Operations For British Airways And Virgin Atlantic Management Essay

This report has been prepared as a part of a MAT402 group assignment and compares the business class operations for British Airways and Virgin Atlantic using the of theory of operations management.

British Airways (BA) is the largest UK airline and flag carrier. It is also one of the largest in Europe flying to over 550 destinations. It has differentiated itself in the market by providing high quality service meeting a wide range of customer requirements. It has understood the necessity of the transatlantic customer and more business class flights therefore meeting the market requirement. Virgin Atlantic (VA) is the direct competitor of British Airways in UK also providing the highest standard of customer service through its effective operations management and adaptation of modern technology. Serving just 51 destinations, VA has managed to win several international awards.

The polar representation of performance objectives (Quality, Speed, Dependability, Flexibility and Cost) of both the airlines showed that they are at their best in some of their performance objectives but have not fully met their some others. BA still has the major problem with baggage handling and VA can increase their destination provide the flexibility for their passenger of choice.

TITLE PAGE

EXECUTIVE SUMMARY

Table of Contents

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Page

1. Introduction……………………………………………………… 4

2. Market Position …………………………………………………. 5

3. Transformation Process Model………………………………….. 8

4. Performance Objectives…………………………………………. 9

5. Operation Strategy………………………………………………. 12

6. Processes for check-in…………………………………………… 15

7. Technology.…………………………………………………….. 18

8. Capacity Planning and Control…………………………………. 20

9. Conclusion……………………………………………………… 22

10. References…………………………………………………….. 23

1. Introduction

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BA (BA) and VA (VA) have captured the UK airline industry as favourites in the international travel scene. Their most profitable areas of service are in their business class offerings (The Guardian 2008). Both companies are consistently nominated in awards for Business Airline of the Year (OAG Awards website, 2007).

This report will analyse the differences in services of BA and VA based on the theory of operations management.

2. Market Position

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The mission statement of VA is “to grow a profitable airline where people love to fly and people love to work” (VA Corporate Website, 2008). It mentions nothing about being able to offer low prices and luxury service for all its passengers. This is also the case with BA. The market position of both airlines must therefore be ascertained based on the services offered to business class customers.

Based on VA entering the airline industry years behind BA one may assume that VA would aim for a market share that offers similar service (if not better) for a smaller price (such has been done with IKEA in the furniture industry). Nevertheless as VA’s market share increased (by ingenious methods such as eye-catching advertising aimed at younger professionals) so has its cost of travel for its Upper Class (VA’s first- and business-class brand) passengers. Comparisons are made between business class service prices to three long-haul destinations namely New York (any airport), Tokyo (Narita) and Lagos, Nigeria for travel in May 2008. The results are shown below:

Return from London to…

New York/£

Tokyo/£

Lagos/£

BA

1310.00

2013.00

1664.00

VA

2312.90

2667.30

1640.00

Difference

1002.90

654.30

24.00

Table 1. Price Comparison between BA and VA

As can be seen from the above table VA is significantly more expensive in two of the three long-haul routes. A major reason for this is the introduction of the new VA Upper Class Suite. This not only matches BA’s Club (BA’s business class brand) facilities but exceeds them. The extra facilities come at a cost and in the case of VA these costs have been shifted to the consumer. This is not to say that prices for BA’s Club services may not rise also. In a recent interview with BA CEO Willie Walsh he said that new expenditure is being made on Heathrow Terminal 5 and in upgrading business-class services, replacing and expanding their aircraft fleet which he described as a “multi-billion pound investment” (Financial Times, 2007).

Based on the offerings of BA and VA their respective market positions can be seen. This is illustrated below. Comparisons are made on the bases of quality of service in business class, the uniqueness of the business class offerings and the availability of business class with respect to destinations.

1. Quality: Most national carries have similar business class offerings and this is especially the case with those for developed nations. This is why VA and BA have equal levels of quality. The difference is in the cost, which will be explained in the next section. Interestingly enough other exclusively business class carriers such as max Jet and EOS have similar operations i.e. very high quality but at a cost higher than those of their competitors.

Fig 1. Market Position of BA and VA based on quality

2. Uniqueness: Although BA and VA offer the same level of quality in the business class offerings it was the latter who recently introduced massive upgrades to its business class operations costing £50 million for fleet upgrades alone (The Times, 2007). These changes are completely unique to its business class service. Services such as limousine pickup, a brand new Upper Class Suite in Heathrow with automatic check-in and security clearance and of course officially the largest chair/bed in the skies makes the VA experience truly unique but at the same time passed on the cost of this to the consumer.

