Tuesday, June 5, 2012

Boeing and Airbus Rivalry – A Strategy Analysis and a Look into the future


Airbus and Boeing have been dominant players in the commercial jetliner market since the last two decades and they have been competing with each other producing safe and cost-efficient aircrafts. Airbus which is backed by the European Union (EU) through subsides and Boeing which is based in the USA form a good example of Oligopoly. It might take several years of planning and large multi-nation financial backing for another major player to compete with them.  An analysis of their strategic plans reveals the fundamental differences in their production philosophy and also gives us an insight as to who is best poised to emerge as a winner in this competition.

Boeing’s Strategy

1. Technology: Boeing has long been a supporter of conventional flight control systems and built its 757 and 767 aircrafts using this strategy. However, considering the cost advantages, the newer 777 and 787 models have implemented the fly-by-wire technology, increased flight automation while at the same time giving the pilots the final say in overriding the automatic flight controls limits.

2. Non-Stop Flight: Boeing believes the current air-travel market is fragmenting and that customers want direct flights rather than changing to smaller flights to reach their final destination. After analyzing the profits and market trends for larger versions of 747, Boeing has opted out of the Jumbo Airline market and built a more compact 787 Dreamliner.

3. Globalization in Production: In order to improve innovation in the organization at reduced costs, Boeing has decided to outsource many of its operation to foreign firms particularly in Japan and China. By offering these countries the task of manufacturing aircraft components Boeing has been successful in taping into the foreign markets. Boeing’s Dreamliner (787) model uses composite materials for its light-weight fuselage and was manufactured by subassemblies across the globe. Airbus on the other hand has started plants in the USA to gain more customer base.

Airbus's Strategy :

1.       1.Technology(Who is flying the plane?): Airbus first introduced the fly-by-wire control system in 1988.This system transmits the pilots input to the flight control computer which then move the actuators to provide the appropriate response .With the elimination of heavy electrical cables, there were lower maintenance costs, smoother ride for passengers and reduction in pilot’s workload. Airbus introduced flight envelope protection to prevent pilots from making inputs that could endanger the aircraft. But these advances have not been without accidents, and they required improvements in the interface between pilot and computer system. For instance, in the Crash of Air France Flight 447, the Airbus’s philosophy of removing mechanical control yoke and adding a side stick contributed to the inability of crew to see what the Pilot was doing and hence it might have contributed to the eventual crash into the Atlantic Ocean.

2    2. The adoption of risk-bearing contracts with other third party suppliers and purchasers meant that foreign governments took a shared responsibility of the manufacturing defects and in-turn helped   Airbus manage the supply chains.

3.Airbus has focused on creating Jumbo-jets which carry more than 300 passengers, such as the A380, citing the higher traffic patterns in the Asia-Pacific reason. This Strategy for mass commute may well work in the favor of Airbus in the developing countries, where cheaper cost will be the key factor in deciding on which flight to choose.

Conclusion – No loser?
With the introduction of 747max Boeing has increased its presence in the short-haul aircraft market which is dominated Airbus (eg.A320neo).As the short haul aircrafts form the bulk of revenue for both these companies, capturing this market will determine who gains the lead. The two companies will continue their hard fought marketing battles and the organization which incorporates a design philosophy based on the needs of the passengers will determine who the leader is. The most important point this rivalry has brought to the fore is that, Boeing and Airbus will have innovate to compete in the expanding airline market and they may continue to dominate in their own niche markets.

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