Business Environment Of British Airways
This essay is formed for the purpose of providing British Airways Plc with a strategic plan to apply over the nearing future. British Airways is the UK market leader in the Airline industry. It has faced ever-increasing competition over the past 10 years resulting attrition in their market share. The report commences by analyzing the current internal and external environment of British Airways. Through strategic evaluation we have suggested that BA’s focus on their primary service delivery to refurbish their competitive benefit within the industry. This will require applying a grouping of two strategies; a public processes strategy and a strategy focused on technological development. The public processes strategy was a consequence from a number of industry basis demarcating BA’s turn down in customer fulfillment. The technological development strategy corresponds with the regeneration of BA’s aircrafts and will further improve on the whole consumer’s satisfaction.
The main aim of this report is to direct British Airways strategically using the current strategic position of the company and the internal and external environment. After analysing the company’s position both externally and internally using appropriate tools, a final design is created giving a set of strategic options to the company. Finally an appropriate strategic option is evaluated and the methods of implementation are discussed.
British Airways is the UK’s largest intercontinental airline. In addition to scheduled services, BA is affianced in the process of international and domestic carriage of cargo and parcels, and additional services. In association with code share and franchise partners, BA fly to more than 300 destinations, and carried more than 33 million passengers, earning over Â£8.7 billion in profits in 2007/08. Employee population in March 2008 was 42,377 people. After being privatised in 1987, BA has been a competitor in the market and has held a place worldwide.
In the recent, BA has been named the world’s first airline to take part in a proposal to reduce greenhouse gas emissions in 2002 and to allow passengers to print online boarding passes in 2004. Willie Walsh became Chief Executive of BA in 2005. He has focused the company through the completion of Terminal 5 at Heathrow, amongst other new initiatives. In spite of global economic down BA’s future as an international business organisation, looks promising.
The company uses 5 strategic goals for the year 2009/10. They are basically to be the first choice airline for the long haul premium customers, to deliver an outstanding customer service at each and every point, to grow their survival in key global cities, to gain a leading position in London, to meet their customer needs and to improve their margins through new revenue streams. Long haul premium customers are considered to be their key to their profitability. They will use their deep understanding of what is required to be their airline of choice to drive the design choices on product, network and service. They will also maintain a strong presence in the cargo economy and short haul segments, which play a critical supporting role.
Their customer-facing staff will be passionate about delivering outstanding customer service. They are planning to build through a revolution in the way they lead, train and reward, so that all customers, on all routes and classes, enjoy a premium experience. They will invest both in improvements targeted at premium customers, such as service training, and in those benefiting all customers. They aim to provide the best global connectivity for customers. They will build their presence in the top global cities, either directly or through their expanding network of airline partnerships. Despite the fact that the established global cities such as London and New York remain critical, they will place a special emphasis on developing their position in the global cities of tomorrow. London is the world’s biggest and most competitive international air market. Ensuring Heathrow remains a world-class hub vital enough to give them a strong London base to serve the largest international long haul markets. To support this, they will look to influence government policy decisions, and work with the airport owners on the continued development of the infrastructure.
1. External Analysis:
This section indicates the external environment of BA as it is very necessary for an airline industry to remain updated about the external environmental factors. It also highlights the position of the industry, its competitors, and its capabilities to meet the current and future challenges.
1.1 PESTEL Analysis:
Heavy regulation from the UK government has been a major challenge to the company. Hence, it is essential for BA to comply to the rules if the company has to continue operations. Moreover, since the government has increased security due to past terrorist threats, sufficient security measures should be in position to ensure consumer’s self-belief and competitive advantage should be maintained.
Due to global economic crisis, world growth is projected to just over 2 percent in 2009. The value of Pound has begun to slide especially against the Euro. Possible reduction in the amount of business travel as companies are cutting costs and using alternative means of communication such as teleconferencing. Hence BA is vulnerable as an UK operating airline to a poor exchange rate. Oil prices have been declining by 50 % since their peak retreating to 2007 levels. Decline in fuel price will obviously strengthening of the dollar changeability in oil prices and exchange rates will directly affect BA’s cost base. UK’s consumer spending had its sharpest decline for 13 years between July and September 2008. Hence there is an expectancy of more intense competition in the near future.
According to the national statistics online, The UK has an aging population since the past decades. Potential opportunities may arise, as older generations have more time to spend on leisure activities such as international travel. At the same time the increase unemployment may also led to increase in the bargaining power as an employer
A recent survey discovered that 34% of online clients plan to use price comparison sites more in 2009. This clearly reveals that there is an increase in consumer awareness and therefore bargaining power of the same may also increase. Online booking services and check-in is becoming popular in the airline industry. Hence BA must ensure that they stay up to date with these technological progress at the same time as avoiding becoming overly reliant, as this may separate certain consumer markets (i.e. the elderly) who don’t feel contented using such technology.
