Airbus A 380: SWOT and Porters Five Forces Analysis - Case Study Example

INTTRODUCTION This paper is about the European Aero manufacturer, Airbus and its latest offering, the Airbus A 380. Much has been written about theAirbus A 380 and how it is the next generation of aircraft that makes it easier for long haul flights to carry more passengers with fewer or no stops enroute. After the Airbus A 380 was introduced, many called it a revolution in air travel with its emphasis on luxury travel as well as better amenities for economy class travel. In this paper, I look at the Airbus 380 from a critical perspective by analyzing the competition and using tools like SWOT and Porter’s Five Forces. STRATEGIC POSITION In this section, I look at the strategic position of Airbus in the context of the parameters that have been laid out below. The aim is to provide a longer term perspective to the development of the A 380 aircraft. THE WIDER ECONOMY With the ongoing economic slowdown, Airbus can expect some of its customers to defer deliveries of aircraft that were ordered prior to the recession. Further, with the cost of fuel going up and expected to remain at higher levels, people’s inclination to travel might be dampened leading to further demand depression. Considering the fact that the Airbus A 380 is primarily a long haul aircraft which is suitable for trans-continental travel, the demand for these aircraft would be from the airlines that have a capacity for long haul and long distance flights. Added to this is the fact that there need to be airports around the world where the Airbus A 380 can land. This is contingent on the airports having longer runaways and bays that can accommodate the Airbus A 380. With many countries in the developing world still at a stage where this capability is not present, the Airbus A 380 may face some issues in this regard. COMPETITORS Airbus A380 vs. Boeing 747 The wide body 747-8, as the current new development of Boeings largest airliner, is notably in direct competition on long-haul routes with the A380, a full-length double-deck aircraft now in service. For airlines seeking very large passenger airliners, the two have been pitched as competitors on various occasions. The table below gives the break up of the features of comparison between the Airbus A 380 and its nearest competitor, Boeing 747-8. The Airbus-Boeing rivalry can be compared to the Coke Pepsi rivalry and in both cases, the stakes are high and each of the rivals tries to undercut its competitor using all means at their disposal. This includes involving the governments of the US and the EU to aid their respective causes by means of subsidies and lobbying. The lobbying of the countries of the developing world by Airbus and Boeing often takes the form of inducements and quid pro pro’s contingent on the willingness of the countries to buy aircraft from these companies. The price of Airbus A 380 is in the range of 200- 220 Million USD whereas that of Boeing is in the range of 180-200 Million USD. CUSTOMERS One of the first airlines to order and use the Airbus A 380 was Singapore Airlines. In fact, Singapore Airlines ordered the aircraft much before the actual roll out o the aircraft began and was also the first to use the Airbus A 380 on a commercial basis (the first flight using the Airbus A 380 was o October 25, 2007). Apart from Singapore Airlines, Emirates and Qatar Airways are some of the other prominent customers. There are other customers like the aircraft leasing companies etc. As of 2009, the company has an order pipe of around 200 aircraft to be delivered over the next 2-3 years. The company plans to deliver most of these in phases and in 2009, it has already delivered around 14 aircraft. However, what is worrying for the company is that many of the orders are being deferred or put off and cancelled as happened with the freighter version of the A 380. Another cause for worry is the fact that many of the customers are still cagey about ordering the Airbus A 380 and hence Airbus may have to ramp down its production and delivery schedule in the future. REGULATION Airbus has been in the news for its run-ins with the regulators like the WTO (World Trade Organisation) where the rival aircraft manufacturer, Boeing had field a case against the European Union for giving subsidies to the company illegally. Airbus responded with a counter petition asking the US government to stop preferential support to Boeing. As with any industry where there is a near monopoly by the lead players, in this case Airbus and Boeing, there is bound to be regulatory pressure from time to time. The revenues of the two aircraft majors run into the billions and hence, this is an industry that is competitive to the core and prone to preferential treatment from their respective governments because of the number of jobs that these majors create and the benefits to the ancillary industries that are spawned for the supply of parts to these companies. TECHNOLOGY Airbus pioneered the concept of what is known as the “fly by wire” method of piloting the aircraft. What this means is that the later generations