Death Of A Salesman
July 20th, 2009
Since British Airways became yet another member of the “defer the A380” club, the prospect of more full-service airlines considering a strategic shift away from premium products will start to gather pace.
Just like Arthur Millers fictional character, Willy Loman, life insurance didn’t cover his suicide - neither will flying passengers on a discounted basis while yields continue to fall off the nearest cliff. That “strategy” is probably just as bad, if not worse than suicide…(can it get any worse?)
Air New Zealand may have been flying without First Class for a while now, but at British Airways’ annual general meeting last week, the talk on the sidelines was that of when a rebound would occur - or, indeed, whether it would ever occur at all. For British Airways, the reality is that the ideology of First Class has all but evaporated, and with it, the intended revenue that it has relied upon for so many years of its existence in the post-Thatcher years. Part of that had begun when it introduced World Traveller Plus (premium economy) and has been exacerbated by the need for more liquidity to offset losses that are inevitably going to be revealed going forward.
British Airways Boeing 747-400 being pushed back from the stand
Image copyright/owned by FleetBuzz Editorial.com
The decision to push back its A380 deliveries plays a big part in the reason why some quarters within the airline have openly questioned why they weren’t deferred for longer and indeed, why part of it hasn’t been cancelled outright. For Airbus, half of the sixteen customers for the A380 have deferred deliveries and Thai Airways has practically begged to all and sundry to be relieved of its misery to the association of the mismatched niche airplane.
(Shoot The Dog & Shoot The Dog Part Two)
John Leahy has repeatedly touted the A380 as the answer to high fuel prices, yet despite the hype behind the marketing, current A380 operators along with carriers in the Asia-Pacific Rim region have been dealt a huge blow with cargo demand dwindling and also with high yield traffic doing better disappearing acts than Houdini.
Air New Zealand has certainly stolen a march on its bigger rivals, and being much nimbler, has avoided the pitfalls of the highly inflexible A380 and instead concentrated on making money on routes that it knows it can do so without the fear of not filling up the front of the airplane. Expect more airlines to execute this strategy - just this year British Airways and newcomer V Australia have taken delivery of 777’s equipped with everything but First Class. Even route-centric deployment of high yield seating is under threat - business travellers have started down-gauging their budgets and even gone down the low-cost carrier route where applicable.
Part of this new culture has forced deferral, cancellation and re-evaluation of product strategy. Equally, throw in the 747-8 Intercontinental into the fray, and its not hard to see why it hasn’t sold as well as envisaged. For the first time in as many as three decades, the likelihood of the parked fleet coming back to revenue service is undermined by excessive capacity and fluctuating oil prices.
Economic growth has been stagnant for only a short period of time - talk of “green shoots” of revival is a short-lived proposition when you consider that even the IATA Director General, Giovanni Bisignani said recently that “even if we look beyond the crisis, it is difficult to see a return to business as usual.”
The bottom of the cycle may still be around the corner. Critically, recovery isn’t.
While the salesmen find cheaper way of getting from A-to-Z, the distinct prospect that First Class will be supplanted by two class airplanes, or tri-class (Biz/Prem Econ/Econ) configurations will almost certainly mean that last summers surreptitious levies on baggage and fuel surcharges will probably something we’d all better get used to.
At the opposing end of the spectrum, Ryanair, with its innovative pricing policies is, like Air New Zealand, streets ahead of the competition.
Closing full circle, product development for Airbus and Boeing will eventually mean a tectonic shift in the way marketing one airplane against a rival offering is carried out. Airbus has had to adjust the A380 from the decade-touted 555-seater to 525 seats and remains eerily silent on the A350XWB operating empty weight, while Boeing has revised ranged targets on the 787 pending first flight.
All of these factors and more will determine which airlines deploys what airplane on what sector with what configuration and what fares will be charged.
What we do know, the salesman job may not have changed (unless he he’s been laid off) - however, the implications for his cost structure has profound and wide reaching implications farther back up the supply chain.
Business class may survive in a milder form, premium economy is the new First Class.
