Airbus and Its Activities in the Civil Aircraft Manufacturing Industry - Case Study Example

Table of contents Sl. no Topic Page no Executive summary 2 2 Introduction 2 3 Main body Critical success factors Airbus and its strategies in the last five years Key resources and capabilities that are used by Airbus Evaluation of the strategies of Airbus 3 – 8 4 Conclusion 8 Airbus and its activities in the civil aircraft manufacturing industry Executive summary This strategic management essay will give an insight about Airbus and its activities in Civil Aircraft manufacturing industry. The first part of the essay will give brief information about aircraft manufacturing industry and the key players. By conducting a Porter’s generic strategy analysis, the critical success factors of the industry are identified. The extent to which Airbus has capitalized on the critical success factors is referred to in the next part. Finally, the strategy adopted by Airbus to capitalize on the critical success factors is analyzed. Introduction Global civil aircraft manufacturing industry in dominated by two major players Airbus and Boeing. Boeing is headquartered in US while Airbus is headquartered in France. Though there are smaller players in the industry from many parts of the world, the industry still stands on the big names Airbus and Boeing. (Xu and Chan, 2008) Sustaining the position of a strongest player in the industry was not a situation that simply happened. But it was a result of continuous innovation and right strategic choices. Airbus has always been successful in making the right strategy for playing well in the industry. The civil aircraft manufacturing industry is a highly sophisticated and high growth industry. The market for civil aircraft is expected to be high in the coming years. With the world becoming a global village people are required to be moved from one country to the other. This necessitates the usage of air travel. With large number of airline companies and fewer aircraft manufacturing companies, Airbus literally enjoys a monopoly in the market along with Boeing. But still, as competition increased, both the companies realized that they need to compete in the industry like any other companies that compete in an industry of larger players. “Airbus’ latest Global Market Forecast provides an industry outlook for the 2009-2028 period, during which it projects a 4.7 per cent annual increase in overall world passenger traffic. The document evaluates how air transport will meet this rising demand – detailing such factors as fleet growth, aircraft size, emerging markets, innovation and the reduction of its environmental impact.” (Airbus, 2010) This research work analyses the critical success factors of civil aircraft manufacturing industry and the strategies used by Airbus in the industry to capitalize on the critical success factors. Main body Critical success factors Innovation: Innovation is one of the critical success factors of aircraft manufacturing industry. Innovation involves developing technologically advanced aircrafts. If Boeing has a better technological feature than Airbus, customers will shift from Airbus to Boeing. Innovation should not only be introduced in terms of products but also in terms of process. Process innovation will help the company in cost reduction. (Nubiz, 2008) Product differentiation: Product differentiation is another critical success factor in the aircraft manufacturing industry. Product differentiation is again an outcome of innovation. Product differentiation can be introduced in the capacity of the Aircrafts. It can also be introduced in the facilities provided inside the aircraft. If Airbus introduces better features in their aircraft and make it distinct from that of Boeing, it can attract more airline companies. Environmental friendly products: As world over discussions are being carried on about green technology, companies in the Aircraft industry should be very keen on developing products that are environmental friendly. Pollution is a cause of concern to every country. Companies in the aircraft manufacturing industry should thus develop aircrafts that are as per the emission control standards set by countries. Better customer service: Better customer service another critical success factor in the aircraft manufacturing industry. Customer service in aircraft manufacturing industry involves timely delivery of aircrafts and timely servicing of the aircrafts. The aircraft manufacturing companies should try to reduce the time gap between the order and actual delivery of the aircraft. Airbus is facing serious difficulty on this front due to the huge size of its order books. Airbus and its strategies in the last five years This part of the essay will analyze the activities of Airbus in terms of the critical success factors. The activities of Airbus for the last 5 years