Primary problems
Mauricio Botelho, CEO of Embraer, has to contemplate several significant aspects that predetermine the potential development of the company. Embraer belongs to the list of the largest commercial manufacturers of airlines in the world. Its primary competitors in the global market are Airbus, Boeing, and Bombardier.
On the regional market, Embraer has only one strong rival — Bombardier. CEO of Embraer has to do his best to try to predict the possible reaction of competitors to the launch of the new family of jets. Thus, Botelho does not know the reaction of his competitors.
Botelho also has to think about whether competitor’s recent initiative will be successful. CEO of Embraer does not know whether Bombardier’s launch of CSeries (family of jets with 110-135 seats that should become a dangerous rival of Embraer) is a real threat to the successful implementation and development of a new set of jets. Botelho should not forget about Airbus and Boeing, as well.
There is a possibility that they will consider Embraer’s innovation as an attack. Nevertheless, the most significant problem derives from all these issues. Embraer has to define the strategy for future development for the maintenance of its position in the market of aircraft manufacturing.
Insights and potential decisions
Botelho should take into consideration the peculiarities of the U.S. market conditions as well as possible threats from its competitors. The U.S. Airline industry comprises of three types of carriers: major, regional, and low-cost.
The primary disadvantage of major carriers refers to a high price. Regional and low-cost carriers are much more competitive when it comes to pricing. In addition, many regional carriers can benefit from arrangements with majors.
The latter can use services of regionals to facilitate and enhance their connections. Botelho should also remember that all but low-cost carriers suffered from drastic losses of revenues after terrorist attacks on September 11, 2011. Consequently, the competitiveness of low-cost carriers increased.
Embraer and Bombardier are leaders in the manufacture of regional jets. The demand for regional jets increased with years, as they were convenient and cost-effective. This trend was useful for Embraer as far as it increased its project deliveries drastically.
Besides general trends, Botelho should evaluate previous reactions of his competitors to any changes or improvements. The competitive history of Bombardier and Embraer demonstrates that the first always try to outperform the latter almost immediately.
In 2004, Bombardier announced its plans to work on the new family of jets that could become severe rivals for Embraer. Besides, Boeing stops producing the 717. It means that it can direct all capacity into the market of regional jets. Thus, there are the following threats that influence potential decisions of Botelho:
- Increased competitiveness of LCC;
- Bombardier’s plan to manufacture a new family of jets;
- Potential competition with Boeing on the regional market.
Potential course of action
Having analyzed the competitive history and the commercial aircraft industry, Botelho should wait for the soon announcement of Boeing’s plans to develop a new family of regional jets. Together with Bombardier, Boeing may unsettle Embraer’s leading position. Botelho should also remember about another threat from the side of LCC.
The potential course of action for the maintenance of competitiveness should include the possibility to enter low-cost carriers’ sphere. Embraer has resources to enter the new market, and this change may save it from losses of revenue due to the rise of Boeing and Bombardier’s competitiveness.