Comparison of Boeing Corporation and Airbus - Essay Example

Word Count: 2840 Case Study on Boeing The current aircraft industry consists of a duopoly that includes Boeing Corporation and Airbus. Both organizations provide the majority of aircraft that are used in the airline industry worldwide. Boeing has chosen to focus its strategy on the 'point to point' market. These aircraft consist primarily of 110 seaters and larger. Airbus vies for the same market but focuses on the 'hub and spoke' method. This paper focuses on both Boeing and Airbus and their strategies for future growth. It is assumed that the reader knows the difference between 'point to point' and 'hub and spoke' air travel. 1. Boeing Corporation's forwarding looking market strategy is based on assumptions about the air travel market and the equipment (aircraft) needed for continued growth. Boeing's projections assume that the current fleet of aircraft will need to be upgraded and retained or replaced. The current fleet consists of 17,330 aircraft. By 2025 the fleet will have an estimated 35,970 aircraft consisting of 27,210 new or replacement aircraft, and 8,760 retained aircraft. Future growth and the need for replacement aircraft will drive the aircraft industry's competitive market (Showronski, p1). Boeing will need to be able to provide new aircraft that are both efficient and economical. Boeing's new large aircraft segment is marketing both one and two aisle airplanes with the focus on the new 747-8 Intercontinental and 747-8 Freighter aircraft. This is in contrast with Boeings 'point to point' strategy that focuses on smaller aircraft that serve the purpose of moving people and cargo from one point to another rather than to a central location where cargo and passengers would deplane and board a smaller plane to reach their destination (hub and spoke strategy). Boeing's successful market entry of their 747-8 Freighter and 747-8 Intercontinental aircraft prove that Boeing can compete in the larger aircraft market. Boeing's first customer was Lufthansa who ordered 20 of Boeing's 747-8 Intercontinentals (Showronski, p1). Boeing's success, using the 'point to point' method of getting passengers to their destinations, is based upon the idea that passengers prefer the shorter travel times that 'point to point' service offers. Boeing offers the airline industry aircraft that are best suited to 'point to point' travel. These aircraft are typically larger than those used in the in the typical 'point to point' market. Boeing's current strategy includes gaining a large portion of the projected 2.6 trillion in airplane investment opportunities over the next twenty years (Showronski, p1). Boeing's leadership believes that by entering the large airplane sales and service market they are positioning themselves to be leaders in the industry by providing an aircraft that will best meet the needs of customers. Boeing's current strategy also includes continued sales and service of five other sizes of aircraft to serve the 'point to point' market. It is hoped that carriers will continue to choose Boeing aircraft as aircraft of choice for their business. Boeing's five sizes of aircraft are designed to meet all aspects of the 'point to point' market with carriers that have 200 seats up to carriers that seat 467 passengers. Currently Boeing is the only one in its industry with an airplane that can carry more than 450 passengers at a time (Point-to-Point, 2006). The 747-8 is used primarily by carriers that offer long range high density routes (Point-to-Point, 2006). The 747-8 is designed to be a replacement for older 747's that will be phased out of service during the next twenty years (Point-to-Point, 2006). With Boeing's entry into the large carrier market came requests for an airplane that was environmentally friendlier than its previous airplanes. The 747-8 was created with environmentally friendly features. The 747-8 uses less fuel and "produces lower carbon dioxide emissions" (Point-to-Point, p2). Also, the 747-8 makes 30% less noise on take-offs (Point-to-Point). Because Boeing listened to its customers it was able to produce an aircraft with features that its clients wanted. This added up to more sales for Boeing. Boeing's customers needed a larger aircraft to transport more people at one time. This allowed the customers to use less take-off slots, realize lower landing and navigation fees, and tally fewer airport emissions charges (Point-to-Point, p2). The diagram below shows, that despite 'hub and spoke' popularity, 'point-to-point' strategy has a natural time advantage. Circular Market Figure 1 "Starting at 12 o'clock, the P2P carrier can fly in both directions. The hub firm must fly through the center. The P2P carrier thus has a natural flight time advantage over the hub firm for all flights up to x1 and x2 which together constitute 64% of all flights." (Ball, p12) 2. Airbus S.A.S. is considered a