Global Strategy for Airbus Company for 2012-2016 - Case Study Example

A REPORT OUTLINING A RECOMMENDED GLOBAL STRATEGY FOR AIRBUS COMPANY FOR 2012-2016 Name of Student: Student No: Date: Name of Supervisor: INTRODUCTION Aircraft manufacture is one of these most volatile industries in the world according to Strategic Direction (2004) due to all the factors that impact on the company’s profits. Within the large commercial aircraft manufacturing sector, there are two major rivals; Boeing and Airbus. When it comes to manufacture of small commercial jets, a segment that is important to both, this duopoly is being challenged by other players. These players include state owned and subsidised outfits in Russia and China, and firms in Japan, Canada and Brazil (Harrison, 2011). That being said, the last thirty years have seen the competition between Airbus and Boeing turn into an epic battle over the imponderables that propagate volatility. This paper will be an examination of the critical issues that face Airbus in its bid to outdo the competition within the next five years (that is 2012 to 2016). Once these are identified, I as the International Strategy Consultant will report on what marketing strategy can be utilised in order to grow in the wide body aircraft market, and maintain our market niche in the small commercial jet sector. We shall begin with the state of Airbus as it stands today and the issues and challenges that it faces. Secondly we will examine the international forces and technical innovations that may act as bottlenecks or facilitators to the growth of Airbus and finally, come up with a business model that will outline the international strategy for Airbus in the next five years, that is 2012-2016. Airbus has come of age after a long struggle with recognisable achievements of attaining some of the market share of its competitor, Boeing. The question becomes whether the marketing strategy we provide will be sustainable given the turbulent times ahead in aircraft manufacture. CHALLENGES AND ISSUES THAT FACE AIRBUS According to the Economic Times (2010), the Airbus’ latest jetliner, the A380 had a new problem. There was apparently risk of oil leaks from a defect in as much as 40 of the Rolls Royce engines which drive the fleet. This was made apparent when the Qantas A380 exploded in an oil fire on the 4th of November 2010 according to the same article. The explosion caused metal shrapnel to blast holes in the wing, causing damage to a structural beam, causing control lines to be cut, penetrating two fuel tanks and setting off a domino of system failures. Thanks to the strength of the plane and the skill of the pilot, over 450 passengers landed safely. However, a reconsideration of design and location of electrical wiring would have to be done, and this would cause delays in delivery of the 2011 orders. This is borne out by the year to august orders and deliveries schedule as seen on the airbus website (2011) which shows that while they had orders for 236 A380s, only 54 have been delivered as compared to the A300s/A310s where 816 have been ordered and the same number delivered. Product innovation is crucial to survival in any industry and Mairesse and Mohnen (2005) illustrate this through their survey on the significance of Research and Development for Innovation in which results showed that it would positively impact upon the bottom line. This is the key to the success of Airbus which has introduced several aircraft within the same period of time. This includes the A310 and A320, which are twin crew and fly-by-wire aircraft respectively (Campos, 2001), the A330 and A340 which are family concept aircraft and the A380. From these has grown a dozen varying aircraft based on the same model allowing Airbus to create in twenty years a product portfolio that took Boeing thirty five years to attain. The group of aircraft it commands enables Airbus to offer lower operating costs for airliners and this is the core of its success (Merluzeau, 2004). The two year delay in the launch of Airbus A380 has been a setback for the financial health of the firm, pushing it back into the black (Gow, 2008). The launch prices were also slashed by as much as 35-40% (Rothman, 2008) making the breakeven point rise to about 420 aircraft according to a BBC (2006) article. The aircraft concept for airbus is another challenge because few airports are able to accommodate the A380s and thus these only service the main hubs such as LHR, FRA and LAX. Last but definitely not least is the issue of emissions. Even though the aviation industry has reduced green house gas emissions stemming from jet fuel by 70% in the last 40 years, they are still a major contributor to global GHG emissions (Clark, 2008). SOLUTIONS The IATA forecasts for 2005-2009 predicted a 5.6% growth rate annually for international passengers and the international freight tonnage to grow by 6.3% (AAGR). This data was compiled through examination of the total expectations outlined by airlines for major routes. According to a press release (June, 2011) Airbus, after forty years of innovation has shifted its focus to the next fifty years with emphasis on the customer growth in air transportation. The Paris Air Show at Le Bourget Airport in France this year saw the new Concept Cabin introduced by Airbus as the way of the future. This cabin has features such as personal zones including vitalising, interface and smart-tech sections where business meetings or games or relaxation can occur all with a view of the earth beneath through a biopolymer membrane which negates the need for windows. These innovations follow up on last year’s Concept Plane which aims to reduce emissions, waste and noise through various technologies. These may not be functional as yet, but they represent the direction in which airbus wishes to go (airbus.com/presscentre). These innovations should go some way toward repairing the damage to reputation caused by the