Boeing and Airbus have created a fierce rivalry within the aviation industry for the last two decades (Zhang 2017). Subsequently, the greatest level of competition and strategic differential within this duopoly exists within the super jumbo category and thus, this report is tailored toward analyzing the effectiveness and potential advantage that either organization has created. Following a joint 1992 study, the companies arrived at different conclusions on how best to service the industry (Hanson et al. 2011, p. 3). Boeing introduced the Dreamliner 787, focused on delivering long-range efficient flight for 300-330 passengers and subsequently adopted the point-to-point system (Topham 2013). This system required the 787 be designed with the ideology of being more accessible to smaller, more abundant airports. Airbus however introduced the enormous A-380, offering 550+ seats for long-haul flights and consequently implemented the hub-and-spoke system (Hanson et al. 2011, p. 3). Consequently, the A-380 can only land at airports with appropriate infrastructure (approximately 35 airports worldwide) and often requires passengers to catch connecting flights before arriving at their final destination. Currently, Boeing’s 787 competitive strategy has gained the ascendency (in terms of aircraft orders), thus Airbus must respond accordingly (Hanson et al. 2011, p. 3).
2. Case Study Analysis
2.1 The VRIO Model
In order to assess the competitive landscape, it is essential to identify the capabilities unique to both organizations. Capabilities are best described as the resources that are implemented to complete distinct processes. As a result, when these capabilities are employed effectively and create a source of competitive advantage over rivals within the common market, they are expressed as core competencies (Johnson et al. 2011, p. 89). For Boeing and Airbus, there are various core competencies highlighted throughout the study that provide competitive advantage. Subsequently, the VRIO model, which adopts a framework based upon four distinct criteria, is an appropriate way to analyze the specific strategic position of both companies (Johnson et al. 2011, p. 89).
The four capabilities, in order of increasing levels of competitive advantage are; valuable, rare, inimitable and non-substitutable (Hitt et al. 2009, p. 81). Value capabilities outline the firm’s ability to exploit and maximize the markets potential, neutralize threat of competition and limit expenditure (Johnson et al. 2011, p. 90). Rare capabilities are the processes that only a few, if any competitors possess and must display the capacity to sustainably execute customer necessities for extended periods (Johnson et al. 2011, p. 90). Inimitable capabilities cannot be mimicked, potentially due to patents, significant complexity, unmatched adaptability to change or exceptional standards of performance (Johnson et al. 2011, p. 91). Lastly, non-substitutable capabilities are those that do not have a direct equivalent, either with respect to a product or service, as well as another competency (Johnson et al. 2011, p. 93).
The VRIO model not only identifies potential threats, but also recognizes the capabilities that aren’t offering competitive advantage which require attention, as well as ensuring the capabilities that are delivering competitive advantage are sustained and developed (Johnson et al. 2011, p. 94). In the case of Airbus, design issues with the A-380 have forced them to lower the leasing price to increase future sales. This is an example of an unsustainable value capability in the long-term, as it is likely that lease prices will return to a more profitable margin. Despite this, they still possess an inimitable product, an aircraft capable of carrying 550+ people and offer a non-substitutable service for those buyers (major airlines such as Etihad, Emirates etc.) wishing to ferry as many people as possible at once (Hanson et al. 2011, p. 3).
In contrast, Boeing has established rare capabilities through dedicated customer focus programs and identified that a point-to-point system, allowing for fewer transfers and lower financial risks for buyers will increase total orders (Hanson et al. 2011, p. 3). Furthermore, they have created value capabilities by outsourcing 85% of their production process in conjunction with subsidies from US governmental departments, NASA & Department of Defense (Simons 2014, p. 238), substantially lowering the lease price of which Airbus cannot replicate due to European Union legislation that stipulates manufacturing must remain inside European countries.
2.2 Value Chain Concept
In addition, the competitive landscape between these two rivals can be assessed using the value chain concept, as introduced and illustrated by Michael E. Porter (Porter 1985, p. 45). Porter suggested that grouping activities into specific categories that help to produce a good or service can aid in identifying areas that are particularly significant in creating value and those that are not (Porter 1985, p. 46). It separates the primary activities, those that directly create the product or service from the support activities, which are designed to supplement the primary activities (Johnson et al. 2011, p. 98). In line with Porter’s framework, the primary activities most applicable to both Boeing and Airbus would be logistics, operations, marketing/sales and service. Supporting these activities would involve procurement, HR management, R&D and organizational structure/hierarchy.
Adopting this concept, it is evident that Boeing creates value predominantly through its inbound logistics process, having developed a complex worldwide outsourcing network that allows for lower cost and the ability to source material from the most beneficial source. This results in Boeing creating a cost leadership strategy of business as they are able to produce a similar product for a lower price (Presutti & Mawhinney 2014, p. 28) On the contrary, it would appear that Airbus has its greatest value added from its operations and accompanying technological R&D, as demonstrated by its ability to be fuel efficient on such an enormous plane (Topham 2017). Consequently, they have positioned themselves using a differentiation strategy given that they cannot compete with Boeing based purely upon cost price (Presutti & Mawhinney 2014, p. 28).
3. Strategic Solution
As a result of this analysis, governed by the forces of competition, the way in which each organization attempts to influence its microenvironment (competitors, suppliers and buyers) has become apparent (Hitt et al. 2009, p. 48). Boeing has been able to adapt to customer trends and create efficiency within their production and outsourcing processes, leading to overall competitive advantage. Given that it is unlikely for Airbus to realistically compete with Boeing’s established point-to-point system, they should continue to push for differentiation. This would inherently require the organisation to continue their use of their hub-and-spoke method however, in order to increase the number of airports that the A-380 can fly into, partnerships with growing airports within developing countries may aid in providing greater flight routes into the future.
4. Affecting the Triple-bottom-line
This strategy would lead likely lead to significant financial gain for Airbus, since international air travel increased by 6.8% in 2017 throughout Australia alone (BITRE 2017). This suggests that air travel is becoming more accessible to the wider public and as a result, leasers of aircraft will likely expand their fleet to balance customer demand. Furthermore, infrastructural investment would benefit Airbus’ social footprint, as they would be working to provide improved infrastructure to developing countries and create shared value for various stakeholders (Porter & Kramer 2011, p. 63). However, this strategy will have little affect on the environmental perspective of the framework.
5. Limitations of Solution
If developing countries were unwilling to cooperate and foster partnerships with Airbus, this strategy would be rendered ineffective. Furthermore, this strategy would require Airbus to financially invest in the infrastructure within emerging countries, without immediate guaranteed returns upon investment. Thus, it would be essential to do extensive research on market and passenger trends as well as gaining opinions from airlines, to ensure that capital was only invested in areas that would yield ‘above average’ returns.
These organizations have created extremely high barriers to entry within the industry, which appears likely to remain a duopoly. Consequently, Airbus should invest in developing countries, opening ‘ferry’ routes that adopt the hub-and-spoke system and be reliant upon fostering mutually beneficial partnerships with governments outside of the EU.
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