British Airways And International Airline Group

British Airways was established on 1 January 1936 when several smaller airlines – United Airways, Hillmans Airways and Spartan Airlines – merged (British Airways, (Unknown)). With a further merger BA is part of the International Airlines Group alongside Iberia the Madrid based airliner. British Airways caters to many people around the world with the use of 158 mainline travel routes and as part of the IAG a further 340 joint routes have been established this has allowed both to be strong competitors within the airline industry (BA, (2010/2011)).

BA/IAG has many customer promises the main being to maintain “a full service global airline, offering year-round low fares…” (BA, (2012)). CEO Keith Williams also says BA’s ambition “is to lead the airline industry in responsible behaviour.” (BA, (2010/2011, Pg 4)). Although BA/IAG are strong competitors there have been many risks to the company when trying to fulfil these promises, BA states that “The operational complexities inherent in our business, together with the highly regulated and commercially competitive environment of the airline industry, leave us exposed to a number of risks.” (BA, (2008/09).

This report will examine said risks, uncertainties, hazards and losses which BA/IAG have had to take or avoid to ensure their ambitions and promises are kept. These include: the BMI takeover, economic risks, health and wellbeing, catastrophic events, and terrorism. This report will discuss recent and possible risks which need constant attention and the possibilities of mitigation.

2. British Airways and International Airlines Group Risks

2.1. BMI Takeover

Market share within any industry can make and break an organisation; this may be why IAG’s bid to takeover the UK based bmibaby as well as regional divisions was for £172.5m back in April 2012. The BBC report entitled “British Airways and BMI deal puts 1,200 jobs at risk” established that IAG would gain “8.5% [more] landing slots from Heathrow.” However, “1,200 jobs” would be lost. Moreover, the report informs of losses of £153m in the year to 2010 by BMI. Was this investment properly risk assessed? Where opportunity controls in place? From this source it seems not.

Shortly after purchase, IAG boss Willie Walsh reported he was “not confident” about selling…” (BBC NEWS. (2012)). There were several failed attempts to sell, and speculation arose of a £80m loss for IAG, so in an attempt to cut their losses an offer was accepted for Regional BMI, for £8m. (Robinson, D, (2012)). An article by Nathalie Thomas claims that IAG were to ground all bmibaby planes. BMI interim managing director, Peter Simpson, announced that “To help stem losses as quickly as possible… we will be making reductions to bmibaby’s flying programme.” This was announced only 3 months after the takeover took place and would suggest it was made this quickly to stop the haemorrhaging of money.

The brash bid to invest in bmi does not promote responsible behaviour within the industry and avoidance was possible. The main concern for IAG was to gain more resources in the form of runways at Heathrow but they never took into account the huge losses within bmibaby’s accounts. Instead of looking at the “high levels of operational performance” they may have been better off avoiding this takeover and waiting until the time was right, avoiding this catastrophe.

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2.2. Economic Risks

BA/IAG has become highly sensitive to economic conditions and uncontrolled risks, such as a recession. These risks are particularly important as it affects all aspects of the organisation. The most crippling would be the loss of consumers both – social and business – due to the recession.

The recession has created uncertainty within many airlines across the world. Smaller airlines such as FlyGlobeSpan.com went bankrupt back in 2008 but those lucky enough like British Airways were able to survive due to takeovers and mergers. However, BA still carries substantial debts and the uncertainty of being able to repay or refinance still looms. BA/IAG states that “Our ability to finance ongoing operations, committed aircraft orders and future fleet growth plans may be affected by various factors.” (British Airways, (2008/09)). BA/IAG needs to be prepared for future hazard and uncontrolled risks to prevent future loss. To do this they need to limit the damage by any possible means for example retaining profit to recuperate from the event.

