Boeing Should Go Beyond Commercial Airplane Market Given Private Jet Travel Growth

| About: The Boeing (BA)
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Boeing (NYSE:BA) stock almost doubled in 2013 after revenue grew nearly 20 percent the year before. 2012 was indeed an abnormal year of strong plane deliveries for the company, a jump of more than 25 percent vs. a mere 3 percent increase the previous year. However, business in 2013 seems to have returned to its normal activities and saw revenue expanding by only about 6 percent, a number somewhat in line with Boeing's long-term forecast of the 5 percent growth rate per year for passenger and cargo traffic. Air travel and air cargo growth in the airline industry is of course what drives Boeing's commercial plane making business. During 2012, Boeing stock was rather flat when revenue in the prior year 2011 also increased by only around 6 percent. Coupled with a cautious outlook for 2014, the newly released lackluster 2013 results may well foreshadow a weak stock performance in 2014 for Boeing investors.

For some reason, major plane makers including Boeing may have not fully benefited from recent years of global economic development and the resulting air travel growth, both locally and internationally. The commercial airplane market is highly competitive despite its heavy barrier to entry. The fierce rivalry between Boeing and Airbus (OTCPK:EADSF) has prevented either from gaining meaningful market share as both companies can offer a family of similar products and have access to the same customers and suppliers in each other's home market and elsewhere internationally. Furthermore, certain changes in the airline industry have had unfavorable effects on the selling price of airplanes. For example, market deregulation that allows low-cost airlines to directly compete with established legacy carriers have resulted in downward pressure on airfares and thus, cost constraints for all airlines. This in turn has forced airlines to negotiate lower purchasing prices with plane makers when ordering new airplanes.

The competitiveness of the commercial airplane market may have gotten even more intensified with the entering of some smaller regional jet makers amid recent global travel growth. For a long time, Boeing and Airbus enjoyed a near duopoly in the market for larger commercial airplanes. But now, coming from making less than 100-seat commercial jets, regional jet makers such as Embraer (NYSE:ERJ) and Bombardier (OTCPK:BDRAF) are also developing larger and more capable airplanes, most of which directly challenge the Boeing 737 and Airbus A320, two dominant medium-range airliners. Because of the competitive pricing by regional jet makers, some airlines have already chosen regional jet makers' less expensive models in place of 737 and A320, a popular airliner type in many airline companies' fleet. Regional jet makers are also suppliers of private and business jets that have seen much higher flight growth compared to scheduled commercial flights that use larger Boeing and Airbus airplanes.

According to a New York Times article on private jet growth, long-range flights in business travel via private jets grew 18.7 percent in the first 10 months of 2013. It's probably an aviation market with the most growth potential as economies around the world continue their interconnected course. With its experience in ultra-long-range plane making, Boeing could easily devote resources to develop smaller jets with far-reaching capabilities to capture the growing demand in private jet travel by international business travelers. Private jet travel may be a symbol of luxury, but equally worthy of noticing. It's a means for convenient travel arrangements. From a business stand point, business people and corporations can afford the cost of having the convenience of private jet travel so that they can be at their business meetings on time and in some cases, reach places where scheduled commercial flights do not fly.

As more individuals and corporations directly own private jets, there has been the formation of the private jet travel service market. Companies such as NetJets, a private jet travel company owned by Warren Buffett's Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B), purchase jets and manage private travel services for their member customers. There are also major commercial airlines now flying private jets. For example, Delta (NYSE:DAL) Private Jets offers both private jet travel service to its own customers and private jet management for outside clients. The company provides its Jet-Card members guaranteed private jet travel availability as well as managing aircraft for third-party private jet owners, which can help ease logistical concerns of many potential and existing private jet owners.

Boeing has always paid close attention to the commercial airline industry whose well-being obviously influences Boeing's own finances. But new air travel developments beyond traditional commercial air travel are something Boeing cannot afford not to heed either. Costing from several million dollars up to 90 million dollars, just shy of the average 100 million dollar mark for commercial airplanes, private jets may offer promising sales increases for Boeing if it decides to fully take advantage of the growing private jet travel market.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.