This is going to be a long guys so bear with me but it's been brewing up for a while.
The proposition that the world cannot have both a successful VLA market for aircraft such as the A3XX and 747 as well as a booming mid size market for planes such as the 777 and A340 has consumed gigabytes on this site but seems to me to be the aviation equivalent of assuming that you can't walk and chew gum at the same time.
Both markets are different and both are needed. They are not mutually exclusive.
The world aviation market is growing at a phenomenal rate and will continue to do so for the forseeable future. Even a high oil price cannot dampen this. Accordingly we need more planes to satisfy this growth. In the VLA v 777 debate the question arises as to whether this growth will be in existing city pairs or new pairs. This whole argument seems spurious as there is no doubt the growth will be in both.
As the market grows new city pairs will become viable and planes such as the 764, 777, A330 and A340 are ideal in servicing these markets. Exactly which plane is best suited obviously depends on a number of factors but it is fair to say that there is a viable market for each of these types, just not all in the same fleet.
At the same time there is a market for the 747 and A3XX. Whilst there is growth in new city pairs there is no proof that this will lead to a falling off in demand for the high volume routes of the world currently serviced principally by the 744 or high frequency 763 services. These include routes such as JFK-LHR, SYD-LAX, SIN-LHR, HKG-LHR, JFK-NRT etc. In fact it could be argued that many of these airports are already at capacity and future growth in pax numbers has to be via bigger planes because there are no more slots. You can't build more airports or runways as there is no land and it is politically tricky even if there was. You can't fly in extended hours as the many of these airports have curfews and even if they didn't not many people would be keen about getting to the airport at 2.30am for a 4am departure.
The upshot of all this is the argument as to whether people want frequency or capacity on these super routes is a fallacy. There is no option for increased frequency only increased capacity so there is a market for VLA. As to whether these VLA end up with inflight hairdressers etc or are loaded to the gills with Y class seats is undecided but the lack of airport space will eventually mean the latter is more likely.
There is an argument that over-supply may never be a problem for Airbus and Boeing. It could be the reverse and there may be a shortage of production slots at Seattle and Toulouse. As well as catering for this booming world aviation growth there will soon come a time when the ageing world fleet has to be replaced. Many of the aircraft flying in the world today are much older than their designers ever intended them to get. Safety concerns such as the wiring problems in just about everything made more than 10 years ago, environmental concerns such as the noise produced by the older planes and economic concerns that the thirstier older planes are fast becoming unviable all conspire to suggest that the need for new planes will continue to grow. The question as to how some of these less well off airlines will afford their new fleets is another question.
So the upshot of all this is there is a market for both the medium size planes and the large planes.. as well as just about every other size you can think of. The question as to whether the dominant manufacturer ends up being Boeing or Airbus is probably also irrelevant and owes more to nationalism than anything else. Both will be viable as they are the only established players in a market where the barriers to entry are higher than just about anything else (maybe excluding PC operating systems).
..Gee I'm glad I got that off my chest.
717, 721/2, 732/3/4/5/7/8/9, 742/3/4, 752/3, 762/3, 772/E/W, 300,310, 319,320/1, 332/3, 359, 388, DC9, DC10, F28, F100, 142,143, E90, CR2, D82/3/4, SF3, ATR