Entry Filed under: Air New Zealand, Airbus, Airbus A330, Airbus A330-200, Airbus A330-300, Airbus A350, Airbus A350-800, Airbus A350-900, Airbus A380-800, Boeing, Boeing 747, Boeing 747-8 Intercontinental, Boeing 747-8F, Boeing 747-8I, Boeing 777, Boeing 777-200LR, Boeing 777-300ER, Boeing 777F, Boeing 787, Boeing 787 Dreamliner, Boeing 787-3, Boeing 787-8, Boeing 787-9, Boeing Commercial Airplanes, British Airways, Emirates, Qantas, Thai Airways, Virgin Atlantic
36 Comments Add your own
1. LGB787 | July 20th, 2009 at 05:39
Without First Class on BA, where will James Bond ride? It’s too horrible to think about. To quote Herbert Morrison’s famous line during the Hindenberg tragedy, “Oh, the humanity!”
2. Rob | July 20th, 2009 at 06:43
1st class & business will bounce back, as usual the analysts exaggerate any trend by connecting two points and assuming that’s the long term option.
Already the banks are generating big bucks and they’re prime users, the rest of the business world may be in difficulty but those blokes (gender inclusive) won’t have their snouts out of the trough for long.
If nothing else both manufacturers best hope so, that’s the driver for the business case for any new aircraft. A380 deferrals put money in Airbus’ pocket, one assumes the airlines who drove a hard positioning when Airbus delayed are now on the receiving end. Same will presumably occur when the 787 comes along.
3. boeing investor | July 20th, 2009 at 07:30
Very valid points as to why the likes of the 747I have been such crap sellers - with the downturn, it’ll just get worse.
4. Vero Venia | July 20th, 2009 at 09:18
If airlines replace all premium seats by Y or Y+ seats then overcapacity issues worsen. Then the question is if they still need VLAs.
http://verovenia.wordpress.com
5. ikkeman | July 20th, 2009 at 11:51
1. LGB787 | July 20th, 2009 at 05:39
didn’t 007 have the use of HRM’s flying car???
6. Dougloid | July 20th, 2009 at 13:53
Interesting. The first thing I learned about running a business when I worked in an auto parts store is that cutting your prices and trying to make it up on volume is a good way to lose a lot of money very quickly. It stands to reason, too, that the available passenger load and how much they’ve got to spend is what determines how many tickets you sell, and not the size of the basket you carry them in.
7. Ed | July 20th, 2009 at 14:12
Rob wrote in post #2;
“A380 deferrals put money in Airbus’ pocket, one assumes the airlines who drove a hard positioning when Airbus delayed are now on the receiving end. Same will presumably occur when the 787 comes along.”
Don’t be so fast with your assumption that deferred deliveries of the A-380, or B-787 actually put money into Airbus’s, or Boeing’s pocket.
If the original agreed production slots cannot be filled by another customer, the OEMs loose work, only to build the airplane at a later time, when production costs are higher from suppliers and labor. They still have to pay production workers during the times of slow, or no production. This hurts Airbus and the A-380 a lot more than it does Boeing and the B-787.
Why?
Simply because this is a numbers game.
Airbus has a back order of some 160-170 A-380s. Eight of sixteen airlines have deferred orders. That only leaves 8 customers that could possibily move up deliveries to earlier slots. EK, having about 25% of all A-380 orders would be the most likely airline to move some slots, not all to earlier delivery dates.
Boeing, OTOH, has in excess of a 700 airplane backorder to work with. Many of its most loyal customers might be in a better position to take advantage of earlier delivery slots. These could include airlines like AA, DL, CO, NH, BA, EK, and JL. QF (the largest B-787 buyer) is also a very good possibility to take advantage of production slots becoming available than originally planned.
SAirlines with both the A-380 and the B-787 on order will, most likely opt for earlier deliveries of the B-787 well before the A-380.
Why?
Again it is a numbers game.
When (if?) the recovery of the global economy begins, it will begin with a trickle, not a rush. Here, the smaller (250-300 seat) long range airplane has the advantage over the larger (500-555 seat) long range airplane.