Conversely the recession has an impact on the consumer also, primarily the lack of excess money, diminishing the amount of people holidaying and business travelling since the recession began. The Association of European Airlines has reported that “traffic… dropped by 4.7% on the previous year.” (Clark, N. (2008)). BA/IAG and other higher class competitors for instance Virgin Atlantic have struggled to encourage these consumers to travel once more. A risky solution would be to cut flight costs radical due to BA/IAG’s economic worries but a feasible step to keep the organisation afloat and ahead of the competition. An ideal way in which to do this would be to find ways to save money within the organisation; maybe cutting staff or the amount of planes they have? Similarly BA had found a solution; oil had dropped in price to only $40 a barrel after almost touching $150 earlier in the year (Clark, N. (2008)) this would allow huge savings which could be passed to the consumer.

In hindsight this shows the seismic affect that an uncontrolled variable can have on a business but BA/IAG can learn from this experience and manage economic risk more effectively from now on.

2.3. Health and Well-being

The health and well-being of all people related to the organisation are very important, with such a well known company anything that goes wrong can have a negative impact on the brand’s image, operations and economic performance. So to avoid this there are several control management techniques in place. BA has an Operations Control Incident Centre where incidents are managed in a structured way; with use of Staff Safety Performance Schedules to monitor progress.

British Airways. (2010/2011) Pg38.

Less controlled hazards including pandemics can cause significant disruption to airlines as the outbreak of Swine Flu back in 2009 shows. This caused significant panic around the world with shares falling in passenger transport as the outbreak spread global. British Airways saw its shares fall by 7.7%, (BBC News. (2009)) and due to this BA employed a contingency plan.

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BA/IAG like many companies assesses risk, especially around health and well-being, to limit liability and avoid court action. Accidents however can still happen even when no-one is really to blame but that doesn’t stop people blaming. An example from 2005, explains a court process where BA is blamed for exacerbation of deep-vein thrombosis (DVT) in passengers. The high court held that DVT cannot be classed as an accident therefore they were not liable. Even though BA won the court case it had caused negative publicity. To combat this, BA proclaimed that it “sympathizes with those that suffer from DVT and that the health and well-being of its customers remains of paramount importance.” Veysey, S, (2005). The airline said it would continue to provide advice and information about DVT to passengers in various forms, online and paper.

This promise was carried out during the “Fly with Confidence This Summer” publication from the BA Press site. It gave information on how to improve your health whilst on board their airplanes from exercise techniques to how to calm your nerves when flying. This is a great way to minimise risk as they are trying to combat both the amount of accidents and limit the liability therefore minimising the severity of the risk.

2.4. Catastrophic Events: Volcanic Ash

Throughout the years there have been several catastrophic events that have hindered the operation of BA/IAG. From a dead body on a flight from Cape Town to the Icelandic volcanic ash; in this section the volcanic disruption will be discussed.

Volcanic Ash affected all airline organisations across the world back in 2010. By midway through the disruption it had already “cost the economy £500million” and was “costing airlines £130million a day,” (Evans, M, et al, (2010)). BA as with many others in the airline industry was already financially struggling and as such where one of the first to re-establish flights. Many voiced concern stating the decision was senseless and brazen as well as dangerous to personnel, pilots and passengers. BA reassured: “We would not be doing this if we did not think it was safe… We would not do anything which would jeopardise our crew or aircraft.” (Evans, M, et al, (2010)). BA where able to control some economic losses they incurred but socially they were risking customer respect and loyalty.

Thirteen months after the original instance Volcanic Ash was threatening to strike again, only but this time the UK Civil Aviation Authority where able to advise airliners and the UK Government on the best was in which to create minimal disruption. Hindsight allowed BA/IAG to become more proactive; grounding only necessary flights and avoiding the volcanic ash’s path. By doing so flights where on time, money was saved and the consumer was thankful.

2.5. Terrorism

Ever since 9/11, terrorism has become a main concern for all in the Airline Industry. Looking from BA/IAG’s point of view terrorism has affected them internally, externally, financially and socially. BA has been forced to ground several flights throughout the years due to the threats of terrorist attacks.

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The suggestion of another terror attack fills the airline industry with fear, the chief executive of BA Rod Eddington implied, saying that suspicions about intimidation were “still with us.” Articles would assert that “whatever measures it takes, another devastating attack – or just the fear of one – might be too much for BA.” (Tran, M. (2002)) Signifying that the risk management methods already employed will not be enough to withstand a future onslaught.

