The Rise and Demise of Airbus A380 Case Analysis

Introduction

Airbus is a European aircraft manufacturer that pioneers sustainable aerospace for a united and safe world. The company is the second leading commercial aircraft manufacturer after Boeing Company in the United States. Airbus is Europe’s most significant space and aeronautics company with defense, space, and helicopter divisions.

According to the case study, A380 was developed and launched as a calculated move by the company (Airbus) to compete with an already leading player in the market (Boeing). The senior management of Airbus believed that Boeing was mainly successful due to its monopoly. Through the launch of the Boeing B747 in 1965, the company registered significant success, making it a leader in the market. With no effective competition, the company recorded profits year after year and invested in other segments. Indeed, the case study indicates that Boeing B747 had become a cash cow for the company, catapulting it to become the leading aircraft manufacturer in the world (Nelson et al., 2020).

However, working against the high stake odds of enormous capital investment and a highly profitable company, Airbus recorded a favorable early response. The company won 50 orders from six airlines: British Airways, Air France, Virgin Atlantic, Emirates airlines, SIA, and Qantas Airways. These airlines suggested they wanted to purchase 42 new jets. As a result, these A380 orders significantly increased the perceptibility of the company’s dedication to the high-capacity market.

The rise of the Airbus A380 was a result of several initiatives. Firstly, the company offered customized and packaged services to meet customer needs. As a result, most airlines could offer modern solutions, combine frequencies and initiate contemporary routes leveraging the A380 Airbus model. In particular, the Thai airline consolidated ten weekly daily flights from Bangkok to Paris (GENG et al., 2021).

A380 has a high seating capacity, which has become its competitive advantage. This is because the high number of passengers in one flight significantly reduced the incurred per passenger cost, translating into low fare prices. This aspect enabled many airlines to attract more customers, enhancing the revenue generated by the airlines.

Additionally, the flexibility of the interior designs (see Appendix III), which enabled airlines to develop various class configurations, was also an aspect that contributed to the rise of the company. In addition, airports were also benefitting from the scale of the A380. Arising to the high number of passengers, the restaurants in Heathrow and Hong Kong noticed an increase in revenue. Moreover, tourism also recorded a significant benefit from A380 hub airports. All these compelling aspects led to the rise of the A380.

However, in 2010, the market patterns and trends became increasingly unfavorable against large aircraft. Consequently, Boeing B747 gradually reduced production as the popularity of the Airbus A380 increased. As a result, Airbus A380 started to register significant losses. The company heavily depended on expanding the economies of India and China; hence, its production capacity remained the same. However, the two economies did not grow as expected by the company. Subsequently, the company started its slow demise.

Finally, Boeing realized the shift in market trends and developed a completely different strategy to create another product that worked in the company’s favor. This element worsened the loss and demise of the Airbus A380.

Body

Among the aspects Airbus is doing right is taking on the challenge and investing in developing a product that would compete against Boeing B747. Stemming from critical analysis and research, the company projected a compelling potential in the market by creating an equal of B747. According to the case study, the company’s senior executive indicated that Boeing was mainly successful due to its monopoly. Subsequently, Airbus developed A380 to meet customer needs, registering 50 orders from six airline companies in Europe and the Middle East.

However, even after Airbus realized a decrease in demand for large aircraft in the market, the company still needed to reduce its production capacity. This is the aspect that the company did wrong, leading to dire consequences. As opposed to Airbus, after this realization, Boeing reduced its production capacity of B747 and developed a different strategy that evolved into another product that worked in its favor, thereby accelerating the demise of the Airbus A380 in the market (Jackson et al., 2021).

According to Statista, the worldwide fleet of A380 registered more than 800,000 flights, which were over 7.3 million block hours with no structure losses and fatalities. Additionally, Emirates, one of the significant clients of Airbus A380, purchased its 123^rd model of A380. This was the last delivery of Airbus since it was its 251 delivery. More specifically, the company has not recorded any profits from the model A380. The project has sunk more than 25 billion Euros than the initial projection. However, the company registered an increase in its consolidated revenue by 13 percent to approximately 59 billion Euros in 2022.

