A Marketing Report on British Airways

British Airways (BA) is the UK’s largest international scheduled airline. It operates international and domestic scheduled and charter air services for carriage of passengers, freight and mail. It has over 550 destinations globally which makes it the leader in the industry.

BA has it’s main hubs at London Heathrow Airport and London Gatwick Airport. It’s headquarters is located at Waterside. British Airways is said to be the largest airline in the UK based on fleet size, international flights and international destinations.

On 31 March 2009, BA celebrated its 35th anniversary. On 12 November 2009, British Airways confirmed that it had an agreement to merge with Iberia. The merger promises to create the world’s third-largest airline in terms of annual revenue. The merger is expected to be completed by the end of this year.

The Market Environment

Geographical Market

British Airways serves nearly 150 destinations including the following:

In Europe, there are Austria, Bosnia and Herzegovina, Bulgaria, Belgium, Albania, Croatia, Czech Republic, Denmark, France, Finland, Germany, Greece, Ireland, Italy, Netherlands, Norway, Poland, Russia, Spain, Switzerland and Turkey.

Within UK, Manchester, Newcastle, New quay, Aberdeen, Edinburgh, Glasgow.

In Africa, Tanzania, Mauritius, Uganda, Egypt, Libya, Tunisia, South Africa, Zambia, Nigeria, Ghana are included.

In Asia, there is China, Japan, India, Thailand, Bahrain, Israel and UAE.

South America which includes Brazil and Argentina.

Lastly, there is North America which includes Canada, US, Mexico, Caribbean and Australia.

Pest-G analysis

The main PEST factors that have influenced alliances are:-

Political – Political factors include government regulations and legal issues and define both formal and informal rules under which BA must operate. The benefits, is that it makes unreachable routes, possible.

Economic – Economic factors affect the purchasing power of potential customers and BA’s cost of capital. Economically, this lead to a greater control on capacity, which results in reducing competition and increasing yields. By code sharing airlines are able to not only split costs but to offer services and enter markets, they might ill afford to do on their own.

Social. – Social factors which include the demographic and cultural aspects of the external macro environment of BA. These factors are the ones that affect customer needs and the size of potential markets.

Technological – Technology in this industry is fast moving and can be a little expensive. It gives the opportunity for joint investment ventures, such as shared check-in systems.

The competition

Who are the main competitors?

British Airways faces competition from many like bmi, Air Berlin, Air France, KLM Royal Dutch Airlines, Ryanair, easyJet. However, it’s major competitor is Virgin Atlantic.

Virgin Atlantic is Britain’s second biggest long haul airline and was established by Sir Richard Branson. It works hard to retain customer loyalty and to remain long-term profitable and successful.

Sales and profit trend

Last year, VA announced that it had almost doubled annual profits just when British Airways announced a huge loss. The airline claimed pre-tax profits that went from £34.8m to £68.4m in the year to February.

They recently reported revenue for the quarter was up 10% to £513m, with a steady growth in their business.

Market Share

On 30th July 2010, Virgin Atlantic claimed a 5% increase in their market share during its March to May quarter as it flew 15 percent more “Upper Class” passengers this year. Quarterly revenue grew by 10 % year over year.

Target Markets

VA operates long haul services to thirty destinations worldwide that range from Shanghai to Las Vegas.

The company

Sales and profit trend

British Airways finally managed to end its period of losses and bounced back in the first six months of the year. It has posted their pre-tax profits of £158m for the six months to the end of September. In the summer quarter, BA got an operating profit of £370m with an operating margin of 14.7pc.

Nearly one-third of its sales have been made through ba.com, which accounts for 20 percent of its revenue.

By 31 March 2010, the company’s selling costs were £290 million, coming down from £369 million by 21.4 percent over the previous year.

Market Share

Last year, Market shares of British Airways were 47%. Recently, it serves up to 43.6 percent flights from Heathrow to the United States.http://kona.kontera.com/javascript/lib/imgs/grey_loader.gif

It’s market capitalization is £1505.48 million and it has 45% of the total market shares.

SWOT Analysis

Strengths

Size

Strong brand recognition

High level customer experience

Customer loyalty

Environment friendly

Weakness

Lower fares due to high competition

Poor communication within the company

Poor employee relations history

Opportunities

Increasing demand for transatlantic flights

Emergence of new markets

Decreasing costs as industry expectations decline

Competitors failing on delivering reliability

Threats

Fuel costs

Terror Attacks

Economical instability

Global economic crisis

The company’s marketing strategy

Segmentation

British Airways is segmented into four classes of travel. They are:

• First Class – It offers exceptional comfort and refined surroundings. It delivers travel essentials in a flawless, excellent and typically British manner.

• Business Class – It is better Economy Class seating and gives the option of a Biz bed or Biz seat which cuts costs, not comfort.

• Premier Economy – It provides privacy and expert service, ensuring relaxation throughout the journey.

• Economy – It gives a comfortable surroundings, friendly service and complimentary food.

Targeting

British Airways mainly aims at the banking and finance passengers which account for 40 per cent of its revenues.

Differentiation

What makes BA different from others?

A 28% improvement in carbon efficiency across their fleet since 1990 has provides environment friendly services.

They are the only airline to proudly win the Pfm Award for their work on the reuse and recycling of office and lounge furniture.

They aim at becoming world’s most responsible airline to ensure they lead the industry in managing and minimising environmental impact.

Growth Strategy

British Airways and Spanish carrier Iberia announced a merger plan on 30 July 2008. In 2009, it was confirmed by BA. This will create the world’s third-largest airline in terms of annual revenue and the second largest airline group in Europe. The agreement is expected to be completed by the end of 2010. British Airways and Iberia have already drawn up a list of 12 potential airline targets as takeover candidates, once their merger is finalized.

