British Airways: Strategic Analysis

Strategic analysis has always been an important part of the organization. The strategy helps to come up with certain important characteristics associated with the organization, and the ways to attain core competencies for strategic advantage in the market. Highly competitive market at present demands the optimum use of resources, and right implementation of strategies there within the organization for ad hoc advantage. Thus, here is the report on the strategic analysis of British Airways.

Initially, the discussion is done on the basic airlines business showing the importance of the industry, and British Airways (BA). It is followed by the discussion of some of the risks associated with the wrong strategic decision in airline industry. The competitive market analysis is also done in the report to understand the present position of the company in the market.

Then is the discussion on the strategies and the core competencies for the organization. The graphical analysis of revenues, number of passengers carried in a year, and the share price is also done in the report for BA, and is compared with its competitor Easy Jet as well. The Corporate strategy is also discussed to understand the strategic position of the organization followed by the SWOT analysis for BA, followed by the conclusion of report.

Introduction

Airline business is undergoing changes in the present day scenario. The increased use of the flights by people to travel from one place to the other has lead to an increase in scope of the airline business. Thus, the airline business has been quite competitive by the introduction of new players in the industry, since the start of 21st century.

As for the airline business, the attention should be laid onto the potential market power associated with the airport operators, as the level to which the airports can exploit the market potential is dependent on the characteristics associated with the airports (Starkie, 2002; Gilleen & Niemeier, 2008). Thus, the overall characteristics such as the connectivity of airports with the city, the infrastructure facilities, the mode of transport between the city and the airports etc. are important for the success of any airplane.

British Airways is among the top ranking international airline companies in the world. It is running successfully all across the world, with its major operations in US and Europe. The company operates with more then 41 thousand people, with its head office at Harmondsworth (Reportlinker, 2010). The company operates carrying around 32 million passengers all across the world. It works both for cargo and passenger travels at 300 destinations in total. The company has 240 aircrafts in total. Some of these include Boeing 737, Airbus A319/ 320 /321, Boeing 747/ 757, 767/ 777. This shows the great degree of experience and strength associated with the airways company. The company has been operating well in the industry.

The company was re- launched during 1980; and was termed as the favourite airlines of the world. The company’s mission statement was, to become an undisputed leader in this whole world in the tourism industry. Their focus has always been on delivering the best service to customers, with its flexible market expansion strategy for branding (Jack, 2010)

There are always amendments in the policies of an organization. Similar is the case here. Initially, British Airlines had made use of low fare/ no- frill services, however, now it makes use of advanced flight service at more destinations (Dostaler & Flouris, 2004). Thus, the company had expended its services with greater focus on customer satisfaction with the expectation of higher returns from the market in long run.

Associated Risks

Strategic decisions always play a crucial role in the success of an organization. It is the set of strategies within the organization, which separates the successful organization from an unsuccessful one. Thus, the organizations need to maintain right set of strategies for the success in this global marketplace.

It has been noted from the experience that there are certain consequences of wrong decision- making in the strategic decision making process. The organization shall always make use of right valuation technique before making any decision for acquisition, alliance with the other ones. British Airways too had suffered losses due to wrong decisions made by them. The strategic decision of alliance with KLM proved wrong for British Airways due to increased feeder role, overlap of strategies, lack of cooperation among managers, and burden of financials (Kleymann & Seristo, 2004).

The airlines market is dependent on the potential of the market. However, the economic slowdown has laid it in problems. Now the airlines are recovered from the slowdown due to improved economic conditions. However, there are some uncontrollable factors that impact the airlines industry occasionally. The terror attack on August, 2006 had affected it badly. Another recent problem is the volcanic cause, that has affected all the flights to and from UK; thus badly affecting the London- Barcelona flights (BBC News, 15th April, 2010). These are the factors, which act against the Airways industry, and British Airways suffers the cause as well.

Low cost Airlines

BA has always been endangered by the low cost airlines. There are numerous airlines operating at low prices to grab the market in an aggressive manner. Taking an example of South-West airline, it was the pioneer in the low cost airlines service, 40 years ago. The potential can thus, be seen for the low cost airlines since decades. If we see the figure of year 2001, the traditional player, British Airways in the concerned regions was in loss, but the Easy Jet and Ryanair reported operation margins of 9.5% and 26% respectively (The McKinsey Quarterly, 2002 Number 4, Published: 09 October 2002). These had earned profits due to low cost travel services provided by them.

