Imagine that over the course of time, most of the world’s major airliner manufacturers went bankrupt and there was only one manufacturer of big airliners left.
What would the effect be on the airline industry?
It seems that, immediately, prices of airliners would rise since this would be an aircraft-manufacturing monopoly, and that sole remaining manufacturer could charge whatever price it wanted for its airplanes and get max profit. It is very difficult for any new competitor to break into this industry. Also, since one manufacturer can only churn out so many airplanes every year - at least, on relatively short notice - airlines would have to wait a very long time. You might have an assembly line that was fully booked for well over a decade to come.
So, around the world, airfare ticket prices would rise (since new airliners would cost more, and airlines have to recoup that cost,) and airlines would have to use their airplanes for a longer time, since they’d have to wait longer for a replacement, thus leading to more metal fatigue, etc.
However, the sole remaining airplane manufacturer might have less incentive to be innovative and groundbreaking in its new airplane designs, since there was less business reason to do so - or, conversely, perhaps it might actually be *more *innovative and groundbreaking than before, since it would have no competitor to fear, and no fears of going bankrupt itself, and could thus take as many R&D risks as it wanted to with no fear of business or economic loss.
Are there any other major repercussions that would happen?
not really. Said sole aircraft manufacturer is in the business of selling airplanes. If they were the only one, they’d be competing with all of the existing in-service aircraft. They couldn’t jack up prices arbitrarily because if they did, airlines would do what they had to do to keep their existing fleet going.
I understand there are regulatory limits on keeping old aircraft in the air. There are certainly liability issues.
If Airbus went bust, would Boeing jack prices up? Of course they would - and they would blame increasing costs associated with higher demand. Their profits would also rise. Boeing would still be limited by potential competition though. If they doubled the price of 747s (or whatever), another firm might enter the business. Also, aircraft compete with train and car travel. Finally there are fringe players like Bombardier to consider.
As for R&D, IIRC the effects of monopoly on innovation are ambiguous. Recall though that some of the aeronautic R&D is defense related, which under your scenario remains a somewhat competitive industry.
The aircraft business is a little different. For example, when GE or Rolls Royce make a jet engine - they make very little profit (more often break even or even make a loss) on the sale of the engine.
Where they make huge profits is in the service agreement. They have rigorous requirements on the spares or maintenance parts - so essentially they can charge whatever they like on the service and the parts. If the airline owner declines the service agreement - most Insurance companies would not cover them. To be fair, GE or Rolls Royce maintain scrupulous records on engine health, remotely monitor engine health and have great safety records - so aircraft owners do not mind paying the high bills.
Monopoly prices aren’t infinite for the reasons mentioned above - if the monopoly prices were too high, no one would buy any new aircraft at all, instead choosing to keep fixing their old ones. Right now, there is essentially a duopoly - Airbus and Boeing. When there are 2 companies competing, prices tend towards a “Nash Equilibrium”, a price lower than the monopoly price but higher than the price in a fully competitive marketplace.
The enormous cost of running an aircraft manufacturing company means there are unlikely to suddenly be 5 makers again. It cost 32 billion for Boeing to develop the 787 “dreamliner” - and that doesn’t include costs from the battery fires. Boeing made some major mistakes, but if you can’t afford to spend 10s of billions of dollars developing new aircraft every decade or so, you can’t compete.
There would be short term panic not just in the industry but in every other industry and every government. Airplanes are that valuable. The remaining company would be essentially nationalized, even in the U.S., in order to guarantee stability and avoid a world-wide depression of unprecedented scale. A world in which there is one capitalistic monopoly manufacturer can’t be properly speculated upon: it’s so unstable that major explosions would follow in unpredictable manner.
Another aspect of the business :
GE makes the engine - sells it to Boeing who makes the whole plane. Then GE buys the plane back from Boeing and leases it to airlines. GE iirc is the largest lessor of commercial airlines.
what would these be? Delta was flying Northwest’s almost 40-year-old DC-9s until last year.