New legislation is being implemented every year. Due to tighter environmental rule the operational costs may increase each year for the company. Hence, BA should be aware of both Noise pollution controls, and energy consumption controls. Due to limited land and for growing airports expansion is difficult. Further expansion at Heathrow is difficult as it may affect the London’s agricultural area. Due to this the company should concentrate on limited capacity aircraft and effective utilization of capacity. Failure to implement an incorporated environmental strategy could lead to an unfavourable effect on the BA’s reputation and income. Cancellations of flights and loss of baggage, such ethical issues could have a negative effect on reputation if left unsettled
Limitations on mergers will have an impact on BA’s proposed alliance with American Airlines. Recognition of trade unions and industrial action e.g. Cabin Crew strikes are necessary if the company has to withstand in the global market. Good employee relations are essential if BA wants to avoid industrial action and interrupted operations. Open Skies Agreement is a colossal opportunity for BA and its competitors to freely transport aircraft between the EU and US.
1.2 Porter’s Five Forces:
It is imperative to analyze the competitive nature of the airline industry to measure the position of BA. The Five Forces tool will be facilitate BA to make strategic decisions in order to increase the effectiveness.
1.2.1 Competitive rivalry:
BA provides frills for both long haul and short haul flights. Within long haul there is a little isolation between the BA and their other competitors, in terms of price and service contribution. The short haul market is more uneven with many small competitors. Strengthening of competitors has increased the competition. Direct competitive rivalry is severe, e.g. Virgin Atlantic has a website opposing the proposed strategic coalition of BA and AA. Hence it is found that BA does not suffer in its sector due to its competitors.
1.2.2 Power of Suppliers:
BA is benefited by a high bargaining power since there are two aircraft manufacturers. The sole supplier of fuel to the airport is being permanently stopped by the company. The existing users get the top priority in landing slots according to their historic rights. Trade unions help BA’s employees by providing them collective bargaining, in order to increase their bargaining power. Hence the power of suppliers does not affect the BA’s efficiency in the means of its suppliers.
1.2.3 Power of Buyers:
The company is found to be more concentrated on its suppliers than the buyers. This is because they have a very little bargaining power. Enhanced usage of internet has enlarged the awareness and interface between the customers.
1.2.4 Threat of New Entrants:
High environment regularity requirements and high capital cost requirements are the new main barriers to the company. The failure of new airline companies such as XL and Zoom is likely to discourage new entrants
1.2.5 Threat of Substitutes:
There are a few direct substitutes for short haul flights such as euro star and ferries. No notable substitutes can be found for long haul flights.
2. Internal Analysis:
It is now important to analyse the internal environment in order to create the suitable strategies.
2.1 Resources and Core Competences:
It is derived that a company’s competitive advantage and superior performance is calculated from its independent capabilities. The resource based view emphasizing BA’s resources and competencies is summarized below.
The company runs 245 aircrafts covering over 550 destinations.
Additional services such as BA Holidays & The London Eye Company, has been a fruitful resources for the company. The company is well equipped with an International Customer Database which helps them to keep track on the latest customer information. Partnerships &Alliances with ‘one world’ including American Airlines, increase the company’s wealth against the resources. Sole access to LHR’s Terminal 5 is a huge boon to the company’s brand image. BA is renowned globally as a reputable brand, resistant by its long-lasting survival within the Industry
The company has its own training of ground school, flight simulators, and cabin safety training which holds the favourable part in its core competences. The company holds the capability to fly and handle passengers safely on different routes (Open Skies). Their subsidiary’s aircraft never have more than 64 passengers per flight, with one flight attendant per twelve customers. They also hold the name as the first UK airline known as a training centre by the City & Guilds, educating all cabin crew with NVQ Level 2.
2.2 SWOT Analysis:
British Airways is a well-reputed brand name that has achieved constancy and conviction from its customers. Modern culture enables BA to take full benefit of technological developments such as, online sales, in house check in. BA has a worldwide geographic exposure with excellent communication with strong international coalitions.
BA has however to have recovered from events such as the Iraq war, the 2001 and 2005 terrorist attacks because of its dependence on international air travel. But the hazard still remains. BA continues to have enormous debts. Recent job cuts may have a harmful effect on BA as in the past this frugality effect has resulted in understaffing and industrial exploit in 2004 and 2005.
The increase of internet usage worldwide is likely to further expand BA’s online customer base Value-added and pioneering flight services such as sleeper services, will attract more customers as customer prospects are heaving. The current UK government hassles Heathrow as a worldwide gateway and proposes a third short runway and sixth terminal be opened by 2020, which will also promote BA’s brand image.
Low-cost airlines continue to benefit from strong growth and power in the market and new entrants and the probability of them being issued with long-haul licenses could create a further hazard to BA’s market share. The continuing increase and variation in fuel prices may threaten them with regards to not attaining a profit margin of at least 10%. Customers are still vigilant of the threat of repeated terrorist attacks. With the increase of rivalry in the low-cost airline market, more companies may focus their strategy on high eminence and hence increase the direct opposition for BA.