EasyJet is the second largest low-cost carrier in Europe (G Francis at al, 2006). It has been in the market since its establishments in 1995. Therefore, there is more competition for a new low-cost airline from the company. The market is still left untapped in these low cost airlines. The low-cost airlines holding about 9 percent of the European airlines market, is expected to increase due to the huge potential still in the market. This raises the concern against BA to formulate its strategies to grab this huge market segment. The difference is the key to success (JB Barney, 1986). BA shall consider this as well.

Corporate Strategy

Corporate Strategies are termed as the set of steps to make the organizations work in a coordinated manner, with the focus on their needs. This aims to attain the long lasting stand in the organization, with the purpose of organizations’ stakeholders. Additionally, it attains the performance for short run and the sustainability for future. These strategies use the details for businesses about the business and the goals. The success of an organization lies mainly on the steps taken by staff within the organization, without the success of working independently (Handy, 2002). To attain success, an organization has to work towards the following described corporate strategies for decision- making process:-

Orientation: orientation with the proper direction for an enterprise, are tabulated using the corporate strategies (Thompson, 2001; Wilson, 1992). BA has to make clear orientation of its routine business operations.

Composition: These strategies develop numerous business activities (De Wit & Meyer, 1998; Andrews, 1987). Thus, BA has to understand that the present competitive market can only be safe for companies with good composition of business activities. The organization has to work towards low cost career as well as luxury ones.

Strategic change: The corporate strategy establishes that how firms; develop, evolve and change over time (Stacey, 1995). This strategy results into making right decisions for merger and acquisition decisions. The organization shall avoid these strategies, if found of no profit.

Benefits of strategies: It is the set of corporate strategies, which explores the organization’s work pattern, acting as USP for them, thus creating benefits for the stakeholders (D’Aveni, 2001; Porter, 1980). Thus, BA has to work makes itself unique from rest of the market by providing reliable and consistent services to its customers. The organization has to take an ad hoc advantage from the present situation. It has to work towards attaining strategic advantage by aggressive marketing strategy.

The above discussed corporate strategies can lead British Airways to achieve competitive advantage in the global market place.

Competitive Market Analysis

Five forces have been identified for determining the intrinsic long run potential in the market or the particular segment of market, which are industry competitors, potential entrants, substitutes, buyers, and suppliers (Michael Porter, 1985). This is quite important strategic tool to determine the position of any company in this global market.

Chart 1:Porter’s Model

Source: Michael E. Porter, Competitive Advantage: Creating and Sustaining Superior Performance (1985)

Rivalry among existing airlines:

The increased competition has resulted in reduced fare charges in airlines industry. Customers are more and more attracted towards low cost airlines. Thus, BA has the major competition from low cost airlines at present. These include Easy Jet, Air Berlin. And Ryanair.

Threat of new entrants:

The price-cap and the rate of return regulation are not much differentiated due to the reason that the prices are decided based on the historical costs of the airport management company (Starkie, 2004). This forces BA to fix different price range for different airports. The airlines have the market power in addition to the airport management (Brueckner, 2002; Borenstein and Rose, 2007), thus the low cost carrier may sometimes increase the prices too. BA shall work towards it to stand at a strong position, before any new entrant poses great threat to the company.

Bargaining Power of Suppliers:

Suppliers play an important role for the organization. Good performance of airplane producers such as Boeing helps BA to have good quality of products for them. However, the increasing fuel prices pose against BA, resulting in higher bargaining power of the fuel producers. This is mainly due to increased demand of the fuels.

Bargaining Power of Buyers:

Buyers are the key role for the success of any airplane company. Hereon for BA, bargaining power of its buyers is average. In the earlier days, there were less number of options available for air travel, thus there was less control of buyers. However, competitive market has resulted in increased bargaining power of these buyers.

Threat of Substitutes:

It is noted that the fastest means of travel is airplane only. For one, who wants to reach his destination in short span of time, airplanes are a good option. Thus, there does not seem any substitute as such at present for the airlines.

Strategic Core Competencies

Below is the table describing the relation between the strategies and core competencies of British Airways. This clearly demonstrates the value chain position of the company at present, using various associated characteristics. The value chain lies in the strategies of the organization, which are considered in the table.

