Competition drives creativity

Boeing and Airbus dominate the airline market.

They each have around 45%, while every other company shares the remaining 10%.

But the problem with dominance is it can make you risk averse.

Which, ironically, is a risky strategy and seems to have happened to Boeing.

Developing a new plane is expensive and known as a "moonshot".

In 2014, Boeing’s chief executive, Jim McNerney, said: "A moonshot every 25 years? That’s the wrong way to pursue this business. The more-for-less world won’t let you pursue moonshots."

So Boeing has pursued a policy of sweating its assets, getting everything it can out of its ageing designs.

The Boeing 737 and the Airbus A320 dominate the short-haul, 100-plus-seat market.

But a Canadian company, Bombardier, introduced its C Series.

Bombardier is a comparatively small company: $8bn sales against Boeing’s $65bn.

But its plane was a revelation: it was 20% cheaper to run, quieter, roomier, and it could do 11 flights a day with a 35-minute turnaround between them.

Delta Air Lines immediately ordered 75 of the planes.

Boeing knew it was a better plane, but how could it compete?

Well, it didn’t, at least not with airplanes.

Boeing spends $270m a year lobbying the US government, so that’s what it did.

It argued that Bombardier received $5bn in subsidies from the Canadian government, so it was unfair competition.

(Despite the fact that Boeing received $14.4bn in subsidies, and $74bn in loans.)

Boeing’s lobbying paid off – Bombardier had an almost 300% tariff placed on every plane.

That means every plane suddenly cost four times as much.

The head of Delta said it was ridiculous because: "Boeing does not produce a comparable alternative to the C Series."

Since no-one would now buy its planes, this would bankrupt Bombardier.

Without having to redesign a new plane, Boeing had won.

But then Bombardier did something that Boeing didn’t see coming.

Rather than go out of business, Bombardier gave Airbus 50% of its new plane for free.

Then it changed the name to the Airbus A220.

Airbus would assemble it in Alabama, so it wouldn’t have any tariffs at all because it would provide American jobs.

Suddenly this was Boeing’s worst nightmare.

Instead of competing with a tiny manufacturer of a new plane, it was competing with a company as big as it was that had an amazing new plane.

Now Airbus could sell the new plane all around the world, where Bombardier couldn’t.

Bombardier got an amazing opportunity to expand its market, and Airbus got a new plane for free.

Boeing had forced Bombardier to give its biggest rival a massive advantage.

Boeing was now forced to buy 80% of Bombardier’s rival, the Brazilian company Embraer.

Embraer also makes mid-size airplanes and Boeing had to pay $4.2bn, despite the fact that the entire market for those types of planes is just 7%.

It cost Boeing billions to compete in an area it didn’t even want to compete in.

Boeing tried to stifle the competition, and it backfired.

Airbus, on the other hand, said: "Airbus was born in competition, thrives in it, and believes competition is good for our industry."

It’s important for all of us to recognise that competition is where creativity thrives.

That’s why competition is good: competition drives creativity.

Dave Trott is the author of Creative Blindness and How to Cure It, Creative Mischief, Predatory Thinking and One Plus One Equals Three

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