Airbus A380PRODUCT, INDUSTRY AND CUSTOMER ANALYSISRUCHI THAPAPGDMM 2013-2014

Topic

ProductAirbus A380

Market Segment Airliner

Industry Aircraft

Major Competitor Boeing 747

Agenda• Introduction to Aircraft Industry• Industry Forecast• Types of Aircrafts• Market Share• Boeing vs Airbus: Duopoly

Industry

• Types of Airliners• Market Share• 2032 forecast for the category• The Product: Airbus A380• Current Market Scenario• Question faced by Airbus for the category• Category perceptual map• Airbus’s answer

Product

• Customers• Customer segments• Understanding the Customer• Porters Five forces

Customer

Aircraft Industry

Introduction to Aircraft Industry

Aircraft industry manufactures various kinds of aircrafts, like

• Jumbo Jets• Fighter Jets• Business Jets• Helicopters• Cargo Planes

Main customers of these industries are

• Airlines for Jumbo Jets• Billionaires for Business Jets and Helicopters• Cargo companies for Cargo Planes• Defense for Fighter aircrafts and Helicopters

Estimated Industry Revenue: $ 150-200 Billion *

* Estimated using Market share and revenue of Boeing and Airbus

Industry Forecast for next 20 years

Demand for air traffic will grow at 4.7% annually

This will require 29,200 new passenger and freight aircrafts

Total value US$ 4.4 trillion

Passengers will double from 2.9 billion to 6.7 billion by 2032

Asia-Pacific will lead the world in air traffic overtaking North America

10,400 aircrafts will replace older aircrafts

Source: Airbus website

Aircrafts Industry has many products

We will focus on Airliners

Aircrafts Industry

AirlinersNarrow Body

Wide BodySmall wide body

Medium wide body

Large wide body

JetsLight Jets

Medium Jets

Business Jets

Helicopters

Boeing has almost 50% active fleet share in US

Globally, Boeing and Airbus are the two biggest players - Duopoly

Source: CAPA – Centre for Aviation

Although Boeing has largest active fleet (i.e. historical sales), Airbus has caught up in Market Share (i.e. present day sales)

Source: CAPA – Centre for Aviation

Demand in North America and Europe is stagnant,Asia Pacific and Middle East are driving growth

1 9 8 1 1 9 9 1 2 0 0 0 Fe b 2 0 1 3

12.50 18.00 22.50 17.505.00

10.0010.00 14.00

3.75

10.0012.50

24.50

3.75

2.00

5.00

14.00

Revenue by RegionNorth America EuropeAsia-Pacific Middle East and Others

30 year Historical Trend 20 year Forecast

Source: CAPA, Boeing website

Airbus A380

Airbus A380 is a large wide body airliner

Aircrafts IndustryAirliners

Narrow Body Wide Body

Small wide body

Medium wide body

Large wide body

Jets

Light Jets Medium Jets

Business Jets

Helicopters

Airbus A380 is a large wide body airliner

What is narrow-body and wide-body airliner?

What is a narrow-body airliner?

Unit Cost: $100 Million

Airliner Configuration Seating capacity: 85 to 230 6 seats per row in economy

class Single Aisle

Boeing 737 Airbus A320

What is a wide-body airliner?

Unit Cost: $250 to $400 million

Airliner Configuration Seating capacity: upto 525 8 to 10 seats per row in economy

class Some aircrafts have two decks with

6 seats per row in upper deck Twin Aisle

Three subtypes Small wide body Medium wide body Large wide body

Boeing 747Airbus A380

Demand forecast is only 760 new airplanes by 2032

Airbus A380 is a large wide body aircraft

Source: Boeing website

More about Airbus A380 Largest passenger airliner

Double Deck Wide body Upto 850 passengers

Designed to challenge Boeing Market share in large wide body Airports have been upgraded because of A380’s size Production Capacity: 3 aircraft/month As of March 2014

Airbus has received 324 orders Airbus has delivered 128 orders Emirates has ordered for 140 Airbus A380

Current Market scenario

Currently Airbus A380 has helped Airbus captured the large wide body airliner segment

Boeing has announced Boeing 747-8 and Boeing 777 as new wide body airliners

So what should Airbus do?

Implications of Duopoly in Aircraft Industry

There are two major sellers: Boeing and Airbus The decision of the sellers is not independent of each other The change in price and output by one seller affects the other

seller who reacts to the change The customer, Airline companies, have large switching costs from

one seller to other It is difficult to grow the market of airliners, as the total demand of

airliners is determined by air passengers demand

Market Share gained by Airbus = Market Share lost by Boeing

Airbus A380 is still the largest airliner

A380 is largest

Even future Boeing versions are not as big

Even future Boeing versions are not as big

Airbus’s Answer Airbus has announced three future variants of Airbus A380

Improved A380-800: Better take-off weight thus providing better payload/range to Airlines

A380-900: Increased seating capacity to 900

A380F: Cargo plane

Customer

Customers

Customers Airline companies that provides air transport for

travelling passengers and freight

Airline companies can be divided into 4 segments International National Regional Cargo

Customer Segments

InternationalAirlines

NationalAirlines

RegionalAirlines

Revenue $1 billion to $40 billion

$100 million to $1 billion < $100 million

Seating Capacity 200+ 200+ 100-150

Fleet Size 300 to 1500 75 to 200 < 50Destinations 100 to 400 80 to 150 < 40

Customer segments made after analysis of airlines data available publically

Understanding the Customer The airline industry exists in an intensely competitive market

Airport capacity, route structures, technology and costs to lease or buy the physical aircraft are significant in the airline industry

Other large issues are Weather, Fuel cost and Labor

Fuel costs in particular have risen very sharply in recent times

Understanding the Customer

Economic Value = Lifecycle cost (Airbus A380) – Lifecycle cost (Boeing 747)

B o e in g 7 4 7 A i r b u s A 3 8 0

Price Price

Installation Installation

Usage and Main-tenance Usage and Main-

tenance

Lifecycle cost and Economic Value

Understanding the CustomerAirbus A380 Purchase price ($414 M)

Technical Support Costs (Airbus Technical support)

Training Costs (Pilot + Maintenance staff training cost)

Operating Costs (Fuel + Pilot Wages +Airport Fees +Handling)

Disposal costs

Maintenance cost (Maintenance supplies + Ground staff wages)

Inventory costs (Depreciation + Amortization)

Transaction Costs (Bank Loans and Lease)

Porters Five Forces Analysis

Threat of New Entrants: Negligible• High entry and exit barriers• Some Asian companies trying with government funding

Power of Suppliers: Variable• Most suppliers have low bargaining power• Very few specialized suppliers like Rolls Royce, GE (jet engine manufacturer) have high bargaining power

Power of Buyers: Very low• Duopoly structure means buyers have only two alternatives• Also, their switching costs are very high

Availability of Substitutes: None• Due to safety regulations, airline companies have to stick with approved airliners

Competitive Rivalry: High• A high rivalry like Pepsi and Coca-cola is expected

Thank You!