It may even take a very long time to recover all the way up to a 500 + seat airplane. That could mean and advantage to the 460 seat B-747-8I, too. Those production slots are wide open.
I think Boeing is in a very good position for any economic recovery, Airbus is not.
8. Mike M | July 20th, 2009 at 14:29
>>>A380 deferrals put money in Airbus’ pocket
Funniest thing I have read in years.
Airbus’ A380 is bleeding money, the production line has rates lopped every few months and deferrals leads to money?
No PDP payments etc and your logic defies all logic!
9. Chris Wallace | July 20th, 2009 at 15:42
We’ve seen huge drops in premium travel product in the past: The Asian Financial Flu of the late 1990s; the Tech *BOOM*; 9/11; SARS; and now the World Recession.
And yet, it always came back and I firmly believe it will do so again.
The problem for the airlines is the hard product in Business Class has become so strong, it’s pretty much forced First Class to become “an oasis of privacy”. Four to eight fully encapsulated suites like SQ’s Suites Class and 9W’s/EK’s First Class or the well-spaced out seats like AF’s latest F product or JL’s Superseat Solo are the direction of the future, paired in with private check-in rooms, personal escorts through security and dedicated lounges. You can only do so much with catering on the plane, so things like BA’s food service before departure make excellent sense as you can give your First Class passengers a truly five-star dining experience and then keep them covered during the flight with a large selection of hot and cold hors d’oeuvres that don’t suffer from being served at the near side of 40,000 ft. Such services are expensive, but they would appeal to those who are willing to pay for privacy and personalized service and even a ticket price in the five figures would not discourage them.
As for the A380, her size may be a curse or it may be a blessing. With much smaller First and Business Class cabins, you can either pack Economy seats in and hope to gain on volume, or you take a different tack and actually make your base Economy Cabin the “premium” one.
SQ already offers 19″ wide seats on their A380s, which is identical to Business Class on a 767 in a 2+2+2 configuration. By shrinking the premium cabins, they could increase legroom from the current 32″ to 34-35″ without losing any seats. I’ve flown Economy Plus on United which averages 35″ on their widebodies and it really makes a huge difference for a three hour hop between ORD and DEN so I can imagine what it does for ORD and NRT.
It could become a very powerful weapon to attract customers for long-haul travel.
10. Falcon | July 20th, 2009 at 16:11
Interesting. The first thing I learned about running a business when I worked in an auto parts store is that cutting your prices and trying to make it up on volume is a good way to lose a lot of money very quickly. Dougloid
As confirmed by Wal-Mart, Best Buy, IKEA and many others…. Not.
Yes there is more to it than just lowering the prices. You need to setup the entire operation to work in the lower margin environment but when done right it is incredibly successful. This is why so many mainline airlines failed with their low cost experiments
11. Jacobin777 | July 20th, 2009 at 18:31
“We’ve seen huge drops in premium travel product in the past: The Asian Financial Flu of the late 1990s; the Tech *BOOM*; 9/11; SARS; and now the World Recession.
And yet, it always came back and I firmly believe it will do so again.
The problem for the airlines is the hard product in Business Class has become so strong, it’s pretty much forced First Class to become “an oasis of privacy”. ”
Each time however, it seems as if the cycle either gets shorter or worse than the previous cycle.
Will we see the return of some of the premium cabin lavishes by pax (both personal and business)? Sure, but when and to what extent?
The problem is the B748I and A380 doesn’t have years to “sit around and wait” for premium demand to rocket back.
Now everyone has an opinion and everyone certainly has a right to an opinion…but there are some irrefutable facts…
1-B748I sales are basically non-existent.
2-A380 sales are basically non-existent.
3-Basically half of the carriers which have purchased the A380’s have either pushed back, are trying to push back or don’t want their A380’s (as in TG’s case)-or some combination thereof.
As the old adage goes…”money talks and b.s. walks”…..and one thing for sure, money certainly isn’t going into VLA orders.
12. Chris Wallace | July 20th, 2009 at 19:19
It will be interesting to see if a prolonged drop in premium cabin sales and revenue would actually help the 747-8 vis-a-vis the 777-300ER.
