Duopoly - Boeing Versus Airbus
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The document outlines the competitive dynamics between Boeing and Airbus in the commercial aircraft duopoly, highlighting the cyclical nature of their market dominance, order statistics, and financial performance from 2004 to 2014. It discusses barriers to entry, factors influencing competition, and strategic differentiation approaches of both companies. Additionally, the document addresses challenges to their duopoly from emerging competitors and the impact of global outsourcing on their operations.
Duopoly - Boeing Versus Airbus
- 3. In the relatively recent commercial aircraft industry environment, one can observe the following phenomena, in sequence: 1. Boeing is the dominant firm, 2. Boeing becomes flush with past success and allows Airbus to take the lead, 3. Airbus is the dominant firm, 4. Airbus becomes flush with past success and allows Boeing to take the lead.
- 4. Background
- 5. Market Share
- 6. Market Share • The competition between Airbus and Boeing has been characterized as a duopoly in the large jet airline market since the 1990s. • In the 10 years from 2004 to 2013, Airbus has received 8,933 orders while delivering 4,824, and Boeing has received 8,428 orders while delivering 4,458. • In the fiscal year of 2010,Boeing generated almost 64.31 billion US dollar in revenue compare to 45.7 billion euros ofAirbus. • And in 2014 Boeing manage to collect 90.8 Billion dollar revenue and Airbus collected around 60 billion euros.
- 7. AirbusVs. Boeing: Net Orders PerYear
- 8. Market Share 2014 Net Market Share
- 9. Annual Net Orders Received and Delivered by Airbus and Boeing Source : airbus.com, boeing.com
- 11. Reasons for Duopoly Prime Reason: Barriers to Entry Barriers to entry exist for a number of reasons, but the end result is that there is limited entry into a market or industry because the hurdles that must be overcome are great, and therefore firms that are already part of the industry or market have an advantage and are insulated from competition from new entrants.
- 12. • Financing:- The cost to design, prototype, build, and deliver a new LCA is immense. Boeing 777 the development costs were estimated to be $10‐12 billon. The new Airbus A380 had development costs of €12 billion ($16.2 billion). • Engineering:- Aircraft of the size produced by Boeing and Airbus require significant engineering experience and know‐how in order to successfully design, test, and produce a viable jetliner. Boeing has only designed eight planes from scratch since they started building jetliners in 1955. Airbus has only designed four since 1969. BarriersTo Entry
- 13. BarriersTo Entry • Technology:- Commercial jetliners are behind military aircraft and space flight in terms of the volume of technological developments. It is how quickly, efficiently, quietly, comfortably, and safely a plane reaches its destination that matters which can be achieved only through technological advancement. New entrants can only expect to be competitive if they are able to produce and bring to market technology that improves upon the existing jetliners. • Production & Logistics:- Every jetliner contains lakhs of parts, ranging in size from rivets to seats to overhead compartments. These components must be manufactured and brought together into one aircraft in one place. The primary reason for the collapse of Douglas Aircraft was their inability to manage their supply chain and bring together airplanes at a reasonable cost Boeing’s trouble in the late 1980’s was majorly due to improper supply chain.
- 15. Porter’s Five Forces Model Competitive Rivalry Threat of New Entrants Bargaining Power of Suppliers Threat of Substitutes Bargaining Power of Buyers
- 16. Porter’s Five Forces for BoeingVs. Airbus (Airplane Industry) 1.)Threat of New Entrants : Low • Humongous costs involved in setting up R&D. • Scarcity of Resources (Technological resources). • Capital intensive industry. • High loyalty to existing brands. i.e., Airbus and Boeing • Profits start to realize after a long time.
- 17. Porter’s Five Forces for BoeingVs. Airbus (Airplane Industry) 2.) Bargaining Power of Buyers: Low • Limited choice for buyers as Boeing & Airbus together, hold nearly the entire airplane market. • The cost involved in switching airplanes (company) is very high due to aftermarket support/service costs.
- 18. Porter’s Five Forces for BoeingVs. Airbus (Airplane Industry) 3.)Threat of Substitutes : Low • No alternative for quick long distance journey. • Future requirements of aircrafts will only increase demand. • However for regional carriers focused on short distance transportation, threat is little bit higher. They must focus on convenience, personal preference, time and money
- 19. Porter’s Five Forces for BoeingVs. Airbus (Airplane Industry) 4.) Bargaining Power of Suppliers : High • The airplane manufacture business is majorly dominated by Boeing & Airbus. So there’s no cutthroat competition and hence these companies have upper hand over the buyers. • Also, the chances of carriers, opting for vertical integration are very unlikely.
- 20. Porter’s Five Forces for BoeingVs. Airbus (Airplane Industry) 5.) Competitive Rivalry: High • Bidding for a limited, but very high value of contracts (aircraft orders) witness a very cutthroat competition between these two rivals • Fuel efficient engines, cheaper maintenance, prompt services, pricing, etc. are the factors on which these companies compete.
- 21. The Strategy • Airbus’ Differentiation Strategy – ‘Hub-and-Spoke-Concept’ • Boeing’s Differentiation Strategy – ‘Direct Point-to-Point-Traffic’ • In duopolistic markets companies are assumed to avoid direct price wars and try to use non-price methods to differentiate their products such as engaging in technological ‘leapfrogging’ by bypassing each others’ inventions. • So the competitive strategy used by Boeing & Airbus, is totally based on product differentiation concept. Differentiating factors are: 1. Shape 2. Fuel Efficiency 3. Engine 4. Internal Design / Facilities 5. Cockpit Commonality
- 22. Shape • The 787 Dreamliner, developed by Boeing, is a long-range, midsized, wide-body, twin- engine passenger airliner. • In 2006 Airbus began to consider a wider body, a larger wing, more powerful engines, a higher cruise speed and many other changes to satisfy the airlines. So, Airbus presented the A350 XWB with entirely new design. • The new wider Airbus A350 XWB body will enable the plane to accommodate slightly wider economy seats than its rival. The new design maximizes usable volume.
