Iberia airlines builds a batna

Case study in the INTERNATIONAL MARKETING course.Presented by: Ashraf Hatem Hlouh

Iberia Airlines Builds a BATNA

IBERIA AIRLINES BUILDS A BATNA

THE CASE Iberia wanted to buy new jetliners Enrique Dupuy : chief financial officer and the man who led

its search for wide body jets, meant from the start to run a real horse race. Dupuy made it very competitive, His rule: “Whoever hits its target, wins the order”.

Bright (Boeing) : who had been appointed Boeing 777 as a "revenue machine" He insisted that his could earn Iberia about $8,000 more per flight than the A340-600 because it can hold more seats and is cheaper to operate.

Leahy (Airbus) : who is fumed at Iberia's pricing demands. A New York City native and the company's highest-ranking American, he pursues one goal: global domination over Boeing.

BATNA : Best Alternative To Negotiation Agreement.

Two competitors: Airbus and Boeing are competing for market share through price cuts. In a volatile industrial market this guarantees major advantages in the bidding process. We, of course, cannot and would not counsel collusion between the aircraft makers. But, both firms would be better off with less aggressive price discounting. One of Boeing's failings is to not have a European working on business in that part of the world. Notice how Airbus has hired an American (Leahy) to sell planes in that market

Boeing Airbus

IBERIA AIRLINES    whom does it serve? 

In 1944, the civil Aviation Conference was held in Chicago, where fifty two states sighed an International Convention that established the basic principles for the functioning of the air market: each country could negotiate bilateral agreements with other countries in order to regulate the market conditions that would govern air traffic.   Before the 1980’s, the planning system used was basically “ point to point”, that is to say, direct flights from one city of origin to another of destination. Instead of planning simple routes, they planned routes from and to the hub airports that came from or were going to other cities.

What value does Iberia Airlines deliver?

They used medium and low capacity aircraft on low density routes. Generally they only made domestic flights and rarely international ones. They competed with flag carriers and also with low cost carriers, which had caused a decline in their per passenger income. For that reason, some regional companies decided to go into partnership with flag carriers which results to also low cost carriers. 

Why does Iberia Airlines matter?

It matters with the 1.9 billion passengers carried safely by the airline, because of the low cost but efficient carrier.   The strategic master plan II 2000-2013, established customer service as one of its priority objectives which in fact result with the passenger’s satisfaction that would be converted to profit. 

What is Iberia Airlines ambition?

Its ambition is to suffice the need of its passengers while giving low cost in a way that their service will be still in the international level and not only for domestic purposes with the intention to give a safe and worth it flights. 

  What is its difference?

Its difference is that it gives low cost flights which gives the customers the right satisfaction. They managed flights “point-to-point”, both..Re: Sales Cycle Analysis.

Iberia's Dupuy played the game to perfection. His critical task was to strengthen his BATNAs (best alternative to a negotiated agreement).

It had been a long time since Iberia had bought Boeing. He went to great lengths to bring the Boeing folks into the bidding contest including offering to fly the 14 hours to Seattle.

Another stroke of genius was to bring the used Singapore Airlines 747s into consideration. He also had done a good job during the 1995 (another bad market year for the aircraft makers) negotiations with airbus by including the resale price guarantees

Bright (Boeing) was in trouble from the start. But, in a down market he could hardly ignore a big order even from a European airline with cozy connections to Airbus.

He did do well on the creativity dimension by guaranteeing GE concessions on engine maintenance.

Leahy (Airbus) probably gave away too much in price and had not bothered to include a confidentiality agreement about the final price.

Airbus and Boeing are competing for market share through price cuts. In a volatile industrial market this guarantees major advantages in the bidding process. We, of course, cannot and would not counsel collusion between the aircraft makers.

Both firms would be better off with less aggressive price discounting. One of Boeing's failings is to not have a European working on business in that part of the world. Notice how Airbus has hired an American (Leahy) to sell planes in that market.