Fig 2. Market Position of BA and VA based on Uniqueness

3. Availability: It is usually very rare to see in any market position analysis a company who scores low on a certain criterion and still has a high cost. Unfortunately this is the case with VA. Despite it’s high quality and unique service it is still very limited with respects to availability of travelling destinations which numbers at 51 (while those of BA number at 550). For example VA has no services to mainland Europe (which includes financial hubs such as Paris, Zurich and Berlin). Its flights are mostly long-haul services to all continents except Europe.

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Fig 3. Market Position of BA and VA based on Uniqueness

3. Transformation Process Model

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Fig 4. The figure for the transformation model

As can be seen from fig. 4, the input transformed resources are the passengers. The input transforming resources in that case are the aircraft, pilots, aircrew and the ground crew. The transformation process is moving the passengers around the world. The output of this process is it transports the passengers from one place to another place.

4. Performance Objectives

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This section of the report compares and contrasts the performance objectives of both airlines.

1. Quality:

BA

VA Airline

Seat (wide)

20”

22”

Bed

20” x 72”

33” x 82”

Table 2. Comparing business class seat sizes of BA and VA

As shown in table 2, the dimensions of the seats in VA are bigger compared to the BA implying better comfort.

VA employs hired chauffeurs who take the Upper Class passengers to their destinations after the flight and can bring them back to the airports when they are flying back. This is a free service (included in the price of the ticket) and VA is proud to be the only airline that provides this facility.

2. Speed:

Dedicated check in counters for premium passengers: Both BA and VA have got separate check-in services for their business class passengers. This makes the process quick and easy. The speed of each of these operations is similar in this respect.

VA is the only airline however which proudly provides the drive-thru check in service. It makes the check in service faster. Therefore business class passengers save a lot of time and hassle due to the speed of the operation and its efficiency.

3. Flexibility

Number of Destinations and the availability of the hauls: BA flies to over 550 destinations in 131 countries in convenient time. VA flies to only 51 destinations in several countries. In terms of the number of the destinations, it shows that BA is more flexible with their destination choice compared to VA.

VA also provides the facility of onboard massage giving that extra personalised service to their premium passengers maintaining its trend to be the first in providing the quality service. These types of services provide flexibility allowing them to improve the operation quality.

4. Dependability

Punctuality: According to the Civil Aviation Authority, 69% of its flights take off from the UK either on time or within 15 minutes of the scheduled time. The probability of BA taking off from London to New York on time is about 50 %, while a possibility for VA to take off either on time or with in 15 minutes is 45%. It suggests that the flight services for both airlines have almost similar dependability.

Luggage Delivery: BA has “the worst record for loosing traveller’s luggage. UK’s consumer watchdog for aviation show that 23 bags went missing for every 1,000 passengers carried by BA” (The Guardian, 2007). About 85% of missing bags were returned to their owners within 48 hours, the AEA said, but it added that some “never get returned at all.” This could easily BA’s operation in gaining the customer trust and dependability.

5. Cost

Prices for the flights: Figure 2 shows that on average VA charges more than the BA for similar flights. Virgin charges more because it has quality, speed and flexibility advantage over BA.

The following figure represents the polar diagram for BA and VA.

Fig 5. Polar diagram comparing the Performance Objectives of BA and VA

5. Operations Strategy

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BA and VA have very unique sets of Operation Strategy for their business class travel. From the customer requirement perspective, they both have all the order qualifying factors such as comfortable flat bed seats, TV facilities etc. BA has differentiated itself from other airlines by introducing first ever flat bed seats in airlines in 2001. But it wasn’t long before other Airlines started to adapt similar concepts in their aircraft therefore changing the “flat bed” in business class from “order winner” to “order qualifier”.

Top Down Perspective

What the business wants operation to do?

Operations Resources Perspective

What operation resources can do?

Customer Requirement Perspective

What operation resources can do?

OPERATION

STRATEGY

Bottom Up Perspective

What day to day experience suggests operation to do?

Fig 6. Illustration of perspectives of Operations Strategy

BA makes 2/3 of its earnings from transatlantic travel with business class being the most significant (The Guardian 2008). Therefore their further operation strategy now includes launching of a “business class only” flight to New York (called OpenSkies) competing directly with other “business class only” airlines like Eos, Silverjet and maxJet. BA are also planning to increase the frequency of their business flight towards US cities as the passenger growth is slower in transatlantic route making the importance of the frequency more than the capacity. BA seemed to have recognised their core competences in determining sustainable competitive advantage which is often seen as operation strategy based on the resources or RBV (Resource-Based View).

Virgin finds “business only class” too risky. Instead they are planning to increase the number of premium class seats on its planes. Therefore they have more seats going into the market, hence making the better use of their operation resources. Only the problem with this strategy is that they have to compensate their size of the seats, which might affect the quality of the service.

VA has comparatively lesser operational resources so they have tried to focus their operation strategy by being innovative in their niche region of service which is viewed as Operations resources perspective. VA provides a complimentary chauffeur driven car service to and from the airport and unique customer services like in-flight massage to their Upper Class passengers that are not found in the BA’s business class. They have also managed to provide much more space in their cabins compared to BA.

