then the up class seat will be around $400. Times that number by 8 and the airline must find another $3,200 in revenue for the flight. The first class space could hold about 12 economy seats and add a stretch of several more rows in the back and viola the airline has about 20 additional economy seats at $99 each. Now the airline only has to make another $1,200 dollars with its terminal point of sale machines. With two hundred single aisle customers in waiting with carry on under tow, it would only take about a $6 transaction from each customer buying snacks, food or even a motel room/car rental before loading. Having a credit card spends money fast and it would be common for a $40 dollar run up before boarding with all kinds of Airline add-ons available. No First class seats profit no problem. The culture is changing.

The Culture of Demand Chapter 4. Orders and Deliveries, The Tip Of The Iceberg.

 

We are talking about airplanes here and not cruise ships hitting Icebergs.  However, it’s so important to be World’s Biggest at something. May as well be at airplane making and Boeing remains the World’s Biggest deliverer of airplanes. Which is good only if enough backlog exists for that YOY status report. Airbus once was World’s Biggest until Boeing built more production and infused the 787 line found in two cities while taking a page out of the Airbus play book.

So Orders do eventually matter over time and Airbus has so many it can’t build airplanes fast enough or can it deliver to not so happy customers in waiting. Boeing says production is the key to its nirvana in Seattle. Airbus says we have more orders than Boeing every day somebody is listening. I hope no one wants an airplane soon from Airbus. This chapter could go on forever as Airbus is building about 90 WB‘s a year and Boeing is building about 175 WB’s a year when including 767, 787,777 and 747 types. Airbus has its A330, A350 and A380 lines churning as fast as it can.

The most important note, if taking notes is that a delivery = CASH! Orders equals bragging rights. Boeing beats Airbus with its cash account and Airbus just brags a lot even after Airbus John Leahy retires. 

The main thing for Airbus is that if it can’t deliver in a timely manner it will lose orders and customers. Those are called cancellations. This is a big Airbus metric to watch.

Boeing is a producer and that makes airline customers happy. A customer can get a timely delivery from Boeing and a customer can delay a delivery when it wants to as Boeing has a fairly stable backlog (unfilled orders). The definition of backlog is unfilled orders from customers who happen to have ordered. Airbus has an immense single aisle backlog greater than Boeing’s single aisle backlog. Airbus needs to build single aisle with more production, and it must keep suppliers happy too by not overburdening the parts supplier into oblivion. 

Airbus tried a new tack, duo engine offering for its A320. All went well when one engine maker stumbled. The P&W gear driven jet engine has teething woes much like what the 787 went through when exposing its own all new technology after the first 787 delivery. The P&W engine is often parked on a factory bench for further inspection and repair.

Airbus is having supply chain issues and engine issues when it should be delivering 70 single aisle A320’s a month. Instead, it is shooting for 60 A320’s a month. It only delivers about 5-7 A350’s a month. Boeing delivers about 12, 787 a month. It also delivers copious amounts of 777-ERs which is a very big dual aisle aircraft. In fact it is running out of 777’s work orders as a diminishing 777-300ER backlog is a backdrop to the 777X program. Boeing should be fine if it executes the 777X program well after the 777X first delivery.

The main thing both manufacturers face, are the business Icebergs creeping up on its supply chains, engine makers, and fickle customers. If either airplane maker strikes one of those Icebergs it will be hard to deliver its customer a value, I only mean the commercial airline (customer). The commercial carrier so desperately needs to deliver value to its own customers, you them as passengers and so forth…

The Culture of Demand Chapter 3. The Passenger Demands Value

 

The first two chapters have reported the juggling evolution of making profits from the manufacturer to the Airline. The goal is profit and not the customer. The caveat is pricing convinces passengers to buy an airfare over any other considerations for the limitations inherently offered by airlines. The incentive of riding in so many cubic feet becomes a passenger acceptance for any ticket purchased for a flight anywhere. 

I did say I would mention the South West Airlines and its "Cattle Call" in this chapter. I got to the ticket desk first and bought seat 6A which allows me to line -up with customers from row 1-10. I received a Blue boarding pass, cool, huh? Next came the announcement for those with a Blue boarding pass may now load to your respective seats. Civility ended on the word "respective". The cattle stampede to board was on. The dust settled when the yellow boarding pass announcement was blared over the terminal to those passengers with carry-on lunch bags.

Airlines are rapidly eliminating First class into Business class “suites”. An airline suite is defined as any space with direct aisle access, privacy screens and lie flat features. It would include seating space greater than 20” wide and a seat recline feature. Economy or premium economy would not feature most of these minimum standards.

The passenger has been conditioned into some substandard airline world and accepts it because of price. People want to fly, but can’t afford airplane space of the business class. Airlines realize this and offer a sweetener called Premium Economy showing promise to the passenger of something that once was but has gone the way of bell bottom jeans.

The passenger demands value and the airline reply becomes “and your point is?" In fact passengers are dumb-down into thinking premium economy class escapes the torture of cramping. It could be a worse sentiment, warning passengers having an economy seat. 

The economy seat incentive is the predictable $99 ticket economy ticket. It could be worse, premium economy cost $199. The old Wendy’s commercial proclaimed “where is the beef”. The latest airline commercial can’t even muster a “Where is the value” shout out from its Ad execs. Boarding airplanes become a ritual worthy of praise by Lemmings in Alaska. A lemming simply turns right and jumps into a sea of passengers. 

