Read the following then answer question.
LEARNING FROM MISTAKES
When the European aircraft maker Airbus announced the development of the world’s largest passenger airplane A380 in 2000, it was the answer to Boeing’s decade-long dominance of the jumbo jet market. Singapore Airlines took delivery of the first A380 in 2007 after two years of production delays due to technical challenges. Passengers loved the superjumbo for its spacious cabins and quiet interior, but airlines did not share the same enthusiasm. After Airbus invested more than $17 billion into the project, the company announced in 2019 that it would discontinue the A380 production by 2021. At that time, Airbus estimates to have sold fewer than half the A380s it expected to deliver. What went wrong?
Airplane projects have extremely long life cycles, with some airliners flying for more than 30 years. When the A380 development started, Airbus bet that the market demands in the airline industry persisted. At that time, airlines used a hub-and-spoke approach, requiring large jetliners to fly between hub airports such as New York and London. However, this model is increasingly supplemented by direct long-haul routes that can be served more economically by smaller (and more fuel-efficient) airplanes.
In addition, the size and luxury of the A380 have contributed to its demise, even on routes connecting hubs. The A380 was often described as a “hotel in the sky,” which was able to transport at least 500 passengers and allowed airlines to offer onboard perks such as bars and beauty salons. Yet, such amenities added weight and proved incompatible with the changing business model of airlines. It also proved difficult to fill the seats on such a large aircraft due to lower than expected passenger demand. As a result, airlines offered discounted fares to boost demand and ensure high capacity utilization.
Around the same time that Airbus developed the A380 superjumbo, Boeing set out to develop the midsized 787 Dreamliner with a different vision of clients’ future needs. Instead of focusing on size and perks as Airbus did, Boeing focused on fuel efficiency and comfort. Airlines flocked to the Dreamliner because it works better in an economy with higher fuel prices and allows for easier booking to ensure jetliners fly full. Airlines are also able to use the Dreamliner to bypass hub airports and connect distant cities directly, offering airlines more flexibility.
- Given that it is difficult to predict future market needs and trends in industries with long product life cycles (such as jetliners), how should managers deal with this uncertainty?
- How should Airbus compete against Boeing going forward?