VA’s move of making the fastest and efficient check in time for premium class passenger has also seen great success and has managed to win awards like “Fastest Airport Check In” from the Wallpaper Awards. They have managed to pick the part of their supply chain, which was slowing down the transformation process and improved it for better customer satisfaction. This type of decision is often viewed as Bottom Up Perspective operation strategy.

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VA is also reviewing its global advertising strategy to show that their facilities are the best for business travellers ahead of opening of Heathrow Terminal 5. This seems to be a positive move as an airline’s strategy aim at maintaining its volume of business travellers in the current situation of economic slowdown.

Outsourcing:

Both BA and VA outsource lots of their technology operations and in-flight customer services to other companies as a part of their operation strategy. BA has chosen AMADEUS Flex Pricer to enhance the experience of booking connecting flights through its website www.ba.com. AMADEUS also operates and develops BA’s reservations, inventory and departure control systems. BA uses SITA for managing data network service and global communications. BA’s in-flight catering service is outsourced to Gate Gourmet. Similarly Virgin has handed over its voice and data communication management to company called Affiniti. Virgin outsources its back office handling to Oracle application specialist MOKUM. Although outsourcing seems to reduce the amount of decisions they have to make on operations processes and gives time to focus on their primary aim, BA and VA have made sure the companies they outsource to are reliable and flexible. BA has had to cancel several of their flights as their in-flight meal supplier Gate Gourmet had staff who went on a wild-cat strike in 2005.

6. Processes for Check-In

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BA

The BA business class booking system is divided into three main ways namely via online check-in, check-In Kiosks or at the check-In Desk. This gives the passenger the luxury of choice. The check-in service for BA much resembles a mass service because it is meant to operate with a high flow rate (volume) and offer very little variety in terms of actual checking-in procedure.

Check-in Desk: This process involves meeting a checking-in attendant at the airport check-in desk (separate from the economy passengers). The benefit of this process is the better speed of service relative to economy passengers because business class check-in queues being are smaller i.e. the same cycle time but a smaller throughput time. The process of checking in is described in the process map in Fig. 7.

Fig 7. The check-in Desk process map

ID: Supply of identification documents such as a passport for inspection.

Ticket: Supply of e-ticket for inspection.

Security: Asking of security questions with respect to luggage content.

Bags Info: Inspecting the weight of luggage.

Prior to ID inspection the flight data must already be within the system which is done at the ticket counter or online. The check-in Desk process involves high volumes and offers little variety so it is therefore a mass process. Its main feature is that it involves high human interaction and as this is a slow process (especially when there are communication difficulties) which results in high cycle and throughput times which are very irritating for passengers.

Check-in Kiosk: This process is similar to the check-in Desk process except for the reduction in cycle time through the reduction in the work content in dealing with each passenger. This is done by ‘diffusing’ the queues. This diffusion process is achieved by installing multiple kiosks for business class passengers. These kiosks are very high-speed devices that input, process and store data far quicker than a check-in clerk. The flow chart is shown in Fig. 8.

Online check-in: The process of checking-in online the same as that of the check-in kiosk except for the convenience of checking in from the comfort of one’s own home. Another difference is that only part of the online checking in process can be completed at home. The ‘ID’ and ‘bags info’ inspection (as shown in Fig. 8) must be completed at the check-In Desk or at the check-in Kiosk.

Fig 8. The Online Check-in Block diagram (BA Corporate website, 2008)

VA

The check-in options for VA are exactly the same as those of BA. There is however a major difference in one process. That difference in VA’s exclusive Drive-Thru check-in service. It has the added benefit of being a service shop process type. This is because of it being a tailored service exclusive to business class passengers. It deals with a smaller volume flow rate (with high personal interaction) compared to those of BA’s Club world passengers. The comparison of the services is displayed as volume-variety characteristics.

Fig 9. Volume-variety characteristics for BA and VA

7. Technology

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Technology has always played an important part in the operation of a company. It is one of the major challenges of the operations management considering the sheer pace of technological change and the way in which it is advancing as opposed to 20 years ago. Technology is the process by which humans modify nature to meet their needs and wants. Technology is more than tangible products.

There are significant implications for operations managers. First, it is becoming increasingly important to monitor the environment for emerging technologies. Second, operations must be able to move quickly in order to adapt to technological change and thirdly the important one is operations managers must develop a clearer understanding of the relationship between the often unpredictable potential of new technologies and the way in which they manage their operations (Slack et al. 2007).