BA has had to take action to avoid any further chaos by firing two members of staff that were suspected terrorists. Both former employees Shahzada Khan and Rajib Karim where laid off. Furthermore Rajib Karim was found guilty of four counts of preparing acts of terrorism (Swann, S. (2011)).

This could have been devastating for BA creating further fear, losing business and destroying lives but with stronger security checks and well-gauged risk assessments these threats can be filtered out earlier.

3. Conclusion

From the five risks discussed within this report the affect of poor risk management is clear. Encouragements of a revised risk management system would help BA/IAG avoid voluntary risk failure, survive uncontrollable and catastrophic events as well as enhance the service they provide to the consumer and responsible behaviour.

References

BBC News. (2009). Swine flu fears hit travel shares. Available: http://news.bbc.co.uk/1/hi/business/8019912.stm. Last accessed 13/10/2012.

BBC NEWS. (2012). BA owner IAG doubts it can sell BMI Baby and Regional. Available: http://www.bbc.co.uk/news/business-17817981. Last accessed 11/10/2012.

BBC NEWS. (2012). British Airways and BMI deal puts 1,200 jobs at risk. Available: http://www.bbc.co.uk/news/business-17693074. Last accessed 11/10/2012.

British Airways. (2008/09). Annual Report and Accounts. Available: http://www.britishairways.com/cms/global/microsites/ba_reports0809/pdfs/Risks.pdf. Last accessed 11/10/2012.

British Airways. (2010/2011). Corporate Responsibility Report. Available: http://www.britishairways.com/cms/global/pdfs/environment/ba_corporate_responsibility_report_2010-2011.pdf. Last accessed 11/10/2012.

British Airways. (2012). About British Airways. Available: http://www.britishairways.com/travel/about-british-airways/public/en_gb. Last accessed 11/10/2012.

British Airways. (2012/2). Fly With Confidence This Summer. Available: http://press.ba.com/?p=2425. Last accessed 13/10/2012.

British Airways. (Unknown). Explore our past: 1930 – 1939. Available: http://www.britishairways.com/travel/history-1930-1939/public/en_gb. Last accessed 11/10/2012.

Clark, N. (2008). British Airways and Virgin Atlantic cut fares. Available: http://www.independent.co.uk/travel/news-and-advice/british-airways-and-virgin-atlantic-cut-fares-1210083.html. Last accessed 12/10/2012.

Evans, M, Jamieson, A, Alleyne, R and Millward, D. (2010). volcanic ash cloud: British Airways fly in the face of ban. Available: http://www.telegraph.co.uk/travel/travelnews/7605305/Volcanic-ash-cloud-British-Airways-fly-in-the-face-of-ban.html. Last accessed 13/10/2012.

Robinson, D, (2012). IAG sells BMI Regional for £8m cash. Available: http://www.ft.com/cms/s/0/2aabb456-9aa1-11e1-83bf-00144feabdc0.html. Last accessed 11/10/2012

Swann, S. (2011). Rajib Karim: The terrorist inside British Airways. Available: http://www.bbc.co.uk/news/uk-12573824. Last accessed 13/10/2012.

The Telegraph. (2012). BA boss told me that ‘all Mussies are terrorists’ says sacked bag handler. Available: http://www.telegraph.co.uk/news/uknews/terrorism-in-the-uk/9101256/BA-boss-told-me-that-all-Mussies-are-terrorists-says-sacked-bag-handler.html. Last accessed 13/10/2012.

Thomas, N. (2012). BA to close bmibaby by September, putting 800 jobs at risk. Available: http://www.telegraph.co.uk/finance/newsbysector/transport/9244311/BA-to-close-bmibaby-by-September-putting-800-jobs-at-risk.html. Last accessed 11/10/2012.

Tran, M. (2002). Terror fears threaten BA comeback. Available: http://www.guardian.co.uk/business/2002/may/20/terrorismandtravel.theairlineindustry. Last accessed 13/10/2012.

Veysey, S. (2005) “British Airways not liable for DVT victims”, Business insurance, vol. 39, no. 50, pp. 4-4.

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