How the Macroeconomic Environment of the Airline Industry Affects the Strategic Decision of Boing vs Airbus

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Christian Uwagwuna

How the Macroeconomic Environment of the Airline Industry Affects the Strategic Decision of Boing Vs Airbus A Case Study

Document Nr. V170506 http://www.grin.com/ ISBN 978-3-640-89394-2

9 783640 893942

‘Case Study – How the Macroeconomic Environment of the Airlines Industry Affects the Strategic Decision of Boeing Vs Airbus’ By

Christian Uwagwuna

Course: Strategic Management

27 January 2011

Executive Summary
This paper discusses the external economic factors affecting the strategic decision of airline industry and how this decision in turn, affect the market forecast of the aircraft manufacturing industry. Various business issues affect airlines operation either directly and indirectly, and these issues affect the strategic decision of the airline industry. The present economic crisis, instability in aviation fuel price, and environmental factors (such as the recent volcanic ashes and snow) has further shrunk business in the airline industry and thereby increasing competitive rivalry. Although the future projected growth by the airline industry look promising, factors affecting airline businesses can make it daunting. Strategic decisions however, will help the airlines to maximize this positive forecast. To make these decisions, it is vital for the origination to understand the macroeconomic environment affecting the airline industry. Various framework and models have been developed to help organizations study and understand the macro-economic environment affecting their business. One example is of such framework is PESTEL (Political, Economical, Social, Technological, Environmental and Legal), used by firms to study external economic factors affecting airlines and how they make strategic decisions in order to be able to withstand the influence these factors exert on their business. Another model developed by Porter (Porter five forces model) also serve as a veritable tool that help the airlines industry to identify the different external forces such as threat of new entry, buyer’s bargaining power, supplier’s bargaining power, threat of substitute and competitive rivalry that exert immense pressure on the airline industry. The decision taken by airline industry based on analysis of the external economic factors, directly or indirectly affect the airline manufacturing industry. Presently, the airline manufacturing industry is a duopoly comprising of two players: Boeing and Airbus. These aircraft company has been neckdeep in competition with each over who control the highest market share. PESTEL and Porter’s five forces analysis also help the aircraft manufacturer to understand the impact the airline industry plays on their survival and what strategic decisions they will make in order to stay competitive. Currently, an analysis of the external environment and the future forecast in the airline industry has made both Boeing and Airbus to make a strategic differentiation, each targeting a niche in the airline industry. For example, While Boeing foresees a growth in the next 20 years in direct pointto-point travel between cities, Airbus foresees a growth in mass transportation of passenger between major hubs. These differences in forecast have led both companies to develop aircrafts that have different carrying capacity and range. While Boeing built the low cost B787 aircraft with great speed and to

reach a farther range, Airbus built the A380 that has the capacity to carry more than double the number of passengers B787 can carry but with a lesser range.

Part A: External Economic Factors Affecting Airline Industry Introduction Few inventions have affected on a large scale how people live and experience the world as did the airline industry. The airline industry remains a big and growing industry such that today, air travel has become commonplace as it is becoming more and more affordable to various income classes of the society. Air travel has also changed the way we live...
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