Airbus A350 XWB: A Move in the Right Direction

As anticipated, Airbus announced a new A350 XWB (Xtra Wide Body) family of aircrafts at the Farnborough International Airshow on Monday. The family includes the A350-800 (270 seats in 3-class configuration), A350-900 (314 seats), ultra-long range A350-900 (314 seats), A350-900 freighter and A350-1000 (350 seats). The new aircrafts will feature a new fuselage that can accommodate nine-abreast seating and promise better operating economies than the Boeing B787 and B777 families. Illustrations released by Airbus indicate that the A350 may resemble the B787!

Airbus’ future product lineup and the competitionInterestingly, Airbus announced no aircraft for the 200 to 230 seat market. Airbus will discontinue the A310 from mid-2007 and its smallest wide-body is the popular A330-200, which can set 250 seats in 3-class configuration. So does not offer a competition for the B787-800, which has captured 281 of the 404 orders for the B787 thus far. If Airbus expects few other airlines to order aircrafts of this size in the next few years, it can shrink the A350-800 at a later date to cater to this market whenever demand arises.

Clearly, the new fuselage and cockpit sections are a break from the Airbus tradition of sub-system commonality. Towards 2010 or so, I expect Airbus to announce discontinuation of its A330 and A340 families in favor of the A350 family that will directly compete against Boeing’s B787 and B777 families. The A350 is an enhanced replacement for the twin-engine A330 and the four-engine twin-aisle market seems to have dried-up as poor sales of the A340 in the last two years have indicated.

Home Depot: On Governance and Investors’ Interests

On the eve of Home Depot’s [HD] annual shareholders’ meeting, a front-page article in the New York Times estimated CEO Bob Nardelli’s compensation at $245 million since 2001. The article presented ties among board members and pointed to most of the compensation committee being active/former chief executives. Investors had been increasingly upset about Bob’s and other executives’ compensation vis-à-vis the poor performance of the company’s stock.

Media outlets reported that none of the directors of the company except for Bob Nardelli attended the shareholders’ meeting and that Bob did not allow for detailed comments: microphones were shut off after the one-minute restriction for investors’ comments! A follow-up article [$] in the New York Times quoted frustrated investors describing their experience as “appalling,” “disgraceful” and “arrogant.”

The company later stated that most of the company’s directors were in Atlanta (where Home Depot is headquartered) on other company business. In my opinion, the Board is essentially a group of trustees who represent shareholders’ interests and interface with the management. Given these responsibilities, what other than attending the annual shareholders’ meeting could constitute important business? As expected, the entire Board had attended last year’s shareholders’ meeting.

The company can do a better job with respect to governance. I hope Home Depot takes appropriate steps to connect executive compensation with stock performance and financial performance, better representation of investors’ concerns and requiring that the entire Board attend shareholders’ meetings.

In March, Fortune magazine ranked Home Depot 13th among America’s most admired companies; it will be interesting to see if Home Depot drops in next year’s ranking.

The eBay-Yahoo! Deal: More to Come?

Yesterday, eBay [EBAY] and Yahoo! [YHOO] announced a long-term alliance in four areas: (1) search and advertising, (2) integrated online payments using eBay’s PayPal, (3) a co-branded toolbar for browsers, and, (4) developing “click-to-call” advertising functionalities. This move was inline with speculations made by a much-cited JPMorgan research report released earlier this week.

Clearly, this tie-up has a win-win potential for both eBay and Yahoo!. However, I wonder if this is a half-baked deal.

  • eBay’s primary business stream is auctions. Here, I see plenty of opportunities to consolidate and leverage each other’s strengths: in Japan, where eBay is absent, and in Europe, where Yahoo! is weaker. eBay (through EachNet) and Yahoo! (through Alibaba-Taobao) fiercely compete in the China auctions market. A consolidation will clearly lead to a market leadership in China.
  • The payments deal expands the reach of the PayPal payment service and prepares eBay for a competition with Google Payments. However, this payment service can to be expanded beyond the United States. Again, PayPal competes with Yahoo! and Alibaba’s AliPay payment system in China.
  • The third eBay business stream is the Skype communication suite. Consolidation of Skype with Yahoo! Messenger can create opportunities for a broader customer base, efficiencies and consolidation of development efforts.
  • The search and advertising deal can be expanded to other markets outside of the United States.

Yahoo! and eBay offer largely complementary services in most markets. I speculate that Yahoo! and eBay will eventually merge by taking the above initiatives and create a stronger global e-commerce leader.

