Airbus - Boeing Case Study

Table of Contents

1. Executive Summary 2

2. Reasons Boeing cancelled its development of the SuperJumbo 3

2.1. Boeing had an alternative to developing a new aircraft 3

2.2. Boeing already had market share 3

2.3. Boeings market analysis did not show sufficient demand 3

3. Strategic weaknesses in Airbus's customer strategy 4

3.1. Strategic Analysis of Airbus 4

3.2. Analysing resources and capabilities of the organisation 5

3.3. Shaping the organisation through vision, mission and purpose 5

3.4. Customer strategy at Airbus 6

4. Is the Airbus strategy driven by customers? Or rather more by a sense of rivalry with Boeing? 6

5. Airbus's demand estimates and implications for a customer driven strategy 7

6. Support for Airbus's decision to proceed with the SuperJumbo 9

7. Conclusion 10

8. Bibliography 11

1. Executive Summary

Boeing cancelled the development of the super jumbo after it had conducted a research. What informed this decision was the fact that there was no sufficient demand to justify the $7 billion investment. Instead of pursuing further the super jumbo development they decided to stretch their existing aircraft to cater for more passengers. They had no pressure to develop the super jumbo because they had the largest passenger aircratf at the time and had no competition at that segment of the market. This means that the segment of the market was monopolised by Boeing

Airbus on the other hand wanted to penetrate the long range passenger aircraft market. Based on their research they developed the super jumbo, an aircraft that would carry more passengers than their competitors' current largest aircraft. Their decision was informed by the fact that there was a need by customers to invest in an aircraft that would carry more passengers without incurring extra fuel costs. Their decision to continue with development of the super jumbo was guided more by what the customers wanted rather than by rivalry with their competitor. Their strategy was driven by customers.

Since the decision to go ahead with the development of the super jumbo was informed by their customer strategy, Airbus was able to estimate the demand for the aircraft. However, their projected need for the aicraft showed that they will only realise their return on investment after they have sold 250 aircrafts.

The development of the super jumbo signalled a new era in the aircraft market. Boeing's monopoly over the long range market segment was broken and as a results Airbus gained sustainable competitive advantage. Although Airbus will start to make profit around the year 2017.

2. Reasons Boeing cancelled its development of the SuperJumbo

2.1. Boeing had an alternative to developing a new aircraft

The cost of developing a new super-jumbo carried a host of financial risks for Boeing. The development cost was estimated to be around US$7 billion. Rather than investing such a huge capital on a new aircraft Boeing was planning on stretching its current model to extend the number of passengers that it can carry. This means that they took a strategic decision to invest a little capital for huge returns. The idea was tempting based on the fact that the stretched model would carry more passengers with lower fuel consumption and lower maintenance. In addition, this could be achieved in a relatively short space of time and at a relatively low cost compared to developing a whole new aircraft.

2.2. Boeing already had market share

Boeing already had a monopoly in the long-haul aircraft segment and knew that it would take considerable investment by Airbus to enter the market. Since Airbus was their only potential competition in this market, there was no urgent need to develop a new aircraft since they could still satisfy the market with a stretched version of the 747.

Lawrence and Thornton (2005) believe that most potential A380 customers are already Boeing operators and with differences within maintenance and training requirements, it is difficult to change from Boeing aircraft to Airbus aircraft in a short space of time due to the investment already in Boeing fleet. Despite this, Airbus has already managed to take on new customers (eg Emirates) which indicate the need for a newer, more advanced type of craft.

2.3. Boeings market analysis did not show sufficient demand

Perhaps the major reason for Boeing not to pursue the super-jumbo project was the fact that they realised after a survey that there was a very low demand for the super-jumbo. This means that their return on invested will only be realized after a number of years if at all.

Aboulafia believes that the two primary factors in air travel that need to be considered are: Schedule and Geographic location. He believes that passengers will pay for flexibility - ie more flights per week to a greater number of locations. This is very different from the Airbus strategy which is to increase passenger volumes in order to offer financial benefit to the customer.

Aboulafia believes that Airbus was convinced that the 747 was Boeings "cash-cow" and that they needed to introduce the A380 in order to compete. This was in contrast to the increase in market share of the smaller aircraft compared to the 747. Boeings analysis of the current market shows that there is an increase in the medium sized aircraft but where it fails is that in the long term, how they are going to be able to sustain sales when there are increasing pressures on air traffic volumes due to limited airport space.

3. Strategic weaknesses in Airbus's customer strategy

3.1. Strategic Analysis of Airbus

Organisations do not exist in a vacuum but in the context of a complex economic, political, technological, cultural, and social environment. This environment changes constantly and therefore, emergent approach should be adopted to successfully build a sustainable competitive organisation. Since strategy