TEAM 1 – Airbus AXX Future of Air Transportation and Possible Air Response

Evaluate how air transportation is evolving – point to point vs. hub and spoke Point to Point – Direct Flights Between Secondary Airports Dependent on passenger income added cost for convenience Higher fuel cost per passenger Higher frequency of flights (Southwest Airlines) Medium-sized, long –range aircrafts (777) Hub and Spoke – Flights from Secondary Airport to Primary Airport to Secondary Airport International travel Long-distance and long duration flights Requires at minimum two legs to reach destination High passenger density

Resultant demand for VLAs Factors Airport growth rate = 1.7% Passenger growth rate = 5.0% Increased range of smaller capacity planes Number of city pairs over 3,000 miles has doubled since 1990 Cargo capacity increase Conclusion VLAs offer solution to select market High population density

Analyze Boeing’s possible competitive response to A3XX 1. Develop a stretch version of the 747 (the 747X) Modify existing design to compete 2. Cut prices of the 747 Response only in special cases 3. Develop a competing super jumbo jet Current demand does not justify initial research investment 4. Ignore the potential threat Allow Airbus to take risk 5. Capture point to point market (BEST OPTION) Develop/Expand point to point market using medium capacity long range

How would Airbus decisions and Boeing’s response change due to changes in fuel prices, euro value changes? Increased fuel prices = Increase demand for VLAs Decrease in Euro value change = Increase foreign demand and increase flight demand for VLAs

Should Airbus launch A3XX? NO, NOT YET Point to point traffic is continuing to increase Competition with Boeing Current demand for VLAs is driven by range Medium sized aircrafts can achieve similar range Airport capacity will be limiting factor in the future