Porter’s Five Forces.
Risk of Entry by Potential Competitors – The aviation industry is a very difficult industry to enter, and the risky of entry by potential competitors is extremely low. Rivalry among established companies – The intensity of rivalry among established companies within the aviation industry is very high. Currently the only competitor or Airbus is Boeing. Both of these companies gain market share from each other using prices, product design, advertising, and direct selling efforts. Due to the intensity of the rivalry among Boeing and Airbus, the profits are squeezed. The Bargaining power of buyers – The aviation industry depends on airlines and governments for almost the all of its total orders. Also, due to the intense rivalry among Airbus and Boeing, the bargaining power of buyers must be moderately high. The bargaining power of suppliers – Airbus and Boeing are such big companies, they probably have more bargaining power than their numerous suppliers. Airbus also does risk sharing with many of its suppliers. The bargaining power of suppliers would probably be fairly low. The Closeness of Substitutes to an Industry’s Products – Boeings airplanes are very close substitutes to Airbuses airplanes. Complementors – The power of complementors is moderate. Complements such as TV screens, wi-fi interenet abroad a flight, decoration or comfort of the seats has an influence. However, with the recent trend towards low cost provider airlines, many complementors have not been as important as once expected.
The macro-environment has a strong influence on the forces in the Porter model.
Macroeconomic forces have had a major influence in Airbuses decisions. Since the airline industry is highly affected by the business cycle, the health of the economy can cause the airline industry to lose profitability. Interest rates could affect financing, and deflation could put a bigger burden on companies to repay their debt. A major factor we have seen is the fluctuation in currency exchange rates. The US dollar lost 30% of its value relative to the Euro, which caused Airbus’s A380 project to be far more expensive in dollar terms squeezing away at its anticipated profits. Political and Legal forces have had a tremendous influence on the airline and aviation industries. The continued deregulation of the airline industry has created new potential markets and low cost carriers in markets such as China and throughout Asia and even the US (think JetBlue, Southwest.) The trade wars between Airbus and Boeing involved bilateral agreements and restrictions have limited the amount of financing Airbus and Boeing can receive from their respective governments. This has forced them to adapt a more efficient process to become less dependent on government subsidies. Global Forces: The expansion of international trade and economic growth in countries, such as Brazil, China, and India have created large new potential markets for Airbus. Technological forces: Advances in materials engineering, avionics, engines, and production methods have allowed aircraft designers/producers to better meet the needs of their customers.
Corporate and Business Level Strategies
Airbus’s corporate level strategy is the production and sale of aircraft. It takes a decentralized approach to sales, empowering its sales staff to make on the spot decisions. Regarding production, they collaborate and engage in and risk sharing with suppliers. They use diversification to help build value through its services by creating safety, customer satisfaction, and contribution to airlines profitability. Airbus’ business level strategy is an integrated low-cost/ differentiation strategy. One of Airbus’s Co-founders, Roger Beteille, stressed the importance of the differentiation strategy when he said, “You cannot compete with the dominant player if you don’t offer something different.” They are trying to cut...