threat to Boeing as it has the potential to create, and market, an aircraft to compete with Boeing's 747-8. The Airbus 380 will prove to be competition for Boeing. The A380 is the largest air passenger jet on the market and has the monetary support of several European countries (Boeing is a free standing business that does not receive funds from its government to support growth). The Airbus 380 is designed to carry up to 840 passengers and can fly "15,000km non-stop between Europe and Asia" (BBC News, 2005). But, because of production delays, the A380 still is not in service. The delivery of the first A380 to Singapore will be in October of 2007. The A380 is way behind schedule. These delays have caused Airbus to fall behind rival Boeing. Figure 2 From BBC News Airbus's strategy includes marketing to carriers that use the 'hub and spoke' method of moving passengers and cargo. This method moves large numbers of passengers and cargo from one hub to another and then transfers passengers to smaller airplanes (spokes) that fly to passenger destinations. Although slower than the 'point-to-point' method it is a cost effective method of conducting business. What these carriers require are large aircraft to complete the hub to hub portion of travel and smaller aircraft to fly the last stage of passenger travel (spokes). Airbus's gamble is that carriers will choose the A380 for the hub to hub traffic (especially for transatlantic or transcontinental service). Boeing's gamble is the few will choose the A380 because few airports can support an aircraft of that size. Also, Boeing is gambling that carriers who have invested millions in 'hub-to-spoke' method will reconsider and switch to 'point-to-point. Industry competition is much like a card game. Boeing can look to the past to help determine Airbus' strategies but they don't know what is in the other's hand when it comes to the future. Boeing's gamble is "that the future of the airline business will be in point-to-point nonstop flights with medium-size planes rather than the current hub-and-spoke model favored by Airbus, which is developing the 550-seat A380 superjumbo as its premier long-haul jetliner. Flying point to point eliminates the need for most passengers to change planes, a competitive advantage so long as the aircraft is as comfortable and as fast as a bigger aircraft." (New York Times, 2006) The A380 could prove to be a significant competitor for Boeing if it ever gets delivered. Boeing will need to position itself, within the market, as the builder of choice of medium to large size aircraft. Boeing could improve its marketability by focusing on its history of reliability and service to customers. Boeing can also use the large size of the A380 as a reason not to buy it. Imagine the thought of one A380, with over 800 passengers aboard, crashing. The shear number of victims could be overwhelming. Finally, Boeing could focus on Airbus's problems, such as labor disputes and future layoffs, which could make safety an issue. A case in point: Delta Airlines is continuing to expand and develop its 'hub and spoke' method of moving passengers and cargo. Currently Delta is transporting 30% of the market but forecasts that it will garner 40% of the passenger market in the near future. Because of its usage of 'hub and spoke' one would guess that Delta would be in the market to purchase A380's from Airbus. But that's not the case. Delta currently has 65 new aircraft on order from Boeing. The aircraft ordered range from 737's to 777's. Delta is also purchasing 757 aircraft from other owners (Gunnison, 2007). It may be that Boeing's future depends on widening its strategies to include the 'hub and spoke' business. With the problems Airbus has had with bringing the A380 online Boeing is in the position to garner a larger market share. Competition is competition and Boeing would be best advised to exploit Airbus's weaknesses and market Boeing products by focusing on Boeing's strengths. 3. Information systems development ad business processes used by Boeing are required to ensure Boeing's global strategies and global structures are in alignment. Boeing requires technology management, information systems development, and avionics analysis and certification services. Boeing requires intelligent information systems to support the different aircraft development programs (such as the 787 program). Boeing currently uses Boeing Field as the testing ground for technology required by its aircraft. Currently they have in place a system called: E-Enabling. This system provides a multitude of information system management and communications required for safe operation of aircraft. The technology at Boeing Field is cutting edge technology that will be used at airports where Boeing aircraft fly in and out of. It is hoped that the technology will be adopted by others in the airline industry because it offers a way to create a safer environment