The company’s revenue in 2021 was approximately 52 billion Euros. Other products that have led to this increase in profit include A220, 516 A320 Family, and A330s, among others. In addition, in the fourth quarter of 2022, the company registered a 21 percent increase in commercial aircraft deliveries making the company even more competitive; Forbes records the company as the second-best employer after Boeing in the aerospace industry.

If Airbus had not ceased producing A380, the company would have continued registering significant losses, which would eventually affect the other segments of the company. The case study indicates that the project sunk 25 billion Euros, more than the projected initial cost.

More specifically, the company had received a whopping 22 billion US dollars in subsidies from the France, German, Britain, and Spain governments. In addition, the government of Germany loaned Airbus a whopping 942 million Euros for the development of the A380 model, which has been ceased due to its impracticability. Leveraging from such a scenario, there was a need to cease Airbus A380 (Wood et al., 2019).

The underlying context of the case study is a better understanding of the elements that led to the demise of the Airbus A380 despite the company’s considerable investment in the project. Unlike its competitor, Boeing, the Airbus A380 project sunk over 25 billion Euros. To better understand the issues in the case study, information accessible through the website of Airbus and Boeing could be used. In addition, critical analysis of the project Airbus A380 has been analyzed by Statista, and there is accessible information to that effect.

Among the desirable solutions is a strategic partnership with Boeing, a key industry player and market leader. However, according to research conducted on market trends, the most logical solution is to reduce the production cost and ultimately stop the production of the product (Airbus A380). This is because it is not feasible with the current market trends. Similarly, the law should be followed when subsidizing such projects (Kumar et al., 2022).

In particular, the US won 7.5 billion dollars in a dispute with Airbus against illegal subsidies. In such a scenario, I would advocate for lawful subsidizing of projects. As the project significantly fell out of order, illegal subsidies set horrible precedence in future occurrences (Ika et al., 2020).

SWOT analysis table (see Appendix I).

SO-WO-ST-WT analysis

SO strategies

Airbus records excellent performance in contemporary markets. This is because the company has developed expertise in emerging markets, making it successful. Arising from this fact, the company can take advantage of a massive opportunity in developing countries to expand its business and tap into this market share.

In the same spirit, the company enjoys high customer satisfaction. Leveraging this fact, the company can use the enormous market in developing countries to enhance and increase its market share.

Airbus has a strong distribution network. Therefore, the company can leverage this fact to distribute its products faster and enhance its reputation and brand value.

Consistently, Boeing has a wide range of products. The company has every aircraft that people need to purchase. Stemming from this fact, the company can appeal to a wide range of customers to gain an even more significant market share.

WO strategies

Airbus needs more investment and research into new technologies. Stemming from the production scale and various geographies, the company needs to invest more capital into modern technology to integrate all these processes.

The company has to develop an internal feedback mechanism, more so on the sales team, to tackle the challenge son entrants into new markets of its failed product (A380). Following this development, the company can increase its market share.

The company has to re-evaluate its organizational structure to make it more compatible with the modern business model to expand to adjacent product segments.

On the other hand, Boeing has to relook at its poor labor management to take advantage of the considerable labor present in America that, when wisely managed, will significantly improve the company’s operations (Mahmud et al., 2020).

ST strategies

To promote its market share, Airbus should invest more money in research and development to develop new strategies to make it a leader in the aerospace industry.

Similarly, the company should invest in qualified, accredited professionals to positively influence its internal operations.

To effectively integrate new segments into Airbus as the technology advances, the company should restructure into division by-products. In doing so, Airbus can easily integrate with other business segments even as we witness significant technological advancements.

On the other hand, Boeing can take advantage of its brand and wide range of products to combat the increasing competition.

WT strategies

Airbus should also pay more attention to research and development to promote productivity.

Additionally, Airbus should invest approximately 100 million dollars annually in research and development to establish real growth and development.

From the same perspective, to mitigate the effects of reduced market share, the company should also significantly invest in its marketing strategies leveraging its critical strengths to better influence sales.

On the other hand, Boeing should invest more in rebuilding its public image after several accident incidences of Boeing aircraft accidents to regain public confidence.

VRIO analysis

Value

According to this analysis, financial resources of Airbus are precious. This is because these resources help the company invest in external opportunities that arise and also combat external threats.

