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Derived Demand in the Air

When discussing supply chain management, marketers often refer to an important concept called "derived demand". Demand for an ingredient, component, or packaging is derived from the manufacturers that need these things to make finished goods. That demand is, in turn, derived from wholesalers, retailers and of course, ultimately, from the end user. So even suppliers should have an interest in monitoring the consumer market.

Image result for boeing and airbus 

Indeed the unprecendented boom in air travel over the past several years has resulted in demand for more airplanes; and the industry's duopoly, Boeing and Airbus, is responding by ramping up production in a very big way. Global economic growth, which is robust at the present time, coupled with increased competition from budget airlines has helped create the most rapid global expansion in air travel ever seen. Airlines have also benefited from low fuel prices which are largely the result of unprecendented increases in oil production, especially here in the U.S. The "fracking revolution" has helped airlines deliver double digit growth rates in profits, and demand for airplanes is making the folks at Airbus and Boeing very rich indeed.

 Image result for airplanes in a line

But many airlines will have to wait for their new planes to be delivered. Both Boeing and Airbus already have wait lists of several years, as they are both already producing at capacity. Airbus, for its part, delivered over 700 planes in 2017 alone. Perhaps this would be a good time for another major jet maker to emerge and provide much-needed competition. If that happens, it would further drive down prices all along the supply chain, which would encourage even more derived demand.


Discussion: Is it likely that another competitor will emerge on the scene? What are some of the barriers to entering the jet manufacturing industry? Are there any negative issues involved in increasing the level of air travel?