Commercial Airline Industry

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Commercial Airline Industry

Industry Analysis

Porter’s Five Force

Threat of New Entrants: - Low

• Existing loyalty to major brands

• Incentives for using a particular buyer (such as frequent shopper programs)

• High fixed costs in R & D

• Scarcity of resources (technical )

• High costs of switching companies (maintenance cost)

• Government restrictions or legislation

Power of Suppliers: - Moderate to high

• There are very few suppliers of a particular product

• There are no substitutes

• Switching to another (competitive) product is very costly

• The product is extremely important to buyers - can't do without it

Power of Buyers: - low

• As there are only two suppliers

Threat of Substitutes: - Low

• No other way to fly

Competitive Rivalry: - High

• A mature industry with very little growth; companies can only grow by stealing customers away from competitors

• Only two players in the market


Airbus S.A.S. is an aircraft manufacturing subsidiary of EADS, a European aerospace company. Based in Toulouse, France, and with significant activity across Europe, the company produces around half of the world's jet airliners. Airbus began as a consortium of aerospace manufacturers. Consolidation of European defense and aerospace companies around the turn of the century allowed the establishment of a simplified joint stock company in 2001, owned by EADS (80%) and BAE Systems (20%). After a protracted sales process BAE sold its shareholding to EADS on 13 October 2006.

Airbus employs around 57,000 people at sixteen sites in four European Union countries: Germany, France, the United Kingdom, and Spain. Final assembly production is at Toulouse (France), Hamburg (Germany), Seville (Spain) and Tianjin (China). Airbus has subsidiaries in the United States, Japan and China.


Airbus began as a consortium of European aviation firms to compete with American companies such as Boeing, McDonnell Douglas, and Lockheed. While many European aircraft were innovative, even the most successful had small production runs. In 1991, Jean Pierson, then CEO and Managing Director of Airbus, described a number of factors which explained the dominant position of American aircraft manufacturers: the land mass of the United States made air transport the favoured mode of travel; a 1942 Anglo-American agreement entrusted transport aircraft production to the US; and World War II had left America with "a profitable, vigorous, powerful and structured aeronautical industry."

Formation of Airbus

Airbus was formally established as a Groupement d'Interet Economique (Economic Interest Group or GIE) on 18 December 1970. It had been formed by a government initiative between France, Germany and the UK that originated in 1967. The name "Airbus" was taken from a non-proprietary term used by the airline industry in the 1960s to refer to a commercial aircraft of a certain size and range, for this term was acceptable to the French linguistically.

In 1972, the A300 made its maiden flight and the first production model, the A300B2 entered service in 1974. Initially the success of the consortium was poor but by 1979 there were 81 aircraft in service. It was the launch of the A320 in 1981 that guaranteed the status of Airbus as a major player in the aircraft market - the aircraft had over 400 orders before it first flew, compared to 15 for the A300 in 1972.

Transition to Airbus SAS

The retention of production and engineering assets by the partner companies in effect made Airbus a sales and marketing company. This arrangement led to inefficiencies due to the inherent conflicts of interest that the four partner companies faced; they were both GIE shareholders and subcontractors to the consortium. The companies collaborated on development of the Airbus range, but guarded the financial details of their own production activities and...
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