3. Analysis of Strategic Options:
Based on the scrutiny performed the five most viable strategic options will now be measured further in terms of aptness, adequacy and viability
3.1 Strategic Option 1 – Development to People procedures:
The study highlighted the most recent negative attention both internally and externally. The Resource Based View and SWOT are identified as BA’s public condemnation for poor customer service and impediment management and disapprovals following a number of unhelpfully handled employment associated cases. A people progression strategy may reconstruct brand image and stakeholder’s self-assurance.
Looking at the current economic environment, unemployment is increasing. Therefore, the hazard of industrial action and acquiescence are less possible at this time. BA’s current strategies are to stimulate, employ, support and develop employees, together with recuperating baggage handling and delay management. Enhancement in internet usage, with more consumers and self-governing services reconsidering and contributing feedback. Better customer relations may improve such systems.
Staffs and consumers are expected to invest high interest into the growth of their relations with the organization due to the negative past experiences. Skytrax emphasizes that customer relations is an important measure for consumers when selecting airlines, increasing the prospective of high profits.
The Resource Based View shows an global consumer database. Admittance to such information could help BA in market research and customer relationship development based on conclusion. The industry and organization is highly combined, and are likely to increase support from this exterior body when strategically increasing employee relations.
3.2 Strategic Option 2 – Enhanced Environmental Position.
As recognized within the PESTEL analysis, environmental concerns are becoming increasingly important. An involuntary strategy as a result could be suitable to construct an improved environmental place and go beyond the requirements of parameters such as the climate change.
BA profits from a resonance brand image which would be further imposed by this strategy. This would make sure that BA remains a strong global contender by making sure they are meeting changes in socio-economic actions. Customers are becoming more environmental responsive and this strategy would at least make certain that BA’s market share is not negotiated if competitors go in a parallel direction.
Changes in customer choices point out a sharp anxiety for the environment. Therefore this strategy is short risk, especially when attached with a low scale of uncertainty. In addition, this strategy will make sure that BA is recognizing and meeting customer demands.
As the necessities of environmental rules are repeatedly increasing, it would be valuable for BA to be the first hauler in the industry and make changes prior to any of its competitors.
Assets may be better engaged elsewhere, as spending in environmental
strategy may not increase profits. BA must be certain that it will be able to successfully follow such a strategy as if it would not succeed it would be open to public enquiry which could break its current strong brand image.
3.3 Strategic Option 3 – Enhanced Technological Position.
The technological capabilities of an airline is increasingly disturbing consumer choice of airlines, from both holiday and business fliers. Better development of the in-flight services will improve their overall service, increasing long-standing profits.
The in-flight entertainment amenities need to be greatly enhanced and become more consistent. This will guide to a long-term development in the number of passengers. Many of BA’s major competitors are beginning to bring in basic internet facilities on selected flights. Therefore it is in its importance to keep up with the rivalry and surpass it by bringing in internet access on all flights. BA is at present on a service of one flight from London City Airport to JFK, New York. BA also needs to contend with other modes of travel, which already have internet capabilities. By applying the strategy, BA can refresh its image even as maintaining conventional principles.
Wide-range testing has found the internet connection to be consistent, with loss of connection only taking place for a couple of seconds during unfavorable weather conditions. Project – accomplishment takes only 3 days per plane.
Possession of the operations is less expensive and more dependable than the
Abandoned ‘Connexion’ service offered by Boeing. BA has a sagging resource in the technology section needed to apply this strategy. BA must implement this technology first time effectively otherwise, it will receive serious denigration and could mess up its long-standing image
4. Conclusions and Recommendations:
On the examining the strategic options it has been determined that before growth strategies are followed BA should concentrate on protecting its current market place and attaining elementary service class. Based on this the people progressions and technological development strategies are believed most suitable for performance.
British Airways remains vigilantly hopeful about its future prospects. However, it is sure that significantly more work lies further on if the airline is to accomplish their goals. The FSAS plan integrated by BA resulted in substantial cost savings, and also raised funds to repay debts. The objective of the FSAS plan was to achieve a 10% functioning margin and hence more recent cost cuts and job losses have been made by the CEO in order to achieve this.
In air travel, the fact of success or failure depends on peripheral factors, with BA suffering badly in the consequences of the 2001 and 2005 terrorist attacks, the war in Iraq and the worldwide economic slowdown. However, the one most important external factor is the cost of fuel. Fuel costs are continuing to rise and this is likely to both corrode income and hoist prices for BA. Rising prices could rest BA in a detrimental position, particularly given the continued fame of low cost airlines.
The CEO must understand that the important growth area for BA is likely to be in value-added services. In some parts, BA found that it could improve consumer’s experience while deducting costs, such as in its rising up of online sales. Other value-added services are likely to see mid-priced flights being improved, as air travel persists to become more competitive.
On the whole, BA must continue to endeavour to reduce costs and improve customers and employee fulfilment.