The Aircraft Manufacturing Industry - Essay Example

Executive Summary
The demand facing commercial aircraft manufacturers for new orders is largely derived from the perceived future demand for commercial aviation. The commercial aircraft manufacturing industry though representing an oligopolistic market structure operates as a near duopoly with main players – Airbus and Boeing. There are few substitutes for the aircraft that they produce and so customers’ choices are limited. The suppliers to the industry have moderate levels of power and are not solely dependent on the commercial aircraft industry for their business. The rivalry in the industry is strong as both companies are trying to control the market. The barriers to entry are high and so very few prospective players are looking forward to entering. The industry is impacted by macro-environmental factors which help to shape demand for its commercial aircraft. The factors that drive demand in this industry include economic growth as measured by gross domestic product (GDP) and growth in regional and international trade. These factors have historically impacted growth in regional and international travel.

With the abatement of the global recession in most regions, it is expected that the demand for commercial aircraft will increase resulting in between 26,000 and 31,000 new commercial aircraft of varying types being demanded. The demand for new aircraft will also be stimulated by the need to replace retiring aircraft with new and more energy-efficient aircraft that burn less fuel and have more capacity to enable increases in revenue per passenger kilometer (RPK). Boeing and Airbus are the major players in the aircraft manufacturing industry and both of them have produced market forecasts for the 20-year period from 2010 to 2029. They both have differences in their estimates of the number of aircraft that will be required to fill the demand for passenger seats during the period. They also have different expectations on whether the point-to-point or hub and spoke is the best strategy to follow as both seek to ensure that whichever philosophy airlines choose, they are not disadvantaged. A SWOT analysis reveals that the companies have significant strengths and will be able to take hold of the opportunities and minimize weaknesses and threats in both the micro and macro-environments. A TOWS analysis model was used to determine what strengths could be used to take hold of opportunities and minimize threats and weaknesses and turn them into opportunities where possible.

Part A
Definition of the Industry and its Structure
The commercial aircraft manufacturing industry manufacture aircraft for the transportation of commercial passengers and freight. The industry structure is oligopolistic with the main players Boeing and Airbus having significant market shares thus making it a near duopoly market. “The oligopoly market is generally considered to be the playing field of big businesses” (Keat & Young 2006, p294). This industry has significant barriers to entry with lots of potential for differentiation. “Part of the control that firms … exercise over both price and output stems from their ability to differentiate their products. But market power comes from their sheer size and market dominance” (Keat & Young 2006, p343).