BA

As UK’s largest airline BA has to face such challenges and monitor emerging technologies in order to remain as the leader in its domain. In many cases technology has managed to reduce the operations costs for many companies. For example, innovative use of technology has enabled BA to reduce the cost of running IT operations by 40% over past four years. Also BA has been investing in its ba.com website which accounts for 33% of sales in the UK and 80% sales worldwide. Some technology plays key role in facilitating the direct transformation of inputs to an operation. For example, many factors imply the use of new technologies and most importantly BA announced plans to launch new airlines it will operate service to New York from Paris and Brussels (called OpenSkies). The new service will be the first business only operation from London City and is to attract workers from the financial services sector in the City and Canary Wharf. Another project is underway to develop boarding cards that can be printed from a PC at home. They will use barcodes that can be read by a scanner at the airport. Their IT sector is also developing easier ways for customer to manage excess baggage online so that passenger can trace their baggage. (computerweekly.com 2000). Their business class seat offers four pre-set seat positions plus fine adjustment buttons. The new ‘Z’ position extends to 6 feet 6 inches and has been designed to achieve a feeling of absolute relaxation and comfort. Also it offers adjustable private screen, personal laptop locker, 10.4 inch flat screen TV.

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VA

Their technology can handle any evaluation in marketing strategy for such as a greater focus on web booking flights and easily accommodate change to VA service such as additional routes. The company is committed to innovation. It understands that a multichannel approach is key to improving its service to existing passengers and to attracting new passengers. Their website is robust attractive and easy-to-use offering a new level of customer service. Passengers can browse flight options and book tickets online, frequent flyers can manage their loyalty point accounts and freight passenger’s can track their consignments. They have awarded the £0.5m contract to vendor Affiniti who will remotely manage voice and data systems at Virgin’s 11 UK sites including Heathrow and Gatwick airports. Virgin’s network covers 2500 PCs used for various tasks including check-in desks, departure lounges, flight operations and engineering. Additionally, VA has the longest fully flat bed, which is 56 cm wide seat which making it wider than BA’s business class seat. The seat flips over to become a fully flat bed at the touch of a button. This allows for the two sides to serve completely separate in soft leather, while on the reverse the bed is built of firm, highly supportive foams covered in a breathable fabric for maximum sleeping comfort. Furthermore, passengers can surf the net with free WIFI connections in all its Upper Class (including on-board the aircraft) while BA provides internet facilities only its lounge area. VA has also introduced lifesaving advanced technology onboard which includes an onboard telephone system to transmit medical information to medical experts to a MedAire centre. Doctors can then diagnose the problem and advice the crew on the next course of action to enable crew to use their medical training to assist the passenger where BA doesn’t have these facilities.

8. Capacity Planning and Control

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BA and VA follow long and medium-term capacity planning strategies. In 2005 VA decided to provide 1500 jobs over the next 18 months at Heathrow and Gatwick Airports. This is the due to the fact that VA is looking to double the size of its airline business over next five years. VA was given the best Airline award for the year 2007 (OAG Awards website, 2007). The rise in the number of VA Upper Class travellers was obvious from the last statement. Another proof is the bar chart shown below which shows the number of increasing passengers with years. It began extra luxurious facilities like free chauffeur driven cars, the on-board bar and the on-board massage facilities recently. VA is planning to use Airbus A380, which is double-decker plane, carrying around 555 passengers. They also made an agreement with Boeing and Airbus to buy 30 aircraft’s to satisfy the increasing demand in the passengers.

In 1999 BA decided to emphasise on the major business destinations reducing its European destinations at Heathrow from 80 to 60.They also provided banking service and loans to their business travellers with co-operation of the Royal Bank of Canada and Abbey national. In 2005 BA decided to invest £100m in order to improve its

Fig 10. The trend in the number of passengers flying with VA

business class cabins and introduced new seats in long haul fleet of 110 aircraft. A further £300m was to be invested at Heathrow terminal 5 for the business class improvement. In order to bring these changes in the infrastructure of the business more staff was recruited to accommodate with the introduction of the new plans. In 2007 BA planned to give 40 jobs in IT sector in Newcastle. This would have help to improve their technology sector that was to be used for the improvement of business class. In 2009 BA plans to introduce new business class flights from London City Airport to New York. The service will operate twice in the day using the Airbus A318 aircraft (travelcounsellors.co.uk, 2007).

9. Conclusion

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Having applied the theories of operations management to the business class services of BA and VA it is clearly seen that their processes have similarities as well as differences. It is seen that VA have clearly executed their strategy of being the most luxurious business class offering by supplementing it with the latest technology and luxury. BA on the other hand is still behind in this respect but is ahead in terms of amount of destinations (as a result of its relative ‘head start’ in the industry) and relatively low costs. It can therefore be said that a typical VA Upper Class customer would be one who has no concern about cost and who is a frequent long-haul traveller. The typical BA Club World/Europe customer would be a cost-conscious businessman who frequently travels on both long- and short-haul journeys.


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