The 777-300ER supplanted the 747-400 because it:
a) carried as many premium cabin seats
b) carried less Economy seats so yields rose through less supply to meet demand
c) more cargo hold volume and a high maximum payload weight
d) sufficient range at MZFW to meet most missions
The 747-8I flies as far at MZFW as the 747-400, but offers 40t more MZFW overhead. It will also carry many more seats than a 777-300ER, offer 7t (10%) more maximum payload, and similar cargo hold volume. And with the GEnx engines, it will be between 10-20% more efficient than the 747-400, which should narrow the gap to the 777-300ER.
So we could see some of that 77W backlog swapped for 747-8s.
13. Falcon | July 20th, 2009 at 22:04
So we could see some of that 77W backlog swapped for 747-8s.
Chris Wallace
OMG That statement on this site is like cursing in church but I think your logic is right.
14. Dougloid | July 20th, 2009 at 22:10
As confirmed by Wal-Mart, Best Buy, IKEA and many others…. Not.
If you want oats, pay the price. If you’re satisfied with oats that have already been through the horse, they’re cheaper, Falcon.
15. Rob | July 21st, 2009 at 02:29
Ed and Mike (comments 7 & 8), my point was that the airlines who demanded (quite rightly) compensation from Airbus when the A380 was alte are now going to be paying to defer, especially given their aggressive stance towards late fees thmselves.
Which gives Airbus some form of income whilst they struggle to sort out their own production issues. Could be an absolute godsend for Airbus, having someone pay whilst they rectify processes etc.
Mike, I’m guessing you’ve never been on the commercial side of things, these customer variations usually provide a major source of margin for providers. Penalty interest, payment for standdown time, payment for all sorts of things, and the paymetns are based on hypotheticals which are usually in the provider’s favour - I’m guessing Airbus are charging penalties based on full hypothetical rates which may not have eventuated.
That’s the real world logic.
I look forward to your next hyperventilating rant.
16. Leelaw | July 21st, 2009 at 02:31
“The problem is the B748I and A380 doesn’t have years to “sit around and wait” for premium demand to rocket back.”
Even if there’s a recovery in “premium demand” there is little hope that the VLA programs of the OEMs will ever generate anything approaching a reasonable rate of return on the enormous investments required to fund them. If the OEMs are indeed commercial enterprises, then time value of money considerations alone will dictate that these programs wither on the vine before the end of the next decade.
17. Ryan | July 21st, 2009 at 08:04
Hey Falcon, To put it into an airline persective, you should include Ryanair.
Dougloid reminds me of a kid who starts to play a game and then wants to change the rules when it is no longer going their way.
People will point out that things were different 40 odd years ago but I find history often repeats itself. To that end, did not the original 747 have a slow start before things “took off”?
18. Leelaw | July 21st, 2009 at 08:08
“these customer variations usually provide a major source of margin for providers. Penalty interest, payment for standdown time, payment for all sorts of things, and the paymetns are based on hypotheticals which are usually in the provider’s favour - I’m guessing Airbus are charging penalties based on full hypothetical rates which may not have eventuated.”
This argument would be more plausible if demand was strong and other customers were clamoring to take up the deferred delivery slots. However, if you’re attempting to maintain existing backlog in a down market it’s doubtful there will be strict enough enforcement of penalty clauses sufficient to even approach covering the cost of maintaining the logistical and production infrastructure at low rates of production.
19. Leelaw | July 21st, 2009 at 08:33
“..did not the original 747 have a slow start before things “took off”?
No, this is an urban legend, at the same point in time after program launch where the A380 currently stands (approximately 100 months), Boeing had delivered about 240 747s and had surpassed projected deliveries for financial break-even (200 units). That was a “slow start” compared to…?
20. Rob | July 21st, 2009 at 14:20
Leelaw (#18):
If demand were high then the argument would be weaker as it would be argued that Airbus suffered no damage (or more accuratley a lesser quantum of damage).
In law you must be able to demonstrate loss in order to claim damages, if the production slots were easily laid off to other customers then damages would be minimal. As such the current situation supports maximum damages because of the low demand you mention.
