How will the 737 MAX order impact airline competition?

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The 737 MAX Order's Impact on Airline Competition

The recent large order of 200 Boeing 737 MAX aircraft by International Airlines Group (IAG) has sparked calls from Airbus for a competitive bidding process, highlighting the intense commercial rivalry between the two major aircraft manufacturers. This order, valued at over $24 billion based on list prices, has surprised industry observers and disrupted the expected market dynamics, particularly following the grounding of the 737 MAX fleet due to two fatal accidents that resulted in 346 fatalities. Airbus's reaction underscores the significance of such orders in shaping the competitive landscape and securing market share.
Airbus Seeks Competitive Opportunity

Airbus has publicly expressed its desire to compete for the substantial narrow-body aircraft order placed by IAG, the parent company of airlines including British Airways, Iberia, and Vueling. Airbus's commercial head, Christian Scherer, stated that IAG had not initiated a formal tender for these aircraft, implying that a competitive process could still be opened. This demand from Airbus suggests a belief that a formal competition would allow for a more comprehensive evaluation of available aircraft options, potentially leading to a different outcome than a direct order for the 737 MAX. The manufacturer's stance reflects a strategic imperative to ensure its products are considered for significant fleet renewals and expansions.
The 737 MAX Order's Market Significance

The tentative order for 200 Boeing 737 MAX jets represents a significant boost for the beleaguered aircraft model, which has been grounded globally since March. This substantial commitment from IAG, announced at the Paris Airshow, is partly interpreted as an effort to maintain a healthy level of competition between Airbus and Boeing, which has been impacted by the grounding crisis. The order's scale also serves to solidify Boeing's market position in the narrow-body segment, a crucial area of competition with Airbus.
Airbus's Strategic Response and Market Positioning

In parallel to the IAG-Boeing announcement, Airbus launched a long-range variant of its A321 jet, the A321XLR, securing 226 orders and commitments at the airshow. This move by Airbus targets a market segment that Boeing aims to address with a proposed new mid-market aircraft. Boeing's sales chief, Ihssane Mounir, however, dismissed the A321XLR's market suitability, suggesting it would only serve a small portion of the market. The intense competition extends to wide-body jets as well, with both manufacturers securing significant deals in Asia. Boeing also faced a setback with a delay in engine supply for its new 777X aircraft.

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How will the 737 MAX order impact airline competition?

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