Airbus A3XX

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Airbus A3XX
Developing the World's Largest
Commercial Jet
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• General Outlook of the Airline Industry
• (Trends, Dynamics and Dominant Model of the
  industry)
• Cost Rationale behind the launch of A3XX
• Analysis on the viability of the A3XX
• (Done in 3 different aspects)
• 4) Impact of the A3XX on Airbus Industrie
• 5) Recommended Strategy for Airbus Industrie

Overview
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The Airline Industry

• Highly Competitive
• Labor and Capital Intensive
• Emergence of Budget/Regional Carriers
• Sensitive to fuel, price, consumer

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Industry Trends
IATA Statistics
RPK- Revenue Per Passenger Kilometer ASK-
Available Seat Kilometer PLF- Passenger Load
Factor FTK- Freight Ton Kilometer ATK- Available
Ton Kilometer
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Industry Dynamics

• Revenue Driver- Passengers
• Break Even Load Factor- 60 - 65
• Cost Drivers- Labor, Fuel, Maintenance
• Aircraft Turnaround Time

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Hub Spoke Model
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Point-to-Point Model
Washington DC
London
Atlanta
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Cost of the A3XX

• Failure of prominent companies while attempting
  to launch new planes
• A3XX is estimated to cost 13 billion to launch
• Uncertainty in demand gt more risky
• Ultimate success ability to break-even and
  future demands
• Analyse the advantages of A3XX relates to
  consumers,
• profitability to airlines Boeings
  response

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Rationale behind the launch of A3XX

• Worsen of congestion problem at major hubs due
  to
• growth in air traffic
• Airbus Views - increased frequencies and number
• of routes is
  temporary
• - increasing point-to-point routes is not
• a feasible solution (e.g. the lack new
• destinations in Asia)
• A need for bigger planes with higher capacities
  (A3XX)

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A Breakdown of Our Analysis

• How it relates to consumer and
• airline preferences?
• How large the market for VLAs is?
• What are Boeings actual possible
• responses?

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How A3XX relates to consumer
airline preferences?

• Advantages
• More space and a wider aisle
• Usage of fly-by-wire technology (reduce costs)
• Has 4 instead (more safety)

• Disadvantages
• slower turnaround time due to large capacity
• slower evacuation time
• landing fees of plane is determined by weight
• higher noise emission

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Base All Respondents (Survey done by Boeing on
General Preferences)

AIRPLANE PREFERENCES BY REGION
U.K. Hong Kong Tokyo Plane preferences for
non-stop flight Economy Business
Travelers preferring 250-passenger
airplane 65 54 64 Economy Business Travelers
preferring 550-passenger airplane 21 40 22 Econo
my Leisure Travelers preferring 250-passenger
airplane 71 60 63 Economy Leisure Travelers
preferring 550-passenger airplane 17 37 28 Prefe
rences for direct flights via smaller plane vs.
transit flights involving larger plane Economy
Business Travelers preferring 250-passenger
airplane 73 75 76 Economy Business Travelers
preferring 550-passenger airplane 14 19 11 Econo
my Leisure Travelers preferring 250-Passenger
airplane 80 81 78 Economy Leisure Travelers
preferring 550-passenger airplane 9 16 11
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How large is the market for VLAs?
Small Market

• Increase of point-to-point routes
• Increasing demand for small medium capacity
  planes
• B747 bought for its range and not its capacity
• Airplanes not flying at full capacity

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More point-to-point routes...

• Increased services at secondary airports
• More direct routes that bypass major hubs
• Eg. Manchester - chicago route
• Limit to how much plane size can increase
• Safety, fuel consumption, slower turnaround time
  etc
• In Asia, lack of urban centres BUT, more point to
  point by using smaller planes thats compatible
  with smaller airports
• Eg. Penang Airport

More Point to point routes thus, less demand for
VLAs
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Increasing demand
for small medium
capacity planes
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• Travel in North America accounts for greatest
  share
• China has greatest growth rate
• Large rise in domestic flights
• Shorter haul trips require smaller single-aisle
  planes
• 73 of world fleet dominated by single-aisle
  planes
• Market for small capacity planes expanding
  rapidly

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B747 was bought for range not capacity

• 60 of the airlines that bought the 747 weve
  sold bought them for their range and not their
  capacity.
• 3 planes of a higher range of 8000m and above
• B747, A340-500 ,B777
• Only B747 has seating
• capacity of 400 and above

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• deliveries of the B747 have actually declined
  from 510 to 74
• orders for the A340 remained strong at 118
• If the B747 was in demand more for its seating
  capacity and not its range
• we would not see such low current orders as
  compared to theB777 and A340, which have lower
  seating capacity.

747 bought more for its range than seating
capacity
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Airplanes not flying at full capacity

• Large capacity planes economical as fixed cost is
  spread over a larger number of passengers
• A3XX has a higher list price and 12 more
  operating cost per flight as compared to the
  B747,
• the 35 increase in capacity makes it more
  economical
• BUT,
• On condition a decent Passenger Load Factor is
  achieved
• Industry average PLF is between 60-70

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• easier to achieve decent PLF with smaller
  capacity planes especially in times of recession
• Eg. SARS
• Airline industry increasingly more competitive
• Harder to achieve decent PLF
• A3XX is not economical for most airlines

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Boeing's Response

• To file a complaint to WTO against Airbus
• Develop a stretch version of B747 gt B747X
• To cut the price of B747
• Develop a similar jumbo jet to compete
• Totally ignore the Jumbo Jet Market

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• Initial plan to launch the supersonic cruiser
• But now, dedicated its resources to developing
• the Dreamliner B7E7

B7E7

• promises 20 reduction of fuel as compared
• to B747, B777 A380
• able to fly a range of 8500miles with speed of
• around 0.85 mach
• seating capacity of 217 or 250
• able to land in smaller airports as well

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Summary on Viability

• The future trend is towards smaller medium
  capacity planes and more point to point routes
• Current PLF is only 60-70 and expected to fall
• Boeings launch of planes that cater more to the
  future market will make the A3XX
• project not viable

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Impact on Airbus

• Based on our analysis, unlikely A3XX will
  dominate
• Airbus will lose in terms of opportunity cost
• 13b could have been used to develop planes that
  cater better to the future market
• Airbus unlikely to go bankrupt should allegations
  by Boeing be true
• Would mean Airbus is actually subsidised by the
• European Union.

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Recommended Strategies

• Improve current medium range planes (A340)
• Focus on upcoming A318 to target small and medium
  range plane market
• Play close attention to the B7E7 Dreamliner
• Demand for freight services grown 15.9 while
  Available Time Kilometer grew only 11.8
• Demand exceeds supply for freight services
• Should look more into this market

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Q A