Airbus were rightly on the receiving end of damages claims, now I am guessing they are recouping those losses to teh greatest extent possible.
21. Leelaw | July 21st, 2009 at 14:45
If you believe Airbus is squeezing blood out of turnips in the current market conditions I’ll leave you to your fanciful notions about legal remedies. They are most likely forgiving the penalties to avoid outright cancellations and maintain their backlog.
22. Jacobin777 | July 21st, 2009 at 14:54
@Chris:
Yes, the B748I does offer many benefits over the B744 (as the A380 does), however, just like the A380 over the B744 and the B748I over the B744, those seats really need to be filled to make a difference. The B748I does have excellent cargo capabilities however.
Regardless, I just don’t see where sales are going to come from, especially if carriers such as TG say they would have a hard time even with an A380 on a particular route when they are already sending 2xB744’s on those very routes.
@Leelaw:
We basically agree for the most part. Fortunately for Boeing..
1-The B747 program has done well overall.
2-Some B748 costs can be amortized with the B787 program (though I know some here might disagree).
3-The B748F has been the “saving grace” for the B748 program, and for Boeing, while selling a plethora of B748I’s would be nice, its not a necessity for the program to have a +ROI.
4-It certainly puts a huge amount of pressure on A380 margins.
Apropos Leelaw, apologies about not being able to make it out to Chicago/Milwaukee to see the Big Bird.
23. Falcon | July 21st, 2009 at 19:07
@Dougloid
If you’re satisfied with oats that have already been through the horse, they’re cheaper, Falcon.
How the hell did you come up with that garbage? Most of the products are exactly the same and even the “house brands” are more often than not made in the same factories, by the same people and to the same standards.
@Ryan
Ryainair is a good example but since this site hates them I decided not to use them.
@Jacobin777
1-The B747 program has done well overall.
It certainly has but past performance is in the past and it is only the expected results from this point on that matter to a programs viability and thus continuity or not.
2-Some B748 costs can be amortized with the B787 program (though I know some here might disagree).
Whatever is done for both programs not only can but should. Moving costs from one program to another violates GAAP and thus violates SEC rules that Boeing is bound to follow as a publicly traded company. There is leeway in how things are allocated but only so much.
3-The B748F has been the “saving grace” for the B748 program, and for Boeing, while selling a plethora of B748I’s would be nice, its not a necessity for the program to have a +ROI.
If the 748i’s cost more to develop and manufacture than the revenue they bring in then it would have been better not to do them. Assuming for a moment that is the case the program is so far down the road that it is probably less costly to continue and manufacture the frames that have been sold and get the revenue for them than scrapping it.
4-It certainly puts a huge amount of pressure on A380 margins.
But somehow the A380 did not put pressure on Boeing products or made them spend billions on a model upgrade???
24. Erik Bloodaxe | July 21st, 2009 at 19:09
Rob you assume that the two instances are not connected. When the reality is they ARE. When Airbus screwed the pooch, not once but 3 times, they lost the ability to whine at the Airlines about delays.
Additionally, the airline industry is not like other industries. The OEMs try very very hard not to piss off the customers as opposed to an comoditized industry where a customer is a dime a dozen. Don’t like Acer, buy a Dell, don’t like Dell buy a Mac etc; they don’t care some sucker will be there to fill your space. Airliners aren’t like that.
Your theory about Airbus jumping with glee over the prospect of extra revenue due to airline delays is not, and never has been true in the airline industry.
25. Leelaw | July 21st, 2009 at 20:14
“Your theory about Airbus jumping with glee over the prospect of extra revenue due to airline delays is not, and never has been true in the airline industry.”
Additionally, it’s quite possible Airbus waived some or all penalties for customer delivery deferrals otherwise provided for in the liquidated damages clauses of the sales contracts as non-cash sweeteners when making settlements with customers back in 2006-07 for Airbus’ breaches of contract.