will be analyzed to understand whether Airbus has taken right strategies in terms of the critical success factors. Innovation: Airbus has always been in the forefront in terms of innovation. “At a time when others were concentrating on three- or four-engine aircraft, Airbus entered the civil aviation scene by developing the first ever widebody twin-engine, the A300B, in the 1970s” (Airbus, 2010) Airbus has introduced A300 B, which is the world’s first ever wide body twin engine jet. This represents a more efficient air travel. Passenger capacity was also higher in these kinds of aircrafts. (Blagnac, 2009) Airbus uses ultra light alloys which will help to reduce aircraft weight. This alloy will also help easy maintenance. “Airbus innovation is evident throughout the A330 and A340 passenger cabin as well. Improvements in interior illumination – including the option for mood lighting – provide the right ambience on even the longest flights.” (Airbus, 2010) Passenger comfort is the sole objective of innovation by Airbus. Airbus used lower deck space for sleeper cabins. Product differentiation: Product differentiation is one of the most important factor on which both Airbus and Boeing compete upon. “In todays marketplace, distinct differences in the way competitive products work have become increasingly rare. But functional product differentiation is exactly what the rivalry between the Airbus A380 and the Boeing 787 Dreamliner is all about.” (Elsmar, 2006) An Airbus A380 offer more room than a Boeing 747. But still the operating cost per seat of Airbus A380 is lower than that of Boeing 747. (Verghese, 2010) Airbus is usually bulk in size compare to that of Boeing. The bulk size has often created problems due to requirement of more space in the Airports. Boeing has at the same time differentiated itself by making smaller aircrafts compared to that of Airbus. Therefore Boeing aircrafts have good access to regional airports. Boeing was able to capture more market share due to this reason. Many airline companies preferred Boeing instead of Airbus due to this reason. Though the intention of Airbus was to equip more space and capacity by increasing the size, it has literally resulted in loss of market share. Environmental friendly products: Emission regulations are very strict in almost all countries. Therefore it is mandatory to every manufacturing company that their products should be environmental friendly. Environmental friendly aircraft will simply mean more fuel efficient aircraft and also the one that emit less carbon. “The A319 is 15 percent more efficient than the similarly sized Boeing 737-300.” (Seatguru, 2010) It is mainly the weight of the aircraft that determines the fuel efficiency. “The way the planes will be used may have more bearing. Airbus claims the A380 is more green because it will only fly once or twice a day between hub airports, which will be served by short flights or train journeys from smaller cities.” (Joseph, 2005) The factor that determines the fuel efficiency of an aircraft is the ratio of the empty space of an aircraft to that of the aircraft and its load. As the ratio is reduced the fuel efficiency will increase. A Boeing 7E7 is said to have better ratio than that of an Airbus A380. The A380 – 800 passenger models will generally suppress the fuel efficiency of the aircraft. Better customer service: Customer service is a factor where Airbus is facing difficulty. Airbus is not able to make timely commitments to its customers. “To give the highest-quality support to our international customer base, Airbus has more than 200 customer services representatives around the globe providing on-site assistance, with specialist support teams in Toulouse, France; Washington, D.C., USA; and Beijing, China.” (Airbus, 2010) Proper customer service is also related to the safety of the aircraft. Timely maintenance and servicing should be done by the company. “Be it a normal check or an emergency, the right spare parts always needs to be available quickly in the right place – and at the lowest possible cost. Within the Airbus Group, the Airbus spares support and services division (Airbus Spares), based in Hamburg-Fuhlsbuttel, Germany, handles this task.” (Lawrenz, 2010) Key resources and capabilities used by Airbus The previous part of the essay has shown the strategic choices made by Airbus in the last 5 years. The key resources and capabilities that are used by Airbus for the strategic choice are Information technology, man power and Research and development. Information technology was used highly by Airbus for making strategic choices in the last 5 years. Information technology was used not only in the product development stage but also in every functional areas of business. Airbus is increasingly using RFID for efficient business performance. “Airbus hopes adopting RFID will mean faster inventory