TOP TEN STRATEGIES FOR NEGOTIATION

PrepareSet an aggressive goal Improve your BATNA Establish a reservation priceCreate a scoring system Carefully analyze the client’s BATNANegotiate at the package levelMake the first offer and build a rationaleLeave yourself room to concedeMake multiple equivalent offers

simultaneously

CRITIQUE THE NEGOTIATION STRATEGIES AND TACTICS OF ALL THREE KEY EXECUTIVES INVOLVED: DUPUY, LEAHY, AND BRIGHT

Dupuy: Manipulative, StrategicLeahy: Better investment returnBright: “Revenue Machine”,

Wanted to be considered on more than price

CRITIQUE THE OVERALL MARKETING STRATEGIES OF THE TWO AIRCRAFT MAKERS AS DEMONSTRATED IN THIS CASE Airbus (Europe)

• Better investment return• Could be more easily integrated

with their current planes• Helping to save money in the long

run• Already less expensive to

purchase Boeing (USA)

• “Revenue Machine”, More seats allowing additional earnings of about $8,000 more per flight

• Less expensive to operate and maintain

• Emphasized comfort and operating costs

WHAT WERE THE KEY FACTORS THAT ULTIMATELY SENT THE ORDER IN AIRBUS’S DIRECTION?They met the requirements Dupuy set

up in the beginning“Later, Foreyard got on the phone

with Iberia’s Irala, who said he still needed two concessions on the financial terms and economics of the deal. Airbus had already agreed to most of Dupuy’s terms on asset guarantees and, with engine maker Rolls-Royce PLC, agreed to limit Iberia’s cost of maintaining the jets. forgeard asked if relenting would guarantee Airbus the deal. Irala replied yes, pending board approval—and looked over with a grin at Dupuy, who sat nearby with his laptop open. Forgeard acquiesced. Dupuy plugged the new numbers in his spreadsheet. Airbus had hit its target.

“In the end, Airbus nosed ahead thanks to its planes’ lower price and common design with the rest of Iberia’s fleet. By offering guarantees on the planes’ future value and maintenance costs, plus attractive financing terms, Airbus edged out Boeing’s aggressive package. The deal’s final financial terms remain secret.

QUESTIONS1. Critique the negotiation strategies and tactics of all three key

Executives involved: Dupuy, Leahy, and Bright. A good answer will recognize the skill and

professionalism of Iberia’s Dupuy who appears to have played the game to perfection. His critical task was to strengthen his BATNA (best alternative to a negotiated agreement). It had been a long time since Iberia had bought Boeing aircraft. He went to great lengths to bring the Boeing executives into the bidding contest, including offering to fly the 14 hours to Seattle.

Another brilliant move was to bring the used Singapore Airlines’ 747s into consideration. He had also done a good job during the 1995 (another bad market year for aircraft manufacturers) negotiations with Airbus by including the resale price guarantees.

Bright (Boeing) was in trouble from the start but, in a down market he could hardly ignore a big order even from a European airline with strong connections to Airbus.

He did do well on the creativity dimension by guaranteeing GE concessions on engine maintenance.

Leahy (Airbus) probably gave away too much in price and had neglected to include a confidentiality agreement regarding the final price.

2. Critique the overall marketing strategies of the two aircraft makers as demonstrated in this case.

Airbus and Boeing are competing for market share through price cuts. In a volatile industrial market this guarantees major advantages in the bidding process. We, of course, cannot and would not advise collusion between the aircraft manufacturers.

Both firms would be better off with less aggressive price discounting. A good answer would explore other avenues for winning industrial accounts such as after sales service, guarantees, staff training etc. One of Boeing’s failings is to not have a European working on their business in that part of the world. Notice how Airbus has hired an American (Leahy) to market aircraft/to sell aircraft in the American market.

3. What were the key factors that ultimately sent the order in Airbus’s direction?

A good answer will recognize that the strong personal and political relationships between the top executives at the European firms clinched the deal. This emphasizes the great importance of relationship building .

4. Assume that Iberia again is on the market for jet liners. How should

Bright handle a new inquiry? Be explicit. A good answer will recognize that price cutting has its

problems and competition for capital intensive products can also take place on other levels. In future negotiations with Iberia, real consideration has to be given to bidding list price and perhaps concentrating more on a ‘bundle’ of other benefits such as after sales service, pilot training etc. One needs to consider all the aspects of Airbus policy in this particular

Transaction, in terms of the positive and minor effects of massive discounts on list prices coupled with asset guarantees on the re-sale of second-hand aircraft, maintenance agreements etc.

Without proper consideration there could be serious financial consequences for both manufacturer and airline operator. These are some of the aspects that Bright would have to consider should Iberia be shopping for more aircraft in the future.

Thank you for your attention