According to this analysis, the company’s employees are a valuable resource. This is because a significant number of employees in the company are adequately trained. More experienced and trained employees lead to more productivity for the organization. In that respect, the employees are also loyal, and the company has an impeccable retention ratio. All these factors lead to more excellent value for the end consumers (Garrow et al., 2021).

Further, according to this analysis, the research and development adopted by the company is not a valuable resource as the costs incurred do not translate into benefits in terms of innovations. Arising from this analysis, the research and development for the company are a competitive disadvantage.

Rare

According to this analysis, the financial resources of the company are rare. This is because only a few companies have the such financial capability in the industry.

As identified by the VRIO analysis of Airbus, the local food offered is a shared resource. This is because the same food can be accessed in local restaurants of competitors across the industry spectrum.

Furthermore, the distribution network of the company is a rare resource. This is because competitors would require a lot of time and resources to develop such distribution networks. This network is also possessed only by a few companies in the industry.

Imitable

The patents developed by the company are difficult to imitate. This is because the law does not allow imitation of any patent product. In addition, getting a patent is a complicated process as similar resources would have to be spent.

The distribution networks adopted by the company are difficult to imitate. This is because the network has been developed gradually over the years, and subsequently, competitors would have to spend the same time and resources to imitate the networks.

However, the employees of the company are relatively inexpensive to imitate. A company may invest the same resources to offer their employees skills and training, hence getting the same quality.

Organization

The distribution networks of Airbus are well organized, as identified by VRIO analysis. This is because these networks ensure that the products sold by the company are always available to the customers in all the outlets, hence being a competitive advantage for the company.

As indicated by the VRIO analysis, the company’s financial resources are organized in a way that enables them to capture value. Subsequently, they are strategically employed in the right places and help combat threats and opportunities. Therefore, the company’s financial resources are sustainable (Jasmine et al., 2020).

Moreover, the patents need to be organized properly, as indicated by the VRIO analysis. This means that Airbus must use the patents to their full potential. Therefore, if the company starts selling patented products before the expiration of the patents, it can turn a new competitive advantage into a sustainable competitive advantage.

(See VRIO framework in Appendix II)

Resource-based theory

This theory argues that sustainable success in any business innovation is founded on the internal resources of the company offering innovation. From that perspective, the capability of the company to use its internal resources to develop a competitive advantage over competitors.

Therefore, Airbus should enhance its distribution strategy and the talents of highly skilled employees to form a competitive advantage over competitors. As a proposed alternative solution, the company should invest more in high-tech customized products that meet consumers’ needs and advertisements to convince the customers that the products are for their best value.

Current situation of the firm

According to the information accessible on the company website, Airbus’s revenue in 2021 was approximately 52 billion Euros. In addition, in the fourth quarter of 2022, the company registered a 21 percent increase in commercial aircraft deliveries making the company even more competitive. Forbes records the company as the second-best employer after Boeing in the aerospace industry (Woo et al., 2021).

In the same spirit, the deliveries made by the company rose by a whopping 8 percent to 611 aircraft. This delivery rise was followed by a robust increase in orders in the helicopters segment. In addition, the company just launched A380F, and several orders were received. Also, the company has launched the decarbonization initiative to pay more committed to protecting the environment.

Moreover, the space and defense segment has contributed a value ratio of 1.3 of the book to the bill. Currently, the helicopter segment has also registered a 13 percent rise in its deliveries to 33 units which have significantly contributed to the contemporary revenue of the company.

Finally, Airbus is progressing to increasing its monthly production rate to 65 aircraft by the end of 2024 and 75 aircraft by the end of 2026. This increase in the production rate is a result of the optimization of the company’s internal strengths. Following this approach, the company is projected to register a 10 percent increase in revenue in the next quarter of 2023.

What I learned from the case study

Market trends are what drive sales and revenue in every business. It is upon leveraging these patterns and trends that a company drives its revenue. From the case analysis, Airbus continued with the same production capacity despite realizing the decline in the market trends of the Airbus A380. The company leveraged from the projection of expansion of China and Indian markets significantly affected by COVID-19. Therefore, any company that plans to succeed in the future should adopt key strategies that arise from critical market analysis.

