Harvard Case - The Rise and Demise of Airbus A380
"The Rise and Demise of Airbus A380" Harvard business case study is written by Xuesong Geng, Lipika Bhattacharya. It deals with the challenges in the field of Strategy. The case study is 24 page(s) long and it was first published on : Oct 4, 2021
At Fern Fort University, we recommend a comprehensive strategic shift for Airbus, focusing on adapting to the evolving aviation landscape and leveraging its core competencies in innovation, technology, and manufacturing to secure a sustainable future. This entails a multi-pronged approach encompassing product diversification, strategic partnerships, and a renewed focus on operational efficiency.
2. Background
The case study 'The Rise and Demise of Airbus A380' chronicles the ambitious journey of Airbus in developing and launching the world's largest passenger aircraft, the A380. Despite initial success and significant investments, the A380 faced challenges due to changing market dynamics, including the rise of fuel-efficient twin-engine aircraft, shifting passenger preferences, and the emergence of low-cost carriers. This led to a decline in orders, ultimately resulting in the program's discontinuation in 2019.
The main protagonists in the case are Airbus, its leadership, and its key stakeholders, including airlines, investors, and employees. The case highlights the complex interplay of factors that influence the success or failure of large-scale technological ventures in a dynamic global market.
3. Analysis of the Case Study
Industry Analysis: Using Porter's Five Forces framework, we can analyze the competitive landscape:
- Threat of New Entrants: High barriers to entry due to significant capital investment and technological expertise, but the emergence of new players like Boeing 787 and the potential for disruptive technologies like electric aircraft could pose a threat.
- Bargaining Power of Buyers: High, as airlines have numerous aircraft options and can leverage their purchasing power.
- Bargaining Power of Suppliers: Moderate, as Airbus relies on a network of suppliers for components, but the scale of the A380 program provided leverage.
- Threat of Substitute Products: High, with the emergence of fuel-efficient twin-engine aircraft and potential future alternatives like high-speed rail.
- Competitive Rivalry: Intense, with Boeing as the primary competitor, and other players like Embraer and Bombardier vying for market share.
Strategic Analysis: Airbus's initial strategy focused on a 'bigger is better' approach, aiming to capture the high-capacity, long-haul market. However, this strategy failed to adapt to the changing market dynamics, leading to several strategic missteps:
- Misalignment with Market Trends: The A380's focus on high capacity didn't align with the growing demand for smaller, more fuel-efficient aircraft.
- Limited Flexibility: The A380's size and complexity made it difficult to adapt to changing passenger preferences and route requirements.
- High Development Costs: The significant investments in the A380 program put pressure on Airbus's profitability and limited its ability to invest in other areas.
Financial Analysis: The A380 program incurred massive development costs and suffered from low production volumes, leading to high unit costs and limited profitability. The decline in orders further exacerbated the financial strain.
Marketing Analysis: Airbus's marketing strategy focused on the A380's size and luxury features, but failed to effectively communicate its value proposition to airlines and passengers in a changing market.
4. Recommendations
1. Diversify Product Portfolio:
- Develop new, fuel-efficient aircraft: Focus on developing smaller, more flexible aircraft that cater to the growing demand for point-to-point travel and regional routes.
- Expand into niche markets: Explore opportunities in specialized segments like cargo aircraft, business jets, and military aircraft.
- Leverage digital technologies: Integrate digital technologies like AI and machine learning into aircraft design, manufacturing, and maintenance to improve efficiency and reduce costs.
2. Strategic Partnerships:
- Collaborate with airlines: Establish strategic alliances with airlines to develop customized aircraft solutions and optimize route planning.
- Joint ventures with technology companies: Partner with technology companies to develop innovative solutions for aircraft design, avionics, and passenger experience.
- Expand into emerging markets: Partner with local businesses and governments in emerging markets to facilitate aircraft sales and establish a stronger presence.
3. Operational Efficiency:
- Optimize manufacturing processes: Implement lean manufacturing principles and advanced automation technologies to reduce production costs and improve efficiency.
- Streamline supply chain: Establish a more agile and responsive supply chain to ensure timely delivery of components and reduce inventory costs.
- Focus on digital transformation: Implement digital tools and processes to improve aircraft maintenance, fleet management, and customer service.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core competencies: Airbus's core competencies in innovation, technology, and manufacturing are crucial for adapting to the changing aviation landscape.
- External customers: Airlines and passengers are demanding more fuel-efficient, flexible, and technologically advanced aircraft.
- Competitors: Airbus needs to stay ahead of competitors by developing innovative products and adopting agile business models.
- Attractiveness: The recommendations aim to improve profitability by diversifying revenue streams, reducing costs, and increasing market share.
Assumptions:
- The aviation industry will continue to evolve towards more fuel-efficient and technologically advanced aircraft.
- Emerging markets will continue to drive growth in air travel.
- Technological advancements will continue to play a significant role in shaping the future of aviation.
6. Conclusion
Airbus needs to adapt its strategy to the evolving aviation landscape by diversifying its product portfolio, forging strategic partnerships, and focusing on operational efficiency. By leveraging its core competencies and embracing innovation, Airbus can secure a sustainable future in a dynamic and competitive market.
7. Discussion
Alternatives:
- Focusing solely on the A380: This would be a risky strategy, as the A380 market is shrinking.
- Merging with Boeing: This could create a dominant player in the aviation industry, but could also face regulatory challenges.
Risks:
- Technological disruption: The emergence of disruptive technologies like electric aircraft could threaten Airbus's market position.
- Economic downturn: A global economic downturn could lead to a decline in air travel demand.
- Competition: Intense competition from Boeing and other players could limit Airbus's market share.
Key Assumptions:
- The aviation industry will continue to grow in the long term.
- Technological advancements will continue to improve aircraft efficiency and performance.
- Airbus will be able to successfully implement its strategic shift.
8. Next Steps
Timeline:
- Year 1: Develop a detailed strategic plan, including specific product development initiatives, partnership agreements, and operational improvement programs.
- Year 2-3: Implement the strategic plan, focusing on product development, partnership formation, and operational optimization.
- Year 4-5: Evaluate the effectiveness of the strategic shift and make necessary adjustments.
Key Milestones:
- Launch of a new, fuel-efficient aircraft.
- Formation of key strategic partnerships.
- Significant improvements in operational efficiency.
- Increased market share and profitability.
By taking decisive action and embracing a strategic shift, Airbus can overcome its current challenges and secure a sustainable future in the dynamic aviation industry.
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Case Description
Set in July 2021, this case talks about the launch and discontinuation of the very large aircraft, A380, by leading aircraft manufacturer Airbus. The development of the A380 had been motivated by two key factors - the projected market trend of increased hub-and-spoke travel and the success of Boeing 747 - a very large aircraft by Boeing. Although the A380 was the biggest passenger aircraft ever built, with avant-garde technology and reconfigurable design, it failed to succeed due to changing industry trends. Hub airports were witnessing increasing traffic congestion, and more and more airlines were switching to point-to-point travel to avoid hubs altogether. Demand for very large aircrafts like the A380 fell by almost 92% from 2010 to 2020, and Airbus had to make the harsh decision of shutting down the aircraft's production in 2021. The case describes the high stake decision behind the development of the A380 and how it fared after its launch. It also elaborates the duopoly between Boeing and Airbus, which accounted for 91% of the commercial aircraft market share. The case ends with forward-looking questions on what strategies Airbus can implement after the demise of the A380 to compete with long-standing rival Boeing and new entrants like Chinese aircraft manufacturers in a cut-throat market that was witnessing the commencement of environmentally friendly aircraft projects by the two leading players as the new battlefield.
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