Also keep in mind the wonderful workings of capitalism. Companies like Embraer and Bombardier make regional jets, but for example the Embraer 190/195 with up to 100 passengers is encroaching on the 737 or A318 territory. At this point, they are held back because of the expense of development coupled with the fact that the proven 737 and 318 already own that market. If Boeing tries to gouge the market too badly, then Embraer will see a profit opportunity… and the profit from the 120-passenger jet funds the development of the 180-passenger jet and so on…
Moderator Action
This seems more like an opinion or debate type of question than a factual question. So far, I’m seeing more speculation and opinion than back and forth debate, so let’s try IMHO. Depending on how the thread progresses it may end up in GD later.
Moving thread from General Questions to In My Humble Opinion.
This is absurd. We are talking about a monopoly on wide-body passenger aircraft, not airplanes of all kinds. A monopolist still has to compete with existing product in the marketplace, and aircraft are a unique product in that they can be maintained for decades if not indefinitely. Moreover, there are vast aviation graveyards that could be salvaged in the event of a monopolist takeover of the marketplace.
The belief that the free market cannot be trusted to safely deliver necessary products is delusional and not in correspondence with reality. Adam Smith observed hundreds of years ago that “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest”, and we would do well to remember his words. Corporations already deliver petroleum, food, lifesaving medicine, electricity, water and other critical products safely and securely. They could surely do so for aircraft as well.
Governments get involved with state owned (or heavily invested) enterprises. Look at the history of Airbus, for example. If everyone but Boeing went out of business, and Boeing jacked up prices, it wouldn’t be long before someone, somewhere were able to lobby one or more governments to provide funding for a competitive enterprise.
Could this happen with paper clips? What if every paper clip manufacturer but one went out of business? Given the barrier to entry, I’m not sure anyone would have to get a government involved, but if there were a paper clip crisis at the same scale an abusive, monopolist aircraft manufacturer could cause, I imagine that it’s not outside the realm of possibility.
If one major manufacturer went bust, I wouldn’t worry. Elon Musk would step in and have a solution by 2018. Or 2019. Maybe 2025…
But seriously, in that case the airline industry, including manufacturing, would probably become heavily regulated.
I think most people reading this assume a scenario where Airbus closes and Boeing remains. What if it were the other way around?
The US government steps in and ensures that they have a viable domestic manufacturer of military aircraft.
If Boeing nonetheless leaves civil aviation, then Airbus’ ability to gouge would be capped by anti-trust concerns. But then again, the same would apply if Airbus exited the field and Boeing was the survivor. I don’t think the broad story would change too much. I agree with** Exapno Mapcase** that any sort of fundamental and sudden change to the transportation system would be met with concern by big business. You can sing all you like about the long run beauty of the free market, but humans live in the short run. Market fundamentalism is an ideology that is more honoured in the breach than in the observance.
Nicely ideological, but not one of those things is a worldwide monopoly. Many of them are local monopolies, however, in which case they are either run or heavily regulated by governments. A larger monopoly would be viewed in exactly the same way.
Nobody actually trusts corporations. Nobody, including other corporations. Often, especially other corporations. Government exists in the modern world to be a counterweight to the power of corporations. Or, in other cases, to ensure the well-being of corporations. As the financial crisis of 2008 proved, if the economic structure is threatened the government will step in. It’s true in the U.S. just as much as any other country, no matter how capitalist they profess to be.
I had written another paragraph about the market stepping up and developing competition over the long run because that’s exactly as obvious as everyone else has said. Then I realized that it was superfluous. Governments would get involved first and make the long run moot. Just as they would if one corporation developed a monopoly over oil or computers or any other necessity of the modern world. The free market only exists if government provides the playing field. Their game, their rules.
And Tupolev (Russia) and COMAC (China) and possibly other manufacturers who are or soon will be making large passenger jets.