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Collision Course in Commercial Aircraft.

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Introduction

Nile W. Hatch Marriott School - BYU Instructions for Airbus A3XX: Developing the World's Largest Commercial Jet In this case, we will be analyzing strategic interaction between Airbus and Boeing, the two leading producers in the global commercial aircraft industry. In particular, we will be considering Airbus' proposed launch of the A3XX, their entry into the intercontinental jumbo jet segment, and Boeing's potential competitive responses to this entry. We will attempt to answer the questions: Should Airbus enter the jumbo jet segment? If so, how? And, what should Boeing do about it?1 An appropriate analysis of this situation requires the integration of a variety of tools and concepts to which you have been introduced both in this course and the rest of the MBA curriculum. In particular, you will use cashflow analyses of the different scenarios that could play out in this industry and attempt to understand which of these scenarios are more likely to occur by applying game theoretic reasoning to this situation. Based on this analysis, you will then make recommendations concerning what your team thinks Airbus or Boeing should do2. While your quantitative analysis of this situation should form a basis for your recommendation, you should certainly consider other factors you deem important (but not accounted for in the model) ...read more.

Middle

This principle refers to the idea that when attempting to determine what your course of action should be in a given situation, it is important that you consider the potential responses a competitor may use. If you can anticipate how a competitor is likely to react in a situation, you can pick your actions contingent on those potential responses, thus, improving your performance. Throughout this quantitative analysis of Airbus vs. Boeing, you have been applying the principle, "Look forward, reason back." When you account for the pricing strategy used by Boeing when determining Airbus' pricing strategy, you are applying this principle. When you consider the outcomes of the pricing competition between Airbus and Boeing while deciding whether to launch a new jumbo jet, you are once again making use of this important principle. When you attempt to figure out whether Airbus should launch the A3XX based on Boeing's potential responses to Airbus' strategy, once again you are "looking forward (to Boeing's response), and reasoning back (to figure out what Airbus should do)." Thus, this fundamental principle is nested throughout the analysis. Exercising Judgement in the Use of Quantitative Analysis The exercise of constructing a quantitative model of a business situation is valuable for a number of reasons. ...read more.

Conclusion

So, as the price for aircraft goes up, the expected level of demand goes down. Second, airlines decide whose aircraft they will buy based on who provides the best efficiency advantage. In this model, your market share is equal to the efficiency advantage you provide relative to your competitors. Having this factor included in the model means that Airbus has slightly more pricing flexibility relative to Boeing because the A3XX is 20% more efficient than the Boeing according to case. However, we can assume that such an advantage disappears if Boeing launches a new plane. This leads to another point. The model explicitly assumes that operational efficiency is the only form of differentiation advantage available to Airbus and Boeing, but there are others. For example, we might expect the design of the passenger cabin, etc. would be important to Airbus' and Boeing's customers, the airlines. In addition, Boeing probably has more brand name and reputation capital than Airbus. After all, the 747 has been flying for 30 years with one of the lowest accident records of any aircraft. These are just a few examples of the types of issues you can think about. Obviously, given the space constraints that you face, you can't write about everything, and you need to prioritize your analysis. But, it is good practice to think in pretty broad terms about these issues. ...read more.

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