for air carrier operations. The Technology is called: Boeing Wireless. The goals of the system are: Major benefits for passengers and crew Airplanes are always connected sending and receiving valuable information Real time monitoring that is predictive rather than reactive Increased revenue Improvements in airplane operational efficiency Increased revenue in his case does not mean more money in the pockets of Boeing leadership but more money available for research and development. The system provides (Mitchell, p7): Value efficiency - availability and reliability - safety and security - passenger experience Applications Airplane Health Management - Electronic Charts - Electronic Logbook - Taxi Positional Awareness - Cashless Cabin - Maintenance Performance Toolbox - Video Surveillance Infrastructure Hardware and Software My Boeing Fleet - Wireless Ramplink - Cabin Wireless - Electronic Flight bag - Network File Server - Core Network Technologies Web Services - Internet Protocol - Wireless Networking - Data Factory - Information Assurance - Advanced Antennae Improved Processes Work Simulation - Value Engineering - Business Architecture - Strategic Process Improvement - Lean - Business Modeling - Information Architecture A generic IS infrastructure that would meet Boeings needs should include a core informations system that provides data management capabilities. This core systems database should have a redundant system located off site. This is a lesson learned from 9-11 when many major financial service firms (like Merrill Lynch and Morgan Stanley) lost all their client data when the Twin Towers collapsed. These firms were left with the task of rebuilding a client database from information provided by branch offices across the country. The Informations System should consist of database management to support all phases of airplane construction including, but not limited to, the following: Process Management Tool Management System Human Resource Management Parts Management System The generic infrastructure should contain a communication system that can be accessed by all Boeing employees, subcontractors, and suppliers. The system should include a security system that allows limited, pre designated, access to the system. For example, flight attendants would not have access to the parts management system. Permissions to use the system should revolve around the 'need to know' system that limits access to systems required to perform an assigned function. This intranet can also be used to manage marketing activities worldwide. Finally, the system should allow access to technicians in the field who maintain and service Boeing aircraft. The system should focus on relationship management when it comes to providing service and support to Boeing's customers. Customers are more apt to purchase again from an organization that has provided positive interactions in the past. 4. Henry Mintzberg gave five definitions for strategies required to compete in business. His five definitions include: Plan Ploy Pattern Position Perspective Each one is critical in defining strategy as understood by Mintzberg. Plan is defined as a course of action or guidelines used to deal with a certain situation (University of Cambridge). The plan is a prepared list of actions required when a certain event takes place. A Ploy is a way to outwit a competitor. A Pattern consists of actions that can be used in different situations. This prior planning of how to handle situations takes the guessing out of 'what comes next.' A strategy is a Position - "specifically a means of locating an organization in an "environment". By this definition strategy becomes the mediating force, or "match", between organization and environment, that is, between the internal and the external context."(University of Cambridge). The last of Mintzberg's five P's is Perspective. The perspective is a chosen position on a situation or how one perceives a situation. Ideally members of the same organization have the same perspective of a situation. The main purpose of Mintzberg's five P's is to allow for a set strategy for dealing with certain situations. It can be compare with Michael Porter's Five Forces which is another way of defining strategy as it pertains to an organization. Porter's Five Forces consist of Rivalry, Supplier Power, Threat of Substitutes, Barriers to Entry, and Buyer Power. Each of these forces provides a different look at a business' strategies. Each of the five forces depends on the others. The five forces gives a guided opportunity to examine different aspects of the business and its position in industry. Boeing can be examined using Porter's Five Forces. The degree of rivalry in this industry is great. Boeing's biggest competitor is Airbus. The two airplane manufacturers seem to trade places as industry leader often. The airplane manufacturing business is a duopoly that consists primarily of two competitors: Boeing and Airbus. Both vie for the international market in medium and large size carriers. Currently Boeing leads in buyer power as consumer confidence rest squarely on Boeing's shoulders. Airbus has been riddled with problems associated with labor and the introduction of the A380. Airbus is late in delivering product to Singapore which positions Airbus behind Boeing. Some carriers have threatened to cancel orders for the A380 because of the problems at Airbus with manufacturing and labor disputes. There are many barriers to entry in the airline manufacturing business. Boeing has a strong position in the industry as a reliable provider of ordered products. As stated earlier, the airplane manufacturing business is a duopoly with two players: Boeing and Airbus. There is no other competition nor does it look like any other manufacturers are planning to enter this market. Supplier power is something we don't hear about that often. Suppliers of parts to Boeing and Airbus play a big part in the manufacturing of airplanes. They can literally shut down manufacturing if they don't receive the prices they request. Because they create parts unique to Boeing aircraft and Airbus aircraft they have tremendous price setting power. Suppliers have a lot of power at the negotiation table as manufacturers need the parts. Buyer power is a force that is driven by competition. Airbus's late delivery of the A380 has opened the door of opportunity for Boeing. Airbus has been threatened by buyers to cancel orders for their A380. And, because this a two business market, those cancellations most probably will turn into orders for Boeing Aircraft. There are very few threats of substitutes in the airline manufacturing business. The only substitutes available to customers are to switch from one major manufacturer to the other. Boeing has positioned itself to take on business that Airbus can't handle. For example, Delta airlines uses the 'hub and spoke' method of providing passenger service and it was assumed that Delta would choose the A380 to expand its service model by creating more hubs. Despite Boeing's emphasis on the 'point to point' strategy Delta chose to go with Boeing to add to their fleet. Conclusion: Boeing is currently the leader in the airplane manufacturing business. Boeing competes with Airbus for clients. There are no other major manufacturers in this industry to provide more competition for Boeing and Airbus. Both Boeing and Airbus market their product to a specific market segment. Boeing targets the carriers that use the 'Point-to-Point' method of transporting passengers and cargo. Airbus targets the 'hub and spoke' market. Despite target marketing Boeing welcomed orders from Delta Airlines (a hub and spoke carrier). Boeing's position in the market as leader is helped by Airbus' problems with bringing to market their A380. Boeing has focused on providing five aircraft of various sizes that fill the industry's need for large and medium size aircraft. Boeing complained to the World Trade Organization (WTO) that Airbus was using unfair business strategies that included subsidies by European governments to fund their business. Despite Airbus' seemingly unfair advantage Boeing has been continually successful in attracting business and maintaining its position in the market sector. References Ball, Christopher. (2005) Department of Economics. Rethinking Hub versus Point-to-Point Competition: A Simple Circular Airline Model. Quinnipiac University. 275 Mount Carmel Ave. - Hamden, CT 06518-1908 BBC News. (2005). In Pictures: A380 Superjumbo. BBC News International Version. Tuesday, 18 January, 2005, 16:31 GMT. University Of Cambridge. Institute For Manufacturing. Department of Engineering. Management Policy Technology. Mintzberg's 5 P's for Strategy. Der Spiegal Online International.(2005) Emergency Exit Test Could Make or Break Superjumbo. May 2, 2005 Issue. Retrieved 2007-05-19 From http://www.spiegel.de/international/0,1518,354366,00.html Gunnison, Liz. (2007). News Blog. Daily Brief. Boeing Vs Airbus, Round 37. Retrieved 2007-05-19 From http://www.portfolio.com/views/blogs/daily-brief/2007/05/10/boeing-vs-airbus-round-37 Mitchell, Timothy. (2006). Crew Informations Systems. Boeing Airport Wireless. Boeing Commercial Airplanes. Retrieved 2007-05-19 From http://www.simlabs.arc.nasa.gov/airport_workshop/downloads/4a2_Mitchell_boeing.pdf New York Times. (2006). You Can't Get There From Here. Tuesday, May 9, 2006. New York, New York. Retrieved 2007-05-19 From http://connectid.blogspot.com/2006/05/you-cant-get-there-from-here.html Showronski, Walter E. (2006). Point to Point. Financial Trends in Commercial Aviation. The Right Product Strategy for Highest Value, Lowest Risk. December 2006 Issue 6. Retrieved 2007-05-19 From www.Boeing.com QuickMBA. (2007). Strategic Management. Porter's Five Forces: A Model for Industry Analysis. Retrieved 2007-05-20 From QuickMBA.com Read More