The 787 Dreamliner is not the first time Boeing (NYSE:BA) has raised the bar. It's done it before with the majestic 747 that changed the face of long distance air travel when it was introduced. Sadly, now the iconic creation is facing the threat of gradual extinction. The once idolized plane isn't attracting airlines like before. Will the 747 die a slow death? Or can it get a new lease on life.
Looking back in time
In the late 1960s, Boeing made history by creating the biggest aircraft in the world, the 747, in just 16 months. The jumbo jet, known as the Queen of the Skies, was the first wide-body jet ever manufactured. It could carry far more passengers and cover a greater distance than all other aircraft at the time. The first commercial flight hit the skies in 1970. Boeing built three variants of the colossal plane, a passenger version, a cargo version, and a convertible model that could be flown either as a passenger plane or a freighter model.
When the 747 program was launched, very few people could afford international travel. But the advent of this wide-body jet brought about a change, making long flights more economical for carriers. Airlines were able to reduce fares, which in turn increased passenger traffic. In the 1980s, airlines rushed to place orders for 747-400 wide-body.
Boeing boasts its 747 fleet has flown more than 42 billion nautical miles -- a stretch that can take you to the moon and back 101,500 times. The American major also takes pride in the fact that the 747 has served more than 5.6 billion passengers across the globe.
The turning point
For decades, the double-decker, four-engine plane reigned the skies, dramatically transformed air travel, and better connected the globe. However, in 1988 engines became so advanced and dependable that government started permitting planes with two engines to fly across oceans. This paved the way for Boeing's 777 and Airbus A330, to emerge as alternatives to the 747 for long-haul routes. These were instant hits, and now both the aero majors are building the successors of 777 and A330 to gain more traction in the long-haul market.
A slump in the cargo market and limited requirement for large passenger planes also affected demand for the 747. The passenger version accommodates 380 to 560 seats, and can be an airline's money-making machine as long as its capacity is utilized to the maximum. But if it is under-booked, it can hurt the bottom line. Business passengers favor connecting flights over direct flights, as plane fares are much lower. A 747 needs 63,000 gallons of fuel costing around $200,000. When the cost is apportioned among lesser heads, it significantly pulls up the cost per seat.
Fuel cost is a constant headache for airlines as it generally accounts for more than 33% of operating costs. The four-engine jet is a fuel-guzzler, making it an extremely costly and undesirable proposition. Advanced technology of the newer planes has ultimately caught up with the 747, killing its demand and creating pricing pressure.
Can 747-8 help its cause?
In 2011, Boeing rolled out the 747-8 with better engines and a longer fuselage hump than its predecessor 747-400. It had hoped that this upgraded version would perk up sales of the 747 family, but reality fell short of Boeing's expectations. With twin-engine planes going the distance and saving fuel, airlines turned a deaf ear to this four-engine jumbo in spite of the updates.
In 2013, Boeing was forced to cut the production rate of the 747-8 twice in six months because of weakness in the cargo market. The plane is currently being produced at the rate of 1.5 a month, or 18 a year, well behind the annual production rate of 122 in 1990.
But Boeing is not giving up yet. The latest sale of 747-8 Intercontinental to Lufthansa in July made 747 the first ever wide-body aircraft to accomplish a delivery milestone of 1,500 units. Though the company's 777 (more so the introduction of 777X) is perceived to be cannibalizing the jumbo's demand, Boeing feels 747 has a place of its own as it's of a different size, and once the air cargo situation improves, Boeing expects the aircraft will perform better.
The company is planning to modify the 747-8 to make it more attractive for carriers. It's going to introduce technical upgrades and pitch the aircraft more aggressively. Boeing wants to increase annual production by 17% with the hopes that it can woo Asian and European airlines for the passenger versions and that the freight market will pick up by 2016. The aero major is engaging airlines to improve the 747-8's features under "Project Ozark". Changes could include a better range -- from 7,700 nautical miles at present to 8,200 nautical miles; and aerodynamic improvements.
That's not all. Boeing has another smart strategy up its sleeves. It repurchases older versions of 747s from carriers, hoping that they would order 747-8s. The strategy has been successful to some extent.
Foolish last words
The 747 is a revolutionary model that changed the face of aviation, but Boeing isn't ready to put it in the past just yet. Boeing's marketing chief Randy Tinseth says that 747 sales were negatively affected by the economic slump, and is optimistic of a turnaround. Through the 747-8 technical upgrade plan and the 747 buyback program, the company is hoping to drive demand and put the Queen of the Skies back on the throne.
Warren Buffett’s worst auto-nightmare (Hint: It’s not Tesla)
A major technological shift is happening in the automotive industry. Most people are skeptical about its impact. Warren Buffett isn’t one of them. He recently called it a “real threat” to one of his favorite businesses. An executive at Ford called the technology “fantastic.” The beauty for investors is that there is an easy way to ride this mega-trend. Click here to access our exclusive report on this stock.
ICRA Online and Eshna Basu have no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.