management. Mechanics will be able to identify parts faster and record specific data to the parts, cutting down on the administrative burden.” (Claire, 2004) Airbus has also invested heavily in human resources in the previous years. Airbus has sourced human resources not only from its home country but also from other countries like India and China. Airbus has set up R & D facilities in countries like India and China. To sustain in the market and to become the market leader continuous innovation is necessary. As Airbus has invested heavily in R & D facility, it will help Airbus to generate sustainable competitive advantage. Evaluation of the strategies of Airbus This part of the essay analyzes the strategies adopted by Airbus in terms of suitability, feasibility and acceptability. The strategies adopted by Airbus in terms of Innovation, Product Differentiation, Environmental Friendly Products and Better Customer Service are analyzed in this part. Innovation: It is seen that Airbus’s innovations are all aimed at improving the passenger comfort. Airbus has invested heavily in the research and development activities for this. Two years back Airbus was faced with financial problems when compared to that of its competitor Boeing. Due to production and delivery problems Airbus faced with financial problems. The delivery problems was only with the A380 aircraft. “In general, both Airbus and Boeing experience a strong support by the parent companies, whereas Boeing’s outstanding and tightened military division strongly keeps the commercial airplane division on the ground and gives it an edge. In terms of product strategy the strength of the one is the weakness of the other.” (Mayer, 2007) Product Differentiation: The main factor that differentiates an Airbus from that of Boeing is the size of the Aircrafts. Airbus is usually giant in shape. This strategy of Airbus has created problems to Airbus at many instances. Due to the huge size of Airbus A380 many customers opted instead for a Boeing 737. The huge size created problems in accessing the smaller airports. Airbus faced financial problems mainly due to the delay in delivery of A380 aircrafts. Airbus has also focused on equipping many features for passenger comfort. These strategies of Airbus are acceptable in terms of acceptability and suitability. But when it comes to financial feasibility Airbus have to be cautious. Environmental friendly products: Developing environmental friendly aircrafts by Airbus is a highly acceptable decision. When the world is deciding to go green, developing aircrafts that are environmental friendly is also a financially feasible plan. Developing environmental friendly aircrafts will pay off well in the future. Better customer service: Better customer service will help Airbus to a great extend. It is seen that Airbus has invested heavily in the customer support activities. Airbus has already faced problems due to delay in the delivery of A380’s. Though Airbus has to invest heavily in the customer service facility, it is beneficial for the company. This is beneficial for the company because customer service will help Airbus to recoup the lost market. Conclusion This essay has given a deep insight into Airbus and its activities in civil aircraft manufacturing industry. The critical success factors of the industry have been considered strategically by Airbus. From the analysis of the strategies of Airbus it is evident that Airbus has clearly taken the rightful strategies to take advantage of the market condition. But Airbus has to take necessary steps to reduce the delay in delivery of aircrafts. If the company can rectify those problems, it can recoup the lost market share. Boeing has capitalized on the weakness of Airbus by delivering aircrafts at proper times. Therefore, in order to continue to be the market leader in the industry, Airbus will have to focus on these areas. Works cited: Airbus, 2010. Flying Smart, Thinking Big. [Online] Available at: http://www.airbus.com/en/corporate/gmf2009 [Accessed 15 April 2010] Airbus, 2010. From A300 to the A350 XWB: Pioneering Leadership. [Online] Available at: http://www.airbus.com/en/corporate/innovation/ [Accessed 15 April 2010] Airbus, 2010. Operating on the world’s longest airline routes today. [Online] Available at: http://stagev4.airbus.com/en/aircraftfamilies/a330a340/technology_and_innovation.html [Accessed 16 April 2010] Airbus, 2010. A worldwide network for Airbus operators. [Online] Available at: http://stagev4.airbus.com/en/services/global/ [Accessed 16 April 2010] Bnet. 2010. The Porter Competitive Model For Industry Structure Analysis. [Online] Available at: http://jobfunctions.bnet.com/abstract.aspx?docid=83585 [Accessed 15 April 2010] Blagnac, 2009. Airbus represents 40 years of innovation and shaping efficiency. [Online] Available at: http://www.eads.com/1024/en/investor/News_and_Events/news_ir/2009/20090529_airbus_40_lb.html [Accessed 15 April 2010] Davis, Claire, 2004. Airbus expands its use of RFID. [Online] Available at: http://www.allbusiness.com/electronics/commercial-industrial-electronics-radio/10634499-1.html [Accessed 23 April 2010] Dean Xu., Isabella Chan., 2008. Ready to take off (A): The Global Large Civil Aircraft Industry. Harvard Business Review, [Onlince]. 