explosion of the oil engine in 2010. Furthermore, as the leading aircraft manufacturer, Airbus aims to focus more on the customer, gain commercial experience and become the leader in technology and manufacturing efficiency as the cornerstones that have boosted its status to the number one aviation company in the industry according to its Global Market Forecast for 2011. This reports that with 3500 aircraft in the order book as of December 2010 with an on paper value of 480 billion USD, the market share for Airbus consistently remains at 50% of all commercial business agreements signed. The forecast goes on to announce 10000 airbus jetliners ordered worldwide with 6500 delivered. As to the question of GHG emissions, a partnership was formed between Airbus and Honeywell, IAE and JetBlue to innovate a sustainable 2nd generation biofuel for commercial aircraft. This has been motivated by Airbus’ desire to ensure that profits continue to be made without harm to the environment. This joint effort is aimed at developing technology that converts vegetation as well as algae-based oils into jet fuel. BUSINESS MODEL Porter’s Five Forces of Competition Framework. This figure as illustrated below outlines the variables that impact on the bottom line of a company’s business profile. Airbus has many factors that influence its success but for purposes of clarity, we can utilise the framework developed by Michael Porter of Harvard Business School (Porter, 1980) that has been widely used to analyse industry. This framework measures profitability as defined by rate of return on capital as compared to its outlay of capital relative to the five forces of competitive pressure. Competition from Substitutes; the price that customers are willing to pay for products is dependant largely on their range of alternatives. When there is an absence of alternatives as in with the A380 would mean that there was inelasticity between price and demand. The threat of entry of new player in the aviation industry is inhibited by the cost of start-up. Thus the duopoly between Boeing and Airbus in the large passenger jet industry is protected. Figure 1: five forces of competition framework Taking these factors into account, it is apparent that Airbus would be wise to focus its future strategy on maintaining the competitive advantage it has by keeping one step ahead of the competition in terms of aircraft innovation, customer service and technical ability as well as enhancing its reputation for delivery by ensuring that future concepts are extensively tested prior to introduction in the market to avoid situations such as the 2010 blast that caused a stain on its reputation and compromised customer service due to delay in orders. This could be done by introducing pre-testing concepts that would see aircraft undergo actual flights using autopilots and with the plane weighted to simulate full capacity. The automated flight would then be conducted over various distances to examine the performance of the plane under actual flight conditions. With the soft loans offered by the governments of Germany and France that do not require repayment until the planes are sold (Harrison, 2011), this should be a workable exercise. The Business Model for Airbus would then look like the table below: Figure 2: Business Model for Boeing 2012-2016 CONCLUSION To comprehensively develop this business model at each level of the value chain has proven to be a challenge. However, it is obvious to see that one element of the plan is dependent upon those that come before it. For example the core capacities of Boeing including the innovation and production of family aircraft would not be possible without the financial networks that Boeing has developed over the years. Therefore, it would be fair to say that the business model is one point on a sliding scale. Some of the trends that we shall enumerate include competition with Boeing that has seen a lowering of pricing creating a reliance on high sales in order to break even. This risk is offset by the loans and subsidies that ensure the continued operation of Airbus due to demand for payment not falling due until planes are sold. Thus the core of future strategy would be the sale of more planes through increased reputation for reliability and maintenance of niche markets as well as increased fuel efficiency that maximises customer attraction due to increase in efficiency of use and reduction in GHG emissions. . REFERENCES Airbus. (2011) Airbus for analysts. Retrieved 1st October, 2011 from http://www.airbus.com/tools/airbusfor/analysts/ Airbus. (2011). Airbus looks ahead to 2050 and beyond 16 June 2011. Retrieved 1st October, 2011 from www.airbus.com/presscentre BBC. (2006). Market challenges facing Airbus' giant. Retrieved 1st October, 2011 from http://news.bbc.co.uk/go/pr/fr/-/2/hi/business/4482105.stm Campos L. (2001). On the Competition between Airbus and Boeing. Air & Space Europe Clark, E. (2008). Airbus and Honeywell team up on alternative fuel Aero Gizmo Magazine Economic Times. (2010). Airbus superjumbo facing engines problem international business Global Market Forecast 2011-2030. Retrieved 1st October, 2011 from http://www.airbus.com/company/market/forecast/ Gow, D. (2008). Think Italian, act global. The Guardian. Retrieved 1st October, 2011 from http://www.guardian.co.uk/business/2008/may/14/globaleconomy.europe Harrison, G. J. (2011). Challenge to the Boeing-Airbus Duopoly in Civil Aircraft: Issues for Competitiveness. Congressional Research Service Mairesse J. & Mohnen, P. (2005). The Importance of R&D for Innovation: A Reassessment Using French Survey Data, the Journal of Technology Transfer, Springer, Vol. 30 (2_2), pp. 183-197 Merluzeau, Michel. (2004). Boeing vs. Airbus: The Market will Tell, not the Press Offices, Frost & Sullivan Porter, M.E. (1980). Competitive Strategy: Techniques for Analysing Industries and Competitors. 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