- 23. Fuel Efficiency • With the price of oil continuing to rise, airlines are in continuous pressure in terms of their fuel costs. This in turn it has become an incentive for the aircraft manufacturers to develop the most fuel efficient planes possible. • Airbus originally had picked up the banner of fuel efficiency as a means of gaining an edge over Boeing. As Airbus matured and gained success, they became risk‐averse. Unfortunately, fuel efficiency is a relative to time. That which was considered ‘fuel efficient’ a decade ago may now be a ‘gas guzzler’ today.
- 24. Engine • As the era progressed, innovations in engine design earned a substantial chunk of competitive advantage. • Boeing with it’s high‐bypass turbofan engines gained an edge over Airbus, after losing out to Airbus for a short while.
- 25. Internal Design / Facilities • When airlines can choose between more seats and a gym/cocktail lounge, out goes the gym and cocktail lounge. • Boeing focused on more seats in 787 Dreamliner while Airbus focused on more luxurious amenities in A380. • Carriers ordered 159 A380s, and almost twice as many 787s.
- 26. Cockpit Commonality • In 1978 when Airbus was preparing to launch the development of a new LCA, it had only one product, the A300. At the same period in time, Boeing had a diverse product set ranging from the 727, 737, 757, 767, and 747. • Airbus had only two offerings so it differentiated on the basis of cockpit commonality. Each of Boeing’s planes had different cockpit configurations. • Airbus saw an opportunity to configure common cockpits For airlines, this meant increased flexibility and decreased training costs.
- 28. The global civil aerospace market has long been a classic duopoly. The sector has been dominated by European company Airbus and the US giant Boeing, with only limited competition in the regional markets. Challenges to Duopoly
- 29. The Major Competitors are:
- 30. Emergence of New Players
- 31. Bombardier • Bombardier Aerospace is a division of Bombardier Inc. The company competes with Brazilian rival Embraer for the title of the third largest aircraft manufacturer after Boeing and Airbus. It is headquartered in Dorval, Quebec, Canada. • Bombardier is a global transportation company that is present in over 60 countries on 5 continents. They operate two businesses: Aerospace and Rail Transportation. • It's high-performance aircraft and services are seen in a number of different markets including, Business aircraft, Commercial aircraft, Amphibious aircraft. • Revenue generated by bombardier in year 2014 was $9.6 billion. • Number of employees in the company were 38350 in the year 2014.
- 32. Embraer • Embraer S.A. is a Brazilian aerospace conglomerate that produces commercial, military, executive and agricultural aircraft and provides aeronautical services. It is headquartered São José dos Campos, São Paulo State. • The company currently competes internationally with Canadian rival Bombardier for the title of third-largest airplane maker after Airbus and Boeing. • Embraer has become one of the main aircraft manufacturers in the world by focusing on specific market segments with high growth potential in commercial, defense, and executive aviation.
- 33. The 3 markets for which Embraer manufactures aircraft include : 1 Commercial Aviation - EMB 120, ERJ 135, ERJ 140, ERJ 145, ERJ 145 XR, EMBRAER 170, EMBRAER 175, EMBRAER 190 and EMBRAER 195. 2 Defense Systems - Super Tucano, EMB 145 AEW&C, EMB MULTI INTEL, EMB 145 MP and Legacy 600. 3 Executive Aviation - Lineage 1000, Legacy 600, Legacy 500, Legacy 450, Phenom 300 and Phenom 100. Revenue generated in 2013 was $5.7 billion. Number of employees in the company were 19116 in the year 2014.
- 37. •Airbus and Boeing increased global outsourcing to Japan, China, India, Middle East, Eastern Europe.These are growing markets and hence profitable. •Large Asian and middle eastern carriers are now major customers (Singapore Airlines, Emirates)
- 38. Airbus Outsourcing • New comer in Japan and China • Difficulty getting orders from Japanese Airlines but has contracted work with Japanese Suppliers • Problem - Euro Vs. Dollar - Dollar weaker, manufacturing costs in Euros but planes sold in dollars. • China - Sales jumped from 56-219 aircrafts in 2005, overtook Boeing • Tianjin - First assembly plant outside Europe • Plan to expand production to India - Presence of engineering talent • Production of A320s in China - Need to be close to large markets • Production of aircraft parts to Maghreb - Low cost labour
- 39. Boeing Outsourcing • Outsources to multiple places and producers hence parts not perfect fits. • Complicated supply chain • Outsourcing of new innovation not existing technology • Outsourced wing of 787 to Japanese Heavies- Mitsubishi Heavy Industries, Fuji Heavy Industries, Kawasaki Heavy Industries. • Boeing lacked know-how about plane construction earlier • Improved supply chain management by ensuring own employees on the ground worked with suppliers • Tiered structure of suppliers - tier 1 assembled parts made by tier 2 and 3- tier 1 did not have enough know how to assemble, Boeing forced to buy one of the tier 1 suppliers (Vought Aircraft industries) to give expertise to other suppliers • Poor design of contractual agreement
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