The value is found in deep vein thrombosis when departing from economy to the hospital, affordable care act kicks in. If an airline offers real value then will the manufacturer have to respond in-kind. The manufacturer is chasing metrics. The airplane can fly farther on less fuel than the other guy. It is quieter and more efficient getting there and that’s where the real value is located.  The passengers just don’t get it that value is in the air frame. The airline doesn’t get it that value is in its seats bolted down. The manufacturer doesn’t get it that value is in the folding wing and so forth.

Value for the travel culture has become the biggest lost art since outhouses were torn down in back yards everywhere. The culture emerges from metrics called pitch, width and Wi-Fi channels. Pitch is that erogenous zone from your knee cap to the small of your back. People brag about the pitch when talking to friends they are visiting with in Europe. Passenger culture speaks, “I only fly with a 34” pitch- 30” inch pitch is for losers, do you agree?” The next passenger had Wi-Fi and gets the terminal waiting area’s attention, “I’ve got 2,459 movies and a google movie pass to boot.” Even those standing in line at the Ryan Air Kiosk turned and looked at the braggart’s Wi-Fi proclamation.

The final straw was the guy who had a 54” waist line smugly pushing his way to economy plus seat at 18.5 inches wide saying, “ It sucks to be in economy at only 17” wide and no back of seat map pockets.” The passenger has been dumb-down by cheap tickets, no first class and having an Economy Plus seat as its reward for a traveling culture made via the travel brochure advertisement.

The true value comes when there is no economy plus segregation as all seats past row twelve are a standard Economy Plus specification. There is no first class since that type of class term is so Victorian. Instead the appropriate value term would be “Stateroom Cabin” good for both business and pleasure travelers looking for value for the buck.   Take it from cruise ship travel companies, steerage is where Titanic movie extras slept. 

The Culture Of Demand Chapter 2. The Airplane Industry Demands Change

The real divide is between the maker’s customers and the customer’s customers called passengers. The manufacturer works for the commercial carriers’ bottom line while enhancing its own bottom line. The carrot dangled is the passenger low price ticket. The passenger's demand, centers on low fares because the economy of scale throughout the world has skewed values.  The airline responds with the beef hook idea for hanging the price over a customers sensibilities. The culture has changed and passengers may grumble but what choice do they have, an Emirates $4,000 dollar one way fare?

Ryan Air, Winging It’s favorite example out of Ireland, has shrunk the galley, squeezed in more seats rows, and ordered a new single aisle type named the 737-200C. The “C” stands for cord-wood stacked in its airplane with room for two hundred stacks of wood on board. The Ryan Air game is to offer a convenient kiosk experience unlike its competitors. Pick your food and pick your pleasure from a buffet of offerings within its operation, thus adding value to the Ryan Air revenue flight each time it flies. The main thing is the airplane “crack” that passengers crave, which is a cheap ticket for its travel. Ryan Air has set a time standard for its routes. That is to say, how long can they keep humans pleased with cheap tickets while offering pay-as-you-go options for its travel preoccupations?  They are exploring that notion today, as it plays with the new ticket price culture.

The culture has changed indeed and low fares lead the charge while amenities appear and disappear as much as your credit line can stand the kiosk assault. It’s not the airlines' problem, it gave you a cheap ticket and your eyes could only fixate on the price. Airline “crack” will sell your children down the jet way in short order by a multitude of travel ticket rules. The Twelve year old can get on for half fare, while the 13 year does not get to see the Pirates of The Caribbean, Orlando adventure ride and stays at summer boarding school for a price ten times higher than a full price Airfare. 

In fact if your very young child poops its pants real trouble begins as surrounding customers begin an airline chant, “Remove That Child”, I paid good money for my low fare”.

The lawyers get involved as they read the tickets fine print, it says here, “pooping is only allowed in the rear toilet area any infraction of this rule could cause an airline disruption and immediate removal of family or offender. Passengers may receive shock sticks to the neck if non respondent”.

Don’t forget that your eyes were fixated on the word “Economy” and the purchasing passenger lost its nervous control over that word and bought the ticket(s) on the “737-200C” to New York from Ireland. It’s a cultural thing you know? The next Chapter gets off Ryan Air's back and mentions South West Airlines and its cattle call to the meat hooks.

That question arises, Is Boeing responsible, the airline or the passenger in this culture shift? That is the very nature of the up-coming chapters. Whose fault is it? I mean the electrical probe to the neck of a screaming economy passenger. All they did was buy an airlines’ low fare on a single aisle aircraft made by a manufacturer meeting the current industry demand. So they culture had to change from “Build it and they will come” to: "build it wonderfully" which is old school and a myth. 

So the manufacturer stuffed everything invented to the airplanes frame as a modern marvel but forgot the “bottom line” of the passenger. They traded that position away at an online web site starting with “cheap fare”. The passenger bottom is no longer protected.

The commercial airline test lab is experimenting with how much room does a person need for breathing from the tip of the nose to the partition in front of it on a 10 hour fight?

The second airline test is how to keep meat hooks holding the vertical freight from swinging thus causing airsickness for its passengers (freight)?

The third lab test will reveal what advertising is needed convincing people this is the way of travel from a cultural perspective?

Boeing is stuck with the culture shift to low fares and how to build an airplane carrying so much weight, it not its problem how a customer will fill it, nor is it a passenger problem because they bought a low fare ticket. The airline crack now controls the buying public with low fares.

The Airline Industry Demands Change in this inverted structure when once competition was the key to success. The competitive nature built the best pleasing the passenger. Now it builds what is best for the Manufacturer and Airline “Bottom Line”.