Emigration from Mexico: Long-term solutions

Last week, as part of its reporting on the debate on immigration legislation and Mexican President Vicente Fox’s visit to the USA, the San Francisco Chronicle pointed out to estimates that “roughly 10 percent of Mexico’s population of about 107 million is now living in the United States.” Clearly, there aren’t enough appealing jobs in Mexico to contain this emigration.

Over the last two decades, the economy of Mexico became increasingly dependent on that of the United States, especially since the free trade agreement (NAFTA) came into effect in 1994. Given its proximity to USA, the northern region of Mexico became a huge manufacturing base, exporting a substantial portion of output to the USA.

The slowdown in the US economy between 2000 and 2003 coupled with the relocation of labour-intensive industries to China and the attractiveness of Asia as a recipient of foreign investments had a significant impact on the Mexican industry.

Mexico is expected to have a general election within a few weeks. The new government can embrace liberalization by focusing on improving the country’s infrastructure and education and by providing incentives for growth and investments across Mexico.

As Newsweek points out, Mexico can explore its geographic advantage to attract industries that need quicker responses and industries where transportation costs on bulky products can cancel out relatively lower production costs in Asia. The government can explore additional export destinations in Europe and South America.

Further, American corporations are focused largely on the booming the consumer markets in India, China and elsewhere in Asia. Appropriate incentives and an improved economy can attract attention to the consumer market in Mexico. The resulting surge in industry and domestic economy could easily contain this emigration.

Respect the Competition

In business, as in sports or work-life, it is essential to possess a mature sense of respect for the competition. The recent arguments between US Airways [ LCC] and JetBlue Airways [ JBLU] form a case in point.

JetBlue recently announced services between New York JFK and North Carolina in direct competition with services offered by US Airways. As part of this announcement, JetBlue’s CEO David Neeleman commented, “… until now, the people of North Carolina have overpaid for sub-standard service.” This was a direct attack on US Airways, which has a strong presence in these routes.

In response, Doug Parker, the CEO of US Airways, addressed employees “upset by these remarks” as follows; read the full response here.

First, I know David pretty well and I can assure you he is a genuinely good person. That he chose to make such a remark is probably indicative of the stress that JetBlue is under and we should not take his remarks personally.

He then explained the problems JetBlue faces and compared JetBlue’s offerings with his company’s.

It doesn’t appear that our customers are overpaying; rather it appears that passengers aren’t willing to pay JetBlue enough for them to be profitable.

JetBlue is struggling mightily and the hard working employees of US Airways are a big reason why. Rather than get upset by their comments we should keep them in context … US Airways is going to be here long after JetBlue.

… we will compete aggressively, we will focus on running our own race and we will win. Thanks so much for taking care of our customers and please keep it up.

When faced with a competitor’s unfavourable remarks, it is tempting to confront and bad-mouth the competition. In such circumstances, employees look forward to directions from a company’s leadership. Often, blowing out the competition’s candle to make one’s shine brighter can backfire, create ill will among employees and lead to loss of customer respect. In his message, Doug Parker sets a clear competitive tone by first uttering words of respect for the competition and then explaining the circumstances involved.

In the intensely competitive airline industry, front-line customer service is a critical differentiator. Customer service consists of a series of interactions that customers have with employees: ticketing agents, gate agents and flight attendants. Evidently, JetBlue has a reputation for better customer service. Doug sends a clear message to boost the morale of his employees and motivating them to deliver superior customer experiences.

Clearly, Doug Parker’s respectful and pragmatic approach exudes a winning attitude. The trust and confidence in his message appeals to employees, customers and the competition.

Google Romance: Beyond All Fools’ Day

On All Fools’ Day, Google [GOOG] announced, as a joke, work on its Google Romance online matchmaker service. Isn’t the company serious about opportunities the ‘contextual dating‘ service presents?

What would attract users to migrate from Yahoo! Personals or Match.com or the other dating websites? The search technology used to match profiles is probably mature: profiles are searched by matching well-defined fields and by searching profile descriptions. Google could supplement this matching mechanism by incorporating tags or by allowing users to rank or provide feedback on profiles they view based on whatever criteria.

Building a large user base will be critical. Three of my colleagues consider the $25-$35 monthly fees they pay for the above services an overcharge. A free service or low fees can attract a significant user base to Google Romance. The popularity of the search engine, any unique features, and clever marketing (allowing users join by invitation only, as with Gmail) can help too.

Clearly, Google Romance presents an enhanced opportunity for Google’s AdSense program. With personal details of a user and profiles of potential partners a user is looking at, it could target more specific, more meaningful ads based on age, gender, diet preferences, likes, location, etc. Further, the service could easily be integrated with Talk, Gmail, maps, local search, etc. and keep users engaged within the Google grid of services.

It is hard to imagine Google not being serious about this potential revenue stream.