Boeing/Airbus Evaluation

MBA 654 Case 10. 1 Boeing & Airbus Robin Grouette 1. The overall strategy for Boeing seems to be focused more on customization and efficiency rather than size. With the focus of the 787 Dreamliner being that of long range with smaller passenger capacity, Boeing is anticipating that more direct routes to international cities will be developed rather than the typical hub and spoke routes which currently dominate the airline industry.Airbus’ overall strategy is focused more on the hub and spoke routes as well as improving efficiency. The A380 has utilized new materials in both airframe and wing compositions which have not been seen in Boeing’s products. The A380 also relies heavily on travel between concentrated hubs of passengers to ensure capacity is not underutilized. Airbus does seem to be playing a bit of catch-up in announcing the A350 for a 2012 release as it is positioned to compete directly with the 787 from Boeing.The ways in which both strategies are different w ould be the focus of Airbus on centralized hub and spoke routes for airlines (major city to major city) and creating larger aircraft to support their strategy, as compared to the decentralized connectivity to international destinations (smaller cities connected to smaller cities) which Boeing believes to be the coming evolution of air travel. The similarities in both strategies focus around efficiency and range.Almost the entirety of both new product developments for both companies have seen significant increases in flying distance in comparison to previous models. Also, with the rising cost of fuel, the efficiency of design and materials has been become more important. Airbus has developed its product line in response to the strengths and weaknesses shown by Boeing. An example would be the A320 family which was introduced 20 years following the 727/737 models from Boeing.All models involve smaller capacities and ranges which would suit regional and national travel. Airbus also deve loped a medium range/capacity A300/310 model to compete with the 757 and 787 from Boeing. In both the small range/capacity and medium range/capacity, Boeing had a long established dominance in model acceptance as well as an ability to provide upgrades in technology and efficiency at a smaller cost to replacing the entire plane, which left Airbus at a disadvantage.Where Airbus’ real advantage came in the long range/large capacity segment which had only been serviced by the 747 from Boeing. With the introduction of the A330/340 in the late ‘80’s as well as the A380 in 2008, Airbus is anticipating the need for long distance, major hub connections throughout the world rather than having smaller cities having the ability to have direct flights to international destinations . 2. The product lines for both companies fall into three categories: short range/small capacity, medium range/medium capacity, long range/large capacity.Both companies have four models in the short range/capacity segment, Airbus has 2 models in the medium range/capacity segment to Boeing’s 3, and Airbus has 2 models in the long range/large capacity to Boeing’s 1. The sales for each segment is dominated largely by Boeing with 9632 units sold between 1970 and 2005 in comparison to the 5797 that Airbus sold in the same time. While being dominated in the small and medium segments, Airbus has been exceeding Boeing in the long range segment since the 90’s.In terms of technology, both firms are making advances towards efficiency as well as fly-by-wire controls. While Boeing models have been established for quite some time, Airbus has utilized their late entry into the industry by incorporating the latest technology into their products. Aircraft were originally designed with direct mechanical systems, meaning that when the pilot depressed a pedal in the cockpit, the corresponding surface on the airplane would react by how hard/fast the pedal was depressed.In mode rn aircraft, this mechanical system has been replaced by a fly-by-wire system which an electrical signal is sent to the surface from the cockpit, rather than a mechanical one. Airbus has been utilizing this technology exclusively in their products, whereas Boeing has had to create upgrade packages for their existing products to switch to the new technology. Airbus has made a leap in material component technology which Boeing has not, in the Lithium/Aluminum body composition as well as carbon fiber wing construction for the new A380.Overall I believe that the Boeing approach to a more decentralized, medium capacity aircraft with long range and high efficiency will prove to be the better product line. Airlines are creating more direct flights to international destinations and having the ability to have a larger percentage of capacity utilized on the medium capacity planes will make the 787 more desirable to airlines as they continue to evolve. 4.The overall economics of the industry i s one of stiff competition supporting an industry which has been struggling to make a profit for the last decade. Both companies are competing for the limited capital available to their customers to provide new products while at the same time, staying current with evolving regulations around noise and efficiency. Also, both companies are competing on a wide variety of factors for all three sales segments so creation of new products to meet customer needs are both costly as well as risky.The importance of government subsidies for both companies is paramount. This helps transfer the financial risk of new product development across more participants. While Airbus gets directly subsidized from a number of European governments, Boeing is indirectly subsidized through their military contract business. Boeing’s issue with the direct subsidies are that they can be directly traced to the commercial aircraft industry while their indirect military subsidies are harder to uncover.In the end, both companies are being subsidized by government funds. While the level of subsidization may not be exactly the same for both companies, making an issue about the only other competitor in the industry receiving a subsidy while you are as well comes across as a double standard. 5. New products are developed by creating very long range forecasts and anticipating the evolving needs of their customers before they may even realize them; all at a tremendous R&D cost to the developing company.While most of Boeing’s products were developed in the 60’s and 70’s, they really hadn’t come out with anything new until 2006 and then again in 2010; whereas Airbus has had a more consistent release of new products since the 80’s. The major trade-off between fuel efficiency and cost are based on the ability to upgrade existing models over the improved technology and materials in the newer models. Since Boeing has had an established product line for a longer tim e than Airbus, they are able to compete by selling upgrade packages to improve technology and fuel efficiency rather than having to replace the entire plane.While this has worked for Boeing in the past, this approach may have stagnated the creative drive of designers in coming up with new models, which Airbus has been doing. The A380 may not be a serious threat to Boeing, depending on how the global airline industry adapts to more people flying. If the hub and spoke method which is currently employed persists well into the future, then Boeing could be at a disadvantage to Airbus as their large capacity 747 is almost 50 years old and there are no current plans to replace it.On the other hand, if airlines start offering more direct flights from a wider variety of cities, the 787 Dreamliner is excellently positioned to take advantage of both longer ranges as well as smaller passenger requirements for profitability. 6. There will be new competitors entering this industry either directly or indirectly. Direct competition could be developed in Asia as more and more people use air travel as well as an increase in skilled labour. Indirect competition could also evolve from privatized space travel.While currently only found in science fiction, the ability for aircraft to travel semi ballistic is not far off. Having the ability to travel tremendous distances at greatly reduced times would be a major draw to people who use airlines for international business. Boeing needs to be aware of the progress of the privatized space flight industry as well as any potential competition from Asia. This means more investment into technology around fuel efficiency as well as materials and systems. When Boeing offered upgrades on their 747, they reduced the total crew required from 3 to 2, saving $400,000 per year in operating costs.If they could further reduce crew requirements to a single pilot, it would provide significant operational savings to their customers. The future of the co mmercial aircraft industry is bright. Air travel is the safest and fastest way for people to travel long distances. With evolutions in engine and plane design, the models will only get faster and more efficient. The key for each company is to not wait to see what the other is doing, but to invest in both market research and technology to stay ahead of the other.