PEST Analysis of Airbus

PEST analysis is a method of analyzing the external factors influencing any organization. PEST is the short form for Political Factor, Economic Factor, Socio-Cultural Factor and Technological Factor.

Political Factors:
* The largest growth in air traffic is seen in the Asian region, specifically the middle east. The tension or soured ties between Middle East and US, gives a slightly higher preference to a non US manufacturer and Airbus is an automatic choice.
* The recent deal with the US Air Force for supply of tankers capable of mid air refueling, is a sign of US opening its military contract deals to companies across its borders (Read companies other than BOEING).
* Issues within the EU projected over the shareholders of AIRBUS.
* Politically correct placements of manufacturing facilities prevents airbus from moving production out to more economically friendly countries.
* Liberalization of travels between EU and US has opened up a large demand for air travel between the two region and hence the demand for more aircrafts.

Socio-Cultural Factors:
* Social Mobility has increased the demand for air travel.
* Change in the life style of people and the outlook of people toward air travel being a viable option.
* Higher technological advancements to reduce CO2 emission and Noise generated.

Economic Factors:
* World Sluggish Economy could potentially affect air travel demand.
* Impact of terrorist attacks, wars could also affect demand.
* An increase in military order can bolster demand for Aircrafts.
* Oil price Increase can decrease demand.
* Changes in interests and currency value.

Technological Factors:
* The Aircraft Industry is the one demanding the highest possible degree of R&D and innovations.
* Carbon Fiber to be used in Construction of the body (Eg: A350 XWB with 50% carbon fiber body).
* More Fuel efficient engines for longer range.
* Alternative fuels to negate the effect of increasing oil prices.

Airframer Industry - Five Forces

Hi,

Five Force is a way of analyzing an industry. Any strategic manager creating a strategy for his/her company has to analyze the environment/industry the organization is in. This will help them assess how the industry is going to change in the foreseeable future and how well to respond to them.

According to Porter, the five forces affecting any industry are:
* Threat from New Entrants
* Threat from Substitutes
* Threat of Suppliers' Bargaining Power
* Threat of Buyers' Bargaining Power
* Threat of competitor(s)

Lets analyze these from an Airframer (Aircraft Manufacturer) Industries' point of view.

* Threat from New Entrants: Well the fact that Aircraft Manufacturing is such a capital intensive industry itself brings the threat to a very low level. Also the Brand Loyalty with the established players would be so strong that they would have to overspend on brand building measures thus reducing the efficiency of the financial spending. Moreover the 2 companies having duopoly in this industry namely Boeing and Airbus are being backed by US and EU respectively. So the threat of another player from these regions emerging is nullified. But having that fact spelled out, it opens a very large threat. The largest growth in Airline Industry is seen in Asian Countries and the fact that India and China are emerging as a formidable economy opens a large opportunity for another regional manufacturer. Last year china announced that they would manufacture a large commercial jet (http://news.bbc.co.uk/2/hi/business/6465763.stm). Looking at all these points we can conclude that the threat of new entrants to this industry, at least in the near future (10 years) is pretty low. The threat level could be 3/10.

*Threat from Substitutes: Well substitutes with respect to the whole Airframer industry are: High Speed Trains and High Speed Ships. Well road transport can really not be such a large threat for a reason that it is comparatively very slow. But the advantages with Airplane than with Trains and Ships are so high that the price factor for the substitutes are nullified. Again, we can conclude the threat from Substitutes is very low and could be scored at 1/10.

*Threat from Suppliers' Bargaining Power: There are a lot of suppliers for an Airframer Industry, from engines to the material used to build bodies to the material used in wiring the on board entertainment systems! The threat of Forward integration by the suppliers is so low because of the intensive capital investments. Also the Brand Loyalty to the established players. The Airframer industry is growing so much so that both Boeing and Airbus in their 20 year prediction have predicted that the world will require 25,000+ new aircrafts. This includes the replacements of the existing planes which will have to be retired from service. Hence the Airframers are doing bulk business which reduces the suppliers bargaining power. We can conclude that the threat from Suppliers Bargaining Power is low and be scored at 2/10.

*Threat of Buyers' Bargaining Power: The buyers for the Airframer Industry are the various Airline operators (Passenger, Cargo and Private) around the world. Their bargaining power is so much so that, today both Airbus and Boeing have special managers only to take tailoring requests made by their customer/buyers. They have high bargaining powers. A new product or technology's cost is calculated by the predicted sales of that product. So any cancellation of orders by the buyers would mean that the manufacturers are bearing the cost of under priced product. This threat is immense and can be scored at 8.5/10.

*Threat of competitors: The Airframer Industry is a duopoly, which means there are 2 major players namely Boeing and Airbus. The equations in this industry is almost ZERO sum. That means, the loss of one is the gain of the other. There is fierce competition. They have products targeting each others product lines. There is fierce price competition to gain market share. Governments are involved in legal disputes regarding the two companies. But the demand for aircraft is also increasing. There is room for both players to work in tandem. Both the manufacturers are realizing this and moving to 'Product Differentiation' strategy. This will help both the companies to compete fairly. The threat from competitors is moderate and can be score at 5/10.

Introduction

Hi,

I am an MBA student from Coventry University. During one of my modules, I had to do some research on Airbus from a Strategic Management point of view. I had to scavenge the internet to find suitable materials to make a powerful presentation. Finally, after about 2 weeks of efforts, I managed to gather enough information to create a decent presentation.

The struggle I had while researching made me realize that my research could help another student, if at all they happen to choose the same topic as I have. I urge anyone using information in these pages not to merely copy the information given and paste it in their assignments/dissertation, but use it as a blue print and do their own research.

All the best to all the students out there. All I have to say is, Fight Plagiarism - Use Referencing!

Thanks,
Imran Rafai