The marketing mix

Product

British Airways operates one of the largest and the most modern fleets of any airline in the world. In 2007, the carrier placed its next major order of 12 Airbus A380s and 24 Boeing 787s. In September 2010, the average age of the BA fleet was 11.7 years.

Price

The types of British Airways ticket are:

Lowest ( changes and refunds may not be permitted)

Flexible ( changes and refunds possible)

British Airway Fare vary for adults (12+years), children (2-11 years) and infants (0-2 years).

Place

Modes of ticket purchase:

• Online Booking

• Telephonic and Direct Booking from any of the worldwide counters

Promotion

It gives a lot of offers to promote the company and attract customers. Some are mentioned below.

Exclusive Flight Offers: Great fare deals for registered members

Companion Offer: A round-trip flight, using the BA Visa and get an extra ticket.

BA Visa Card: A bonus of 20,000 BA Miles following the first purchase.

Frequent Flyers get points on selected fares.

Business Rewards Program

People

BA offers highly attractive rewards packages to its crew. They closely monitor wages across the different industries and take reviews to make sure their salaries remain sufficiently competitive to attract and retain the people needed.

The employees are provided with the special benefits like bonus, employee share scheme, profit scheme, etc.

Processes

Once the booking is done, the rest of the process is made quite easy. There is an option of checking-in online, where the customer does not have to wait in queue for any checking and can directly proceed to passport control. BA also provides special lounge service to their business and first class passengers. They are making efforts to provide maximum customer satisfaction to make travel a pleasure.

Physical Evidence

This includes the environment in which the service is delivered and where British Airways interacts with their customers. They provide excellent quality and service to the customers. The aircraft’s seating configuration which is meant to be spacious and comfortable, and it’s in-flight food provide count for the physical evidence. The domestic lounges are enhanced with good interiors and basic amenities.

BCG matrix

British Airways has had a great market share and low growth rate over the past few years. They did not make any major investments like increasing their fleet size or expanding their destinations which made them a cash cow. But recently, BA placed more focus on their growth strategies by placing orders for new aircrafts, expanding geographical market. Another major decision was the merger with Iberia which will be finalized by the end of 2010. This will make the company’s revenue one of the highest in the Aviation Industry. By doing so, BA will not only generate large amounts of cash because of their strong relative market share, but also consume large amounts of cash because of their high growth rate; therefore the cash in each direction approximately nets out. It shows that the company is slowly in the process of becoming a star.

Product life cycle

Introduction Stage

By the 1920’s Britain had a lot of airline companies but due to strong competition many private British air carriers were forced out of business. In 1923 all these companies merged to form a single british international air carrier called the Imperial Air transport.

Meanwhile, the british airways, had begun to impose a big threat and competition to imperial air transport which resulted in the formation of the British Overseas Airways Cooperation was formed (BOAC) that later combined with the BEA and 2 smaller companies formed the British Airways (BA)

Growth Stage

The growth can be easily marked by the introduction of the concorde into the BA.

In 1985 British Airways was made a public limited company. In February 1987 the privatization was finally consummated when 720.2 million shares of British Airways stock were sold to the public for one billion pounds.

Expansion of fleet and routes were even more noticeable after mergers with other carriers like Bcal (British Caledonian). Due to the expansion of BA, another carrier Laker Airways were also forced out of business. This marked how dominant BA was turning out to be in the air carrier sector.

Maturity Stage

The BA mergers assured the dominance of the carrier in the home market secure for the time being.

During this stage alliances and mergers made/attempted by BA with other carriers in different markets were numerous:

Aliiance with Aeroflot in Russia to create Air Russia.

Attempted merger with KLM royal dutch airways. Broke down due to valuation of the two firms.

Purchased 25% of Qantas airlines in Australia.

Gained 49.9% of the French, TAT European Airlines.

Started a german carrier called Deutsche BA with 49% ownership.

Purchased 25% of USair.

Evaluation of the company’s strategies and tactics

Evaluation of the company’s current position

BA presented its interim report for the six months ended September 30, 2010.

Period highlights:

Profit before tax of £158 million (2009: loss of £292 million)

Costs down by1.5 per cent

Operating profit of £298 million (2009: loss of £111 million)

Quarter 2 operating profit of £370 million (2009: loss of £17 million)

Total revenue for the period was up to 8.4 per cent.

Operating costs were down by 1.5 per cent. Fuel costs were up by 2.4 per cent, and other non fuel costs reduced by 3.1 per cent, 4.0 per cent.

Profit before tax for the period was £158 million.

The effective tax rate for the period was 27 per cent.

Cash position remains strong, at £1,857 million as at the end of September, up £143 million from the end of March 2010.

The Directors declare that no dividend be paid for the period ended September 30, 2010.

Evidence of the company’s success

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Source : http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9Njc0MTh8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1

Prospects for future growth/success

British Airways is planning for a future where it can provide its customers a better service than before despite the potential threat of walkouts hanging over it.

British Airways recently opened up its Gatwick gateway with a growing route network that has established it as the airport’s leading long haul carrier. It continues giving an excellent punctuality performance at Gatwick Airport with achieving the best monthly punctuality figures British Airways has ever recorded in March.

They have also placed an order for 12 A380 airbuses which will be given by 2012. They are quieter and cleaner which will lead to environmental improvements and at the same time they are fuel efficient which lead to an increase in profit by reducing the operating cost.

Conclusion

After going through a bad phase for two years, British Airways appears to have finally drawn a line in the sand and turned those losses around. Now not only does BA offer excellent punctuality and customer service, they also have an excellent route network, with plenty of choice and a flexible schedule allowing passengers to connect from many parts of the UK. The real challenge now is how it aims to plug the money-spilling into revenue generation.