26. Aotearoa | July 21st, 2009 at 22:47
Quoting Leelaw | July 21st, 2009 at 14:45
“If you believe Airbus is squeezing blood out of turnips in the current market conditions I’ll leave you to your fanciful notions about legal remedies. They are most likely forgiving the penalties to avoid outright cancellations and maintain their backlog.”
Leelaw, I think you’ve hit the nail square on the head with this one.
27. Rob | July 22nd, 2009 at 03:53
I wouldn’t say “jumpin with glee” but if they don’t seek redress then a whole raft of managers should be taken out and shot.
I guess it has to come out at some point, will be interesting to see how they have handled it.
28. Dougloid | July 22nd, 2009 at 04:41
How the hell did you….etc etc etc
Falcon, keep a civil tongue in your head. Respect me, everyone else, and the good fellow who provides this forum-he did not provide it so you could pretend you’re on a.net dodging the moderators.
All the chains you mentioned make their money by ratcheting down the price they pay vendors and buying in huge quantities from China.
Their model is NOT cut the price and make it up on volume although on superficial analysis that’s what it may appear to be. They get their margin out of squeezing the vendor.
I’m speaking from the standpoint of operating a small to medium size business..
Are you self employed? Do you operate a business? What do you know about retail?
29. Well Said! | July 22nd, 2009 at 06:16
Falcon, keep a civil tongue in your head. Respect me, everyone else, and the good fellow who provides this forum-he did not provide it so you could pretend you’re on a.net dodging the moderators.
Thank you @Dougloid for maintaining civility here and the proper level of discourse omitted by Falcon.
30. ikkeman | July 22nd, 2009 at 07:31
28. Dougloid | July 22nd, 2009 at 04:41
that does beg the question of why Boeing outsourced so much of the 748 & 787 to Italy and Japan.
They may not be the classical low cost area’s - but divesting your non-core business to severall suppliers does allow you to put the squeeze on them (and I’m pretty certain Italy and Japan govt’s were willing to sweeten the deal).
Airbus (tried to do) did much the same by selling/expelling several factories.
I’m seeing both integrators trying to reduce cost and squeeze the margins. Might that be something like a general rehearsal for the upcoming narrow-body update?
31. Erik Bloodaxe | July 22nd, 2009 at 16:04
Ikkeman,
It’s a simple answer… because that is what MD did. When MD took over Boeing the mantra became “do everything with someonelses money”. This now shows quite clearly that Boeing is adrift. The problem with outsourcing to such an extent, with out doing the due diligence on exactly who you are outsourcing to, and what their capabilities REALLY are, not just the powerpoint they showed you, is that you become trapped in a cycle of failure. The root cause of Boeing’s problem on 787 is failure of management to understand what they were actually doing in outsourcing. They just figured they could throw things over the fence and the “partners” would deal with it. Nevermind that the “partners” weren’t capbable or didn’t have the incentive to deal with it. Prime example is Vought.
Additionally, we have completely disfunctional managment that is either incompetent, or blatant liars. It just boggles my mind that nobody has yet lost their job over this disaster. Until that happens, BA is a $10 stock.
32. Jacobin777 | July 22nd, 2009 at 18:12
@Falcon
It certainly has but past performance is in the past and it is only the expected results from this point on that matter to a programs viability and thus continuity or not.
I do have to agree there. What has happened in the past with the B747 program doesn’t really have too much of a bearing anymore
Whatever is done for both programs not only can but should. Moving costs from one program to another violates GAAP and thus violates SEC rules that Boeing is bound to follow as a publicly traded company. There is leeway in how things are allocated but only so much.
However, Boeing doesn’t really need to tell us how much of it is done. Companies, even in this day and age are more than capable of “financial shenanigans”.
If the 748i’s cost more to develop and manufacture than the revenue they bring in then it would have been better not to do them. Assuming for a moment that is the case the program is so far down the road that it is probably less costly to continue and manufacture the frames that have been sold and get the revenue for them than scrapping it.
1-I’m sure Boeing was expecting (or at least had a good idea of) more sales of the B74I. Right now they have 20+20 with LH and a handful of -I BBJ’s. With freighters, they have approximately 100 frames or so. Boeing was probably looking to sell 200 of the B748’s (I+F combined). I don’t think that would have been too bad and is quite realistic at the time.
