Economics (AS & A Level) · May / June 2021 · Paper 42 · Question 1

Competition in passenger aircraft manufacturing Two companies produce all of the world’s passenger aircraft with a seating capacity of over 150 passengers. The supply of these is about 1600 aircraft a year and is divided almost equally between the two competing companies, who both benefit from extremely strong brand identity and customer loyalty. The aircraft are made in two versions: single-aisle aircraft that carry 200 passengers and double- aisle aircraft that carry 300 to 350 passengers. In 2018 both companies took over other firms which produced a range of aircraft seating between 40 and 150 passengers. The owners of the other firms had difficulties in financing and developing their new aircraft. Recent competition in the aircraft manufacturing industry has aimed at improving fuel efficiency, developing longer non-stop flying ranges and developing very large aircraft with a capacity of 500 passengers. The companies have been successful in achieving the first two aims. The third aim of developing very large aircraft was intended to move larger numbers of passengers between ‘hub’ airports, where they would transfer to smaller aircraft for onwards transport to regional airports. Whilst it has achieved increased passenger capacity, this development has not been a success for the airlines that bought these very large aircraft. The need for these was undermined by the success of the first two competitive developments. The nature of the aircraft manufacturing industry is that it involves significant fixed costs. The research and development (R&D) costs of a new aircraft can rise to US$26 billion. Currently the two companies are concerned that China, in its drive to increase the value of its exports, will enter the aircraft manufacturing industry in the next 10 to 15 years and add a new level of competition. Source: adapted from The Economist, 5 February 2019 and 27 April 2019

Read automatically from the paper; the printed page above is exact.