9 September. Available at: http://hbr.org/product/ready-to-take-off-a-the-global-large-civil-aircraf/an/HKU788-PDF-ENG [Accessed 15 April 15, 2010] Elsmar, 2006. Boeing Vs. Airbus – Positioning their portfolio. [Online] Available at: http://elsmar.com/Forums/showthread.php?t=16728 [Accessed 16 April 2010] G., Joseph, 2005. Which aircraft is more environmentally friendly, the Airbus A380 or the Boeing 7E7? [Online] Available at: http://findarticles.com/p/articles/mi_hb3120/is_4_77/ai_n29171716/ [Accessed 16 April 2010] Market Research, 2010. China Other Aircraft Manufacturing Industry, 2010. [Online] Available at: http://www.marketresearch.com/product/display.asp?productid=2601885&g=1 [Accessed 15 April 2010] Michaela, D Platzer, 2009. Federation of American Scientists. U.S. Aerospace Manufacturing: Industry Overview and Prospects. [Online] Available at: http://www.fas.org/sgp/crs/misc/R40967.pdf [Accessed 15 April 2010] Nubiz, 2008. 7 Key Success Factors To Prosperity. [Online] Available at: http://www.nubiz.co.za/7_Key_Success_Factors_To_Prosperity.html [Accessed 15 April 2010] Online Research papers, 2009. Airlines and Strategic Management. [Online] Available at: http://www.freeonlineresearchpapers.com/airline-strategic-management [Accessed 15 April 2010] Olaf Lawrenz, 2010. Airbus Spares Support and Services. [Online] Available at: http://www.m2mpremier.com/UploadFiles/SAPCSAirbusSpares.pdf [Accessed 17 April 2010] Seatguru, 2010. Green Aircraft and Airlines. [Online] Available at: http://www.seatguru.com/articles/green_aircraft_and_airlines.php [Accessed 16 April 2010] Sascha Mayer, 2007. Airbus versus Boeing – Strategic Management Report. [Online] Available at: http://www.grin.com/e-book/87814/airbus-versus-boeing-strategic-management-report [Accessed 17 April 2010] UC Santa Cruz, 2009. Boeing Corporation Analysis Paper. [Online] (Updated May 26 2009) Available at: http://www.soe.ucsc.edu/classes/ism158/Winter05/boeing.htm [Accessed 15 April 2010] Vijay Verghese, 2010. Mirror mirror on the wall. [Online] Available at: http://www.smarttravelasia.com/AirbusVsBoeing.htm [Accessed 16 April 2010] Appendix Porter’s Generic Strategy Analysis of Civil Aircraft Manufacturing Industry The threat of new entrants: Aircraft manufacturing industry is highly capital intensive. It required huge initial investment and also continuous investments in innovation. Though both Airbus and Boeing being the strongest players in the industry, other companies can gradually capture the market share by offering low cost aircrafts. (Market Research, 2010) There are certain Chinese companies that are investing heavily on production of low cost aircrafts. (Platzer, 2009) (Market Research, 2010) As of now small players are concentrated only on Regional Jet (RJ) and General Aviation (GA) sector. They are into continuous research and development activities for developing better aircrafts. Therefore, the threat from these players will be higher in the long run for Airbus. Threat of substitutes: The threat from substitutes is absolutely less for Airbus. There is no other medium of transport that can substitute aircraft. But of course there is threat for domestic air travel from the fast bullet trains. However, this can have only milder impact on the market share of Airbus. Bargaining power of suppliers: One of the major suppliers of aircraft manufacturing industry is the engine manufacturers. (UC Santa Cruz, 2009) This include the big names in the industry like General Electric, Rolls Royce, Etc. Bargaining power of suppliers is lower because there are only few customers like Airbus and Boeing. Bargaining power of buyers: Bargaining power of buyers is lower in aircraft manufacturing industry. There are large numbers of buyers, that is, airline companies and very few suppliers that is, aircraft manufacturing companies. Airbus is one of the strongest players in the industry. Airbus and Boeing are the only suppliers to airline companies. Therefore their bargaining power is very less. (Airlines and Strategic Management, 2009) Intensity of rivalry: There is very intense rivalry between the two players Airbus and Boeing. Airbus and Boeing are equally strong companies. Both of them has more or less similar market share. Both the companies are investing heavily in research and development activities. As they both are the only companies in the civil aircraft manufacturing industry, they compete very fiercely to capture more market share. Read More