British Airways A Swot Analysis Report Management Essay

The purpose of this report is to create a SWOT analysis of a current organisation (appendix 01), preferably a PLC. Those findings must then be presented in report form. This activity should be as a result of a group activity, and information should be sourced from appropriate newspapers/journals etc.

For this exercise, the group has selected British Airways, to aid creation of a meaningful SWOT analysis, a PEST analysis has also been carried out to provide essential background information (appendix 02).

The completed report should be 1500 to 2000 words, should include a conclusion but omit recommendations. This will be subject to a separate individual exercise.

Methodology

Information to create this report has been found from research on the Internet by group members, primarily using quality newspapers. A combined PEST/SWOT analysis was then created from group inputs and from that a draft report was created. This report was distributed between group members for consideration/amendment until a mutually agreed final draft was decided on. This distribution was achieved mainly via e-mail.

Findings (for SWOT, see appendix 1)

3.1 Strengths

British Airways is an established operator with a very strong brand image and a substantial share of the market particularly in the business sector. The company has a long history of sustained performance and growth merging with several other British companies such as Imperial airways and British Caledonian during the 80’s. ( funding universe)

BA operates from prestigious airports such as Heathrow and Gatwick and is famous for recently opening the well publicised Terminal 5; which although fraught with problems to start, has proved to be highly successful reducing both passenger processing time and lost baggage issues (BA. 2009).

The company operates several classes of travel including Business Club Class, which appeals to business customers. This offers enhanced comfort and facilities. They, also offer first class and cheaper options to cater for a wide range of user’s. BA, however, has traditionally steered away from the cheaper ‘no frills’ end of the market.

BA operates aircraft to over 550 destinations world wide and has demonstrated its commitment to maintain this position by recently buying 15% of Iberia. In the mid 1990’s it created British Asia Airways to gain access to further routes.( funding universe)

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BA owns some modern fuel efficient aircraft, and until the recent recession had plans in place to further update the fleet. This has the duel effect of reducing fuel costs and exploiting the “green” movement, which could bring them custom from travellers who wish to use a ‘moral’ company.

Due to the issue of global warming and the effects to the climate change, most companies are looking at ways to reduce their carbon footprints. B.A. already considers this to be very important and is becoming more fuel efficient by replacing older aircraft with new. B.A. has set a target of reducing their Co2 emissions by 50% by 2020

The above factors all contribute to the logo ‘Britains favourite airline’.

Weaknesses

British Airways is currently suffering fast growing losses (from circa £1 billion profit to circa £200 million loss in 18 months). ( BA. 2007/8 and 2009 ) This down turn is primarily due to the world wide recession which has affected airlines the world over and seen several carriers go out of business. Swinging fuel prices (from around $40 to $140/barrel and back) have, also, had an impact along with local government legislation increasing air passenger duty.

BA has been affected particularly badly due to the recession. Its business travel sector has been seriously affected, which traditionally provided large revenues due to high ticket prices (around 40% of total revenue).(nils Pratley guardian 26/5/09)

BA has a large pension deficit I.R.O. £2.1 billion which is fast approaching double the company’s current market valuation of around £1.4 billion(A Osborne 4/6/09). This valuation is also at risk due to inevitable share price fluctuations. This situation could prove problematic should a take over/sell off be considered.

The company has a limited property portfolio having capitalised during a previous re- structure and as such, is reliant on shrinking cash reserves. This, linked with the general problems industry currently has in raising credit, puts the company at risk of insolvency and limits investment if the economy does not recover soon.

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BA employees have in general, enjoyed a higher salary scale than competitors, almost double in some cases, which has the effect of reducing competitiveness and eroding profit margins.(UK news 10/6/09)

BA have always stayed away from the ‘no frills’ end of the market. This, however may have been a mistake. It is now a growing market and a lot of travellers now consider it the only way to fly in the current economic situation. Virgin Atlantic for instance, has seen a far lower reduction in revenue over the same period.(Nils Pratley 26/5/09)

Opportunities

Possibilities of mergers to obtain new lucrative routes and get around national restrictions; this would also reduce competition, remove weaker competition and reduce overall staffing/duplication lowering operating costs.

There is an opportunity to enter the ‘no frills’ cheap fare flights to attempt to address falling passenger lists, however, this is an extremely competitive sector and would be difficult to break into.

Pay cuts/freezes and reduction in manning levels to redress balance in salary differentials with competitors is another option available to reduce costs and increase competitiveness. The current economic conditions are an excellent opportunity to push forward with this type of policy. People are less likely to risk strike action if there is mass unemployment.

An opportunity exists to reduce future costs and improve profitability by replacing existing aircraft with the more modern, and more importantly, more fuel efficient Airbus series of aircraft.

Despite BA’s current economic problems, the brand name remains strong and further revenue may be generated from advertising strategy and this could include sponsorship deals.

Threats

Threats to British Airways are to a large extent in the macro environment and include fluctuating fuel prices, government changes in taxation level, prolonged recession reducing the demand for travel, fall in manufacturing output reducing the level of cargo transport. Exchange rate fluctuations have had a negative effect on profitability. They have, also, been affected by national government limits on mergers and route sharing and monopolies watchdogs.

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A little closer to home, some difficult decisions need to be made regarding staffing and salaries, the threat of industrial action having a major impact on survivability remains a major threat and the ever present danger of cash reserves running out before returning to profitability lurks just round the corner.

The situation within the banking sector and MP’s expenses has affected anything which could be described as or may appear to be an extravagance. This will delay any return to the high margin fares. This sector of the market will now be looking for cheaper alternatives.

Conclusion

British airways are a large well managed company with a proven track record

Too large a reliance on business sector travel has exposed the company to heavy losses.

Many of the most important factors that will affect BA’s ability to survive/recover are contained within the macro environment and as such are outside the company’s sphere of influence.

Restructuring and addressing pay and staffing issues may well lead to industrial unrest further weakening the company’s position. Restructuring could also affect BA’s ability to react when the economy begins to improve. Staff shortages etc. The situation must be dealt with quickly to stem the bleed to BA’s financial situation.

Heavy reliance on shrinking cash reserves (D Milmo 22/5/09) and a major pension deficit are major threats to the company’s survivability. It has also, affected BA’s recent merger opportunities.

Ownership of many long haul routes and prestigious operating bases linked to a strong brand image and penetration to 550 destinations, supported by a strong experienced management team, would indicate that BA is well placed to ride the storm. The current world wide economic situation may in fact, assist in minimising industrial action during any restructuring.

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