2-Even if Boeing figured they might lose “some” money on the B748 program, at least it certainly does kill Airbus A380 margins (which would traditionally be their biggest profit margin plane)
But somehow the A380 did not put pressure on Boeing products or made them spend billions on a model upgrade???
It was based on Boeing’s “angle”..the converse holds true as well.
Regards..
33. ikkeman | July 22nd, 2009 at 19:48
31. Erik Bloodaxe | July 22nd, 2009 at 16:04
nobody lost their job? they’re on track to lay off 10000 this year… But I get your point.
34. Falcon | July 23rd, 2009 at 14:10
@Dougloid
Falcon, keep a civil tongue in your head. Respect me, everyone else, and the good fellow who provides this forum-he did not provide it so you could pretend you’re on a.net dodging the moderators.
You should have let those thoughts govern yourself before you made the claim that products sold at Wal-Mart etc. are equal to horse manure. I was restrained by only calling your statement garbage instead of taking a dump on all products sold by the largest retailers in the country. That you called it “oats that have already been through the horse” doesn’t make it civil.
All the chains you mentioned make their money by ratcheting down the price they pay vendors and buying in huge quantities from China.
Their model is NOT cut the price and make it up on volume although on superficial analysis that’s what it may appear to be. They get their margin out of squeezing the vendor.
I’m speaking from the standpoint of operating a small to medium size business..
The model most certainly is to cut prices to attract customers and use volume to make it work.
In my first reply to you I said that cutting price and raising volume isn’t enough and you touched on one of the many things they do to make that model work. Optimized transportation is another major part and keeping minimum inventory with frequent restocking from suppliers another.
Are you self employed? Do you operate a business? What do you know about retail?
I work with a small group of people who help take companies to the next level. Often that means taking someones idea and commercialize it. Sometimes it means taking a small business and making it larger.
I have spent a lot of my time in the computer distribution business where in the beginning you had high margins and in the end sold at loss hoping to achieve enough volume to qualify for rebates and from that make a profit. That company went from being a small one country distributor to a fortune 500 company. My role was mainly in ERP and logistics.
More related to retail we setup US based R&D and China based manufacturing of products mainly sold to Toys R Us, Wal-Mart, Best Buy, Circuit City and other large retailers.
I have also helped a Dominican stitching operation change in to a full yarn to finished goods operation and got them in to Wal-Mart.
Another of our projects was with one of the largest supply chain companies where I held a pre-sales position. Most of the large retailers use their SW to optimize inventory and transportation and several of them to set local prices.
Personally I have been involved as owner with a US based wine importer sold about 5 years ago, a UK based wine distributor, a US based ISP that I sold a year ago and through my family several restaurants the biggest operating 15 kitchens and serving a total of 15,000 meals a day but the smallest averaging just 30. I am about to close on a vineyard which is my next personal project. Growing up I worked in several of my relatives stores, shoes, watches, etc.
Very little direct in retail but very close and most dependent on it. Does it at least equal your knowledge from operating a small to medium size business?
@Jacobin777
However, Boeing doesn’t really need to tell us how much of it is done. Companies, even in this day and age are more than capable of “financial shenanigans”.
They don’t need to tell us much but that is why there is a requirement for external auditors. Sure there a far to many examples of them not doing their job and companies deliberately doing things in the believe they will never be found out but at large it is working.
35. Erik Bloodaxe | July 23rd, 2009 at 14:43
Ikkeman, the 10K are workers, not managers. Serfs if you will, not the “captains of industry” that were the ones who are directly responsible for Billions in cost over runs, years of delay, and immesurable losses in reputation and good will.
Lining up 10000 people who had not one smidgen of responsibility for the disaster and kicking them all to the curb is just another symptom of the problem… not the cure.
36. ikkeman | July 23rd, 2009 at 23:18
35. Erik Bloodaxe | July 23rd, 2009 at 14:43
as I said (and I did intend a smily for emphasis… must not have come through) i get your point. thanks for bludgeoning it to death.
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