Conclusion

In conclusion, Airbus operates in a very competitive industry. Its main competitor is Boeing which has taken up the majority of the market share over the decades. However, Airbus planned to join the competition through rate by introducing Airbus A380. In the initial stages, the company projected a promising start.

Consistently, the company appealed to most airlines due to its design. More specifically, the flexibility of the interior designs enabled airlines to develop various class configurations, which contributed to the company’s rise. In addition, airports were also benefitting from the scale of the A380.

Arising to the high number of passengers, the restaurants in Heathrow and Hong Kong noticed an increase in revenue. Moreover, tourism also recorded a significant benefit from A380 hub airports. All these compelling aspects led to the rise of the A380. However, due to its ignorance of the external market analysis, Airbus A380 declined in revenue production and gradually out of the market.

Therefore, arising from the information in the case study, Airbus should work on proper research and development to embark on projects that will lead to profits instead of registering costs that outweigh the profits leading to losses.

According to critical observation of the economies of China and India, Airbus assumed it would step up its market share and register profits from the vast market. However, due to the pandemic, the two economies registered slow growth, which could not accommodate the projection by Airbus.

Finally, though relying on third-party suppliers can be highly profitable for Airbus, it is also perilous. Therefore, the company should develop its production of the critical products that it needs. This is because any supply chain disruptions or production hiccups lead to subsequent disruption in Airbus.

Recommendations

Airbus should relook at its research and development to avoid future development of products that will incur so many resources and fail to succeed, such as the Airbus A380.

In the same spirit, to increase its market share against its vast competitors, Airbus should focus more on developing more secure and competitive products.

Airbus should start developing its products and the products the company needs the most. This initiative will significantly reduce any disruptions in the supply chain or hiccups in the production operations of the manufacturing companies.

Finally, Airbus should respond to market trends more decisively and wisely in the future to avoid scenarios such as the development of the Airbus A380. Market analysis should be at the center stage of investment decision-making in the company.

Consistently, Airbus should develop and invest more in research and development to develop a product that will compete against the market leader Boeing B747.

References

Nelson, C. A. (2020). Investigating the Airbus A380: Was it a Success, Failure, or Combination? (Doctoral dissertation, University of Oregon).

GENG, X., & BHATTACHARYA, L. (2021). The rise and demise of Airbus A380.

Jackson, R. (2021). Airbus A380. Airbus A380, pp. 1–88.

Wood, L. C., & Duong, L. N. (2019). Airbus and the A380. In Operations Management for Business Excellence (pp. 388-392). Routledge.

Ika, L. A., Love, P. E., & Pinto, J. K. (2020). Moving beyond the planning fallacy: The emergence of a new principle of project behavior. IEEE Transactions on Engineering Management, 69(6), 3310-3325.

Kumar, B. R. (2022). Case 2: Developing the World’s Largest Passenger Aircraft-Airbus A3XX. In Project Finance: Structuring, Valuation and Risk Management for Major Projects (pp. 91–99). Cham: Springer International Publishing.

Woo, A., Park, B., Sung, H., Yong, H., Chae, J., & Choi, S. (2021). An analysis of the competitive actions of Boeing and Airbus in the aerospace industry based on the competitive dynamics model. Journal of Open Innovation: Technology, Market, and Complexity, 7(3), 192.

Jasmine, A., Putranto, A. R., Charles, A., & Sodikin, A. (2020, July). Payload Optimization Comparison Of Airbus 330–300 And Boeing 777–300ER Aircraft. In Journal of Physics: Conference Series (Vol. 1573, No. 1, p. 012023). IOP Publishing.

Garrow, L., & Lurkin, V. (2021). How COVID-19 is impacting and reshaping the airline industry. Journal of Revenue and Pricing Management, pp. 20, 3–9.

Mahmud, F., & Tamyez, P. F. (2020). Capitalization of SWOT Analysis for Technology Strategy in MTR Sdn. Bhd. UUM PRESS, 27, 199.

Appendix

Appendix I (SWOT analysis Table)

Appendix II (VRIO Framework)

Appendix III (Interior Design)