STRATEGIES

VALUE ADDED – CORE COMPETENCES

Significant contribution to customer’s perceived benefits

Competitors find it tough to imitate

Innovations & Design

Branding

Maintenance

Low Fares

Aggressive Marketing

Cost Optimization

Hedge on fuel prices

Table 1: Strategic Core Competencies

From the above table, we can interpret that for BA to be successful, it needs to incorporate several strategies there within. The organization needs to use low fares strategy to have larger number of customers for the organization. It can also help the organization achieve economies of scale, which would not be easy to achieve for other organizations. Additionally, aggressive marketing strategy can help the organization further improve its brand value. The organization shall make optimal use of its brand value as core competency in the value chain of the organization. Although, it is not recommended for BA to make low cost as its USP (Unique Selling Proposition), but it can further help them in attracting large pool of potential customers, to generate more revenues for the organization.

Cost optimization can help the organization attain right degree of innovation and design, and maintenance for the organization. The organization is found lacking in hedging of fuel prices. BA can use this as a strategy, which would be tough for others to imitate at instant, and the organization can gain an ad hoc advantage. This, way the organization can have control over its value chain by making right use of its core competencies. However, it is crucial for the organization to make right use of its core competencies to stay well in this competitive market, before its competitors make a greater control over the market.

Statistical Analysis

The revenues of BA are seen increasing continuously from the year 2006 to the year 2009. However, for the year 2008, there was a sudden fall of revenues noted for the airways. This shows that there were some problems faced by the airline company.

The passengers carried by BA were noted to increase from the year 2006 to the year 2008. After reaching its pinnacle, it feel consecutively for two years to reach to 31.8m in the year 2010. This shows there was the decrease of passengers in that year. The fall in revenue as noted in chart 2, might be due to the fall in number of passengers as noted in chart 3.

The share price of BA was noted to fall continuously from the year 2007 onwards. Each of the variable, as shown above, decreased regularly. This shows that there were risks associated with investments in this company.

From the above chart we can interpret that the number of passengers were though almost equal in the year 2006 for both Easy Jet and BA, it suddenly went up for the former company. However, growth for BA was not much and even fell in the year 2009. Thus, Easy Jet seems to grab the market share at a good pace.

There was a huge difference noted between the revenues of BA and Easy Jet. This must be because of the increased attraction of customers towards the low cost carriers. This is the reason for Easy Jet being taken as the competitor for BA.

SWOT Analysis

Strength

Operate at international standard

High productivity of employees

London Heathrow International Airport, the strong hold

Strong Brand value in the market

Huge size of the company in the industry

UK’s biggest cargo airline company

In hand with technological up gradations

Control over outsourcing their services

Weaknesses

Slow growth in the business regions

No benefits of retirement to employees

Decrease in profitability

Not enough control over marketing strategy

Job cutting, as the way to minimize costs (De motivating factor)

High competition resulting into decreased fares

Passenger’s demand reduced

Not enough work towards hedging to control the growing price of fuel

Reduced flights to middle east and USA

More focus on assets as compared to that of market

Opportunities

Increasing market in Asia Pacific regions

Trans Pacific cargos are increasing

Market all across the world

Official airlines for 2012 Olympics

Alliance with other major industry leaders

Increasing demand of the industry

Asian market, still left untapped by other industry leaders

France, Spain and Germany, with the huge market potential

Threats

Euro zone and US, a weak economic hold by the company

Low cost airlines, such as easy jet, are the major competitors

Increasing price of fuels

Online booking facility, resulting in transparency of travel fairs

Tele conferencing acts as a threat against airlines industry, due to lack of demand of physical meetings

Regulation problems

Conclusion

Airlines industry has been seen having a lot of competition all around. The organizations there within the industry are facing stiff competition there within the industry. Thus, it is important to understand the strategic position of the organization. After the thorough strategic analysis of British Airways in the report, there were some important findings achieved for the organization.

It was seen that the organization does not have much control over their buyers as well as suppliers. The organization’s performance was quite mixed in all. The revenues of the organization were noted to increase, with the number of passengers. However, it fell in recent years, which has resulted in reduced revenues for the organization. Easy Jet, the major threat for BA, in terms of attracting large share of passengers due to less fare charges, is able to attract more number of passengers. Easy Jet is in the continuous process of improvement in its financial health. Thus, the organization seems to act as a major threat for BA in the coming years.

BA shall thus need to take serious actions against this situation to stand at a safer end. They should make use of the wide market of Asia, which has huge potential for the coming years. Additionally, BA shall also increasingly make use of economies of scale technique too for attracting customers with low purchase capacity. These would overall result in the success of BA.