Airbus A3XX: Developing World's Largest Commercial Jet Essay

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Airbus A3XX: Developing World's Largest Commercial Jet

The report will look at Airbus intentions to develop a new large capacity aircraft called A3XX. This report will start by analyzing the entire airline industry, its trends, and dynamics. This will help to show why adoption of large commercial jets will not satisfy the needs of the airlines now and in future. According to this report, buying Airbus A3XX is not a viable option and this report will go ahead to provide reasons for it lack of viability and at the same time provide alternatives that the Airbus should have adopted instead and the lesson that should be learnt from this case analysis.

In order to compete with the global airline market, the Airbus must step up its game and be a step ahead those of its competitors. The airline industry is characterized with unpredictable fluctuations in the price of fuel, price on airfares and consumer demand. The effects are disastrous with the airline observing a decreased passenger travels rates, increased insurance costs etc. Any decision made by the airlines should be done taking considerations in to these factors and more.

'Future demands are leaning towards a preference for medium sized aircrafts with a long-range. Small to medium jets such as the Boeing747 and the Airbus 320 are the most preferred choices especially for domestic route.' (Esty, 2009). Even though the industry is experiencing rapid growth, the trend towards over-capacity is yet to pick because even the medium and small airlines are finding problems filling their seats. The story is however different with the freight sector where its demand is increasingly promising with capacity. 'The demand for freight services has shot up with 15.9% but the same cannot be said of the passenger's flights and thus no need for large capacity commercial jets.' (Esty, 2009).

The purchase of airline A3XX needs have taken the many factors that are combined to determine whether the airline is competitive or will it serve it purpose. For better revenues, an airline must be able to fill the seats in the airplane. 'A good gauge is the Break Even Load Factor (BLF) which measures the percentage of capacity needed on a plane o cover its costs." (Esty, 2004).

'According to the United States Bureau of Transportation, the BLF for profitable airlines have generally fluctuated between 60% and 65%. The calculation of the BLF also includes the actual yields from seat sales to maximize accuracy. Costs incurred by airline mainly include labor costs, fuel, and maintenance. The airlines are largely not controllable by the airline, although they can negotiate for competitive wage structures. Airlines lose money for every minute when they are redundant and are not transporting passengers.' (Esty, 2009).

There are currently two dominant business models in the airline industry; hat is 'hub and spoke' model commonly in use by traditional airlines. The second model is 'point to point' model usually deployed by regional or budget carriers such as Virgin. The first model allows passengers to connect and thus benefit from the volume of passengers from connecting flights. In other word, the passengers traveling out of the hub is significantly higher, and for this case having a large aircraft such as B747 is a great idea. For the second model, carriers transit just between two airports. The airplane does not have to wait for connecting flights, as a result it has a faster turn around as compared to the first model but due to failure to connect, its seats may fail to fill.

The Airbus A3XX was developed so as to curb the problem of congestion at major hub. With its large seating capacity it would solve the problem by accommodating many passengers. Airbus felt that point to point routes are not feasible as they are many difficulties faced when opening airports and that Asia lacks urban centers to support new destinations. Bigger capacity planes are usually used at hubs where the volume of travelers is significantly higher, thus with airlines bypassing their hubs, the demand of VLAS will diminish. More airlines are also opting to offer their services to secondary airports, and in such case the small planes are more economical.

The introduction of a large plane was an uncalculated step because the demand for huge planes id decreasing and more airlines companies are opting to purchase the smaller planes such as B777. Large planes such as A3XX are more economical to use as the fixed cost of the plane is spread over more passengers. However such benefits are only achieved if a decent load factor (PLF) is achieved.

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'Given that the industry PLF is just 70%, this low percentage together with a lower turn around time, higher parking fees and the higher cost of the A3XX make the plane uneconomical for airlines. Airbus finds itself in a difficult position where it cannot easily sell its A3XX due to Boeing's stretched version of the B747 which offers reduced traveling time. The launch of the supersonic jet also works against Airbus A3XX and it cannot easily sell its A3XX. The launch of A3XX thus seems not viable.' (Endres, 2001)

The impact of the purchase of A3XX to the Airbus industry is that it is unlikely to that the model will dominate the VLA market and the industry will suffer losses in terms of the opportunity costs of $13bilion that was used to develop the A3XX. This huge amount of money could have otherwise been used to develop other Airbus models such as the A318 and A340. The failure to launch the A3XX, will unlikely make the company go bankrupt, if at all the allegations of its heavy subsidization by the European Union is true.

So is the A3XX viable in this industry? In the past they have been many companies that have failed while attempting to introduce new planes into the market. One good example is General Dynamic among others. The main cause of the failure is he costs made upfront before the planes are actually manufactured. These upfront costs/investments are usually too huge and mainly cover research and development spending and the uncertainty on demand make this launch extremely risky. For instance the A3XX has been estimated to cost $13 billion dollars just to launch.

The ultimate success of the launch depends on the Airbus capability to attract at least 250 orders. So will A3XX pull such an order at its launch? That is the big question and which will determine its viability in this market. To answer the above question or to know A3XX viability, there are factors that will need to play to its (A3XX) advantage. These factors are; the extent to which the plane caters to passengers' preference, its profitability level to its airlines, and Boeings' response to the launch. Other pertinent factors include the future picture of the airlines business models and the future market for the various types of planes.

In the past they have been purchase of many airline and all of them competing to make it in the industry. So, there is already the problem of congestion along various routes and specifically at major hub. The introduction of A3XX will just worsen the situation and with its large capacity and competing with mainly medium air crafts, this going to be a great challenge. Flight frequencies and increasing point to point routes is just but a temporary solution. Increasing the frequency of the flights on the other hand is limited by the number of runaways, airport curfew, and passengers' arrival preferences.

A3XX will also be in a fix in such a competitive market because the new routes have not been developing for quite for some time now. Furthermore, new airports cannot be opened even with the high airlines in the market. The above factors all work against the introduction another airline much worse a large capacity. It is also ideal to look at whether A3XX will relate to customers preference and what it will offer them. What are the customer's expectations? Is A3XX much safer? Is it more comfortable? 'In comparison to Boeing 747, A3XX has more space and a wider aisle, meaning comfort for customers is assured beside ease movement around the aircraft. A3XX is said to have four instead of two engines hence making the plane moderately safer. However the B747 has four engines and so this means that A3XX is not so unique and yet this makes it more expensive at a price of $230 million while the Boeing 747 costs only $187 million.

A3XX is also at an advantage because it uses technologies that are commonly amongst Air bus planes. These technologies include fly-by-wire technology and other performances characteristics. Hence in the long run, costs will be reduced as the same pilots within the airline can be scheduled interchangeably to operate different planes. B777 has also incorporated this technology and so it is no longer unique to Air bus planes. A3XX has to have relative unique features so as to make it past the….....

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