of Airbus aircraft starting with the A 320 could be flown with minimal guidance and intervention from the pilots and the technical crew. Though this does not mean that the pilots are not needed, it is nonetheless an important aspect that the aircraft can go on “auto pilot” whenever desired. This comes in handy when there is rough weather or the landing conditions are inclement. The Airbus A 380 was built using the composite materials for the aircraft. This gives extra strength to the wings and underbelly and mitigates risks of accidents involving these parts. It can be said that building an aircraft is like a piece of art and the thousands of parts that go into the aircraft have to fit in with each other and the margin for error is non-existent as human lives are at stake. SWOT ANALYSIS In this section, I do a SWOT analysis of the Airline Industry with specific focus on Airbus. The Strengths of the industry lie in the fact that there is a possibility for Air travel to grow at a faster pace with increasing globalisation and accent on travel to and from destinations across the world. Airbus is well placed to capitalise on these trends where passengers would opt for travel in luxury and on board a modern marvel. The weakness of the industry is that it cannot ramp up at short notice and needs a lag time before deliveries can take place and orders fulfilled. Airbus has carved a niche itself by having faster turnaround though the same cannot be said for the A 380. The opportunities for the Airline industry are the rapid increase of long distance aircraft and an emphasis on carrying more number of passengers in the same flight. This means that there is demand for aircraft that can carry more number of passengers at one go and the A 380 is perfectly poised to take advantage of this. Further, with the economy class passengers becoming conscious of more leg room and wider seats which the A 380 can provide, this is indeed an opportunity for this kind of aircraft. The threats to the industry are from the ongoing economic slowdown that might depress the demand for long distance travel and there has been an impact on the A 380 with some deliveries deferred and others cancelled. PORTER’S FIVE FORCES PESTLE ANALYSIS A Political, Economic, Social and Technological, Legal and Environmental factor analysis yields the facts that the political environment as discussed in the section related to regulatory composition indicates that both Airbus and Boeing are supported by their respective governments to compete with each other. The Economic factors may not augur well for Airbus and Boeing as the ongoing economic slowdown might prove to be a dampener for their expansion plans. The social factors are favourable as there is a renewed interest in the way in which people want to view long distance travel by luxurious planes and the preference for non-stop travel that is gaining popularity among the passengers. The technological factors certainly favour Airbus more than Boeing due to its massive investment in R&D and its emphasis on making its planes according to the latest technologies. The legal and environmental factors are the same as that of the regulatory and the political factors. UNFORSEEN RISKS While Airbus may have anticipated some of the strategic risks from its competitor, Boeing, there is a good possibility that the risks arising out of the ongoing economic slowdown may not have been anticipated fully. Combine this with the fact that the Oil prices are going to be volatile over the next few years leading to an increase in cost of air travel and hence fewer passengers opting for travel by air. Given the fact that the Airbus A 380 is an aircraft that operates on an “economies of scale” model wherein the numbers are crucial to the success, it is likely that this category of risk needs to be examined and appropriate contingency plan factored into the strategy. CONCLUSION The Airbus A 380 is a marvel in terms of its design and conception as a flying machine. Apart from the curiosity value that drew in large numbers of people wherever the aircraft was displayed and the advance bookings that it generated for the flights that it operated, it remains to be seen whether it would make the transition to becoming a fully incorporated aircraft in the stables of the airlines of the world and it would be aircraft of choice for passengers on long haul flights. What is evident is that the Airbus A 380 represents the next generation of travel and is a harbinger of a new era in the history of air travel. Sources Product Viewers. Airbus Website. Retrieved Nov 3, 2009 from: http://www.airbus.com/en/aircraftfamilies/productcompare/ Technical Backgrounder. Airbus Website. Retrieved Nov 3, 2009 from: http://www.airbus.com/crisis/aircraftdesc.html The Boeing Family of Planes. Boeing Website. Retrieved Nov 3, 2009 from: http://www.boeing.com/commercial/747family/747-8_background.html Fact sheet from Airbus website. www.airbus.com Fact sheet from Boeing website. www.boeing.com Air tanker deal provokes US row. BBC Online. Retrieved Nov 3, 2009 from: http://news.bbc.co.uk/2/hi/business/7272272.stm Read More