Individual Assignment Question 1. Why is Airbus interested in building the A3XX? What are its objectives? Airbus is interested in A3XX for a number of reasons. Firstly, Airbus did not have a product to compete with Boeing’s 747 in the VLA (very large aircraft) market. By developing the A3XX it can gain a share in the VLA market. Secondly, as A3XX has more space per seat and wider aisles, it can attract passengers especially on longer routes. Thirdly, by comparing to Boeing 747, Airbus has 35% greater capacity and provide almost 25% more volume for free.
Though operating cost per flight for Airbus would be higher, it would need only 323 passengers to break even compared to 290 for Boeing 747. Lastly, from the numver of announced orders (32) of Airbus A3XX, there provides sufficient confidence for Airbus to build A3XX to meet the potential demand of customers. Below are the objectives for Airbus in building the A3XX. Firstly, as from the Airline Monitor suggested, A3XX will eventually replace the 747 as the ‘Queen of Air’, as every top international carrier will feel the need to have it.
Secondly, from the fleet composition for the 15 largest Boeing 747 Operators, there’s around 44% of using 747 as a total of the Widebody Fleet. Thus Airbus can gain a significant market share in the Largest Operator segment by building the A3XX. Thirdly, Airbus would have operating margins of 15-20% after delivering the first plane in 2006, and reaching full production capacity in 2008. This will be much higher compared to the operating margin of 5. % in 1999 (896/16700). Lastly, by increased capacity after building the A3XX, Airbus can increase the market share of both Deliveries and Orders segment. From the market share of Deliveries and Orders segment (5 year average from 1995-1999), Boeing has 68. 1% and 56. 5% respectively while Airbus as only 31. 9% and 43. 5% respectively. Since entry by new airlines was unlikely, Airbus believes that capacity increase will lead to increase in market share of this segment.