Strategic Planning For British Airways Management Essay

The purpose of this paper is to evaluate an effective and efficient strategic planning for airline industry providing British Airways strategic plan. British Airways leading UK market as a leader of the airline industries.

This paper evaluate the British Airways strategic planning including the strategic model, Enternal and external environmental enalysis,management risk and strategic v operational risk. This paper is done by secondary data collection process which is totally qualitative data base paper. Most of the information I got from British Airways own website (www.britishairways.com) and some are from some Book, Journals and Articles. Mainly for their (British Airways) business strategy planning they are following some strategic models like Porter’s five forces model, PESTEL analysis, and SWOT analysis etc. By those analysis organization can understand like British airways can understand that what is their external and internal condition and what is the strength for them ,what is opportunity and weakness and based on those factors they are trying to compete with their competitors and getting good market share in the tourism and hospitality industry.

Contents 3

1.1 Objectives 5

1.2 Company Overview 6

1.2.1 Company Structure 6

1.2.2 Corporate Level Structure 7

1.2.3 Business Level Structure 7

1.2.4 Functional Level Structure 7

1.3 Current Strategies 8

2.0 Environmental Analysis(External Analysis) 9

2.1 PESTEL Analysis 9

2.2 SWOT analyses 11

3.0 Strategic Planning Model 11

S 11

Internal Strengths 11

Brand Image 11

 Partnerships HYPERLINK “#__RefHeading__29263_575820157″&HYPERLINK “#__RefHeading__29263_575820157” Alliances 11

 Financial size and stability 11

 Terminal 5 11

W 11

Internal Weaknesses 11

Poor employee relations history 11

 Reliability and trust 11

 Innovation HYPERLINK “#__RefHeading__29277_575820157″&HYPERLINK “#__RefHeading__29277_575820157” change 11

0 11

External Opportunities 11

Quality System 11

 Competitors forced exit 11

 Competitors failing on delivering reliability 11

 Emergence of new markets 11

T 11

External Threats 11

Open Skies Agreement 11

 Environmental awareness 11

 Global economic crisis 11

 Lower cost competition 11

3.1 Porter’s Five Forces 12

4.0 Customer Analysis 13

5.0 Competitor Analysis 15

5.1 Strategic Groups 15

6.0 Internal Analysis 17

6.1 Value Chain Analysis (VCA) 17

17

6.2 Key Strategic Issues 20

7.0 Implementation 22

8.0 Managing Risk 24

9.0 Ethics 24

10.0 Strategic V Operational Conflict 25

11.0 Recommendation 26

11.1 Financial 26

11.2 People 26

11.3 Legal 26

11.0 Conclusion 27

1.1 Objectives

The main objective of this paper is to develop the internal external environmental analysis and strategic planning with risk management and business ethics.

Specific objectives are following,

Evaluate the current strategic position of British Airways.

Analyse the strategic Planning Models for British Airways.

Analyse British Airways internal and external environment.

1.2 Company Overview

British Airways is the UK’s largest international scheduled airline. At the side of scheduled services, BA is engaged in the operation of international and domestic carriage of freight and mail, and the ancillary services (Datamonitor, 2008). In association with codeshare and franchise partners, BA fly to more than 300 destinations, and carried more than 33 million passengers, earning over £8.7 billion in revenue in 2007/08 (British Airways, 2008). Employee headcount in March 2008 stood at 42,377 people (Datamonitor, 2008).

Since privatisation in 1987, BA has continued to grow as competition in the market has risen worldwide. In recent times, BA has successfully been labelled the world’s first airline to take part in a scheme to reduce greenhouse gas emissions (2002) and to allow passengers to print online boarding passes (2004) (British Airways, 2008). In 2005, the company saw Willie Walsh become Chief Executive of BA (Flight Global, 2008), who to date has driven the company through the completion of Terminal 5 at Heathrow, amongst other new initiatives.

Despite reported and imminent industry hits due to the global economic downturn, BA’s future looks promising. As BA announces its aim of becoming the ‘world’s most responsible airline’ in the latest annual report (British Airways, 2008), great importance lies in developing guiding principles and careful strategic direction to allow the achievement of this goal.

1.2.1 Company Structure

When implementing strategy, people are crucial to the success (Johnson et al., 2008), therefore the structure within BA will now be analysed to ensure successful implementation.

1.2.2 Corporate Level Structure

(Adapted from British Airways, 2008).

At a corporate level, BA has a good structure already in place. There is a new Acting Customer Director on an interim basis, Silla Maizey (British Airways, 2008). She has introduced a new customer service team working with Heathrow Customer Services, designed to put customers first. Using the current structure to implement our strategy, it is recommended that a permanent and not acting director to be recruited. In terms of the technological strategy, no amendments to the current structure are necessary as BA already have systems in place to implement new technology.

1.2.3 Business Level Structure

At a business level each department will need to ensure all staff implements the strategies that have come top-down from a corporate level and work within the organisation’s brand values. Each department must also tailor the corporate level objectives specifically to its own targets. This will help to build the brand, improve its customer relationship focus and achieve the stated objectives.

1.2.4 Functional Level Structure

Every function must coordinate with each other to ensure objectives are met and an updated operations manual must be developed. Specifically for the relations strategy, detailed targets must be stated for both the marketing and HR functions with constant data capture and analysis to see whether the targets are being met. Sufficient training on the new onboard technology will be necessary on an ongoing basis to ensure that employees are fully familiar with the service.

1.3 Current Strategies

The paper will be designed in consideration of BA’s current strategies:

Upgrade customer experience via the introduction of text and mobile services for business class customers.

Modernise aircraft fleet and offer new services.

Manage cost base.

Increase corporate responsibility through environmental performance and partnerships.

2.0 Environmental Analysis(External Analysis)

For success within the airline industry, an awareness of the external environment is essential. This section aims to highlight the position of the industry, in particular looking at competitors and assessing BA’s capability to meet current and future challenges.

2.1 PESTEL Analysis

(Source: Johnson et al., 2008, p56)

Figure 1-Pastel Analysis

Factors

BA Implication

Political

1. Heavy regulation (AEA, 2009).

BA: Compliance is essential if BA wants to continue operations

2.Increased security due to past terrorist threats (DFT, 2008).

BA: Sufficient security measures should be in place to ensure

consumer confidence and competitive advantage is maintained.

Economic

1.Global economic crisis:World growth is projected to just over 2 percent in 2009 (IMF, 2008). Pound weakens especially against the Euro.

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BA: Possible reduction in the amount of business travel as companies are cutting costs and using alternative means of communication such as teleconferencing. BA is vulnerable as a UK operating airline to a poor exchange rate.

2. Oil prices: declined by >50 % since their peak retreating to 2007 levels. Decline in fuel price = strengthening of the dollar (IMF, 2008)

BA: Fluctuations in oil prices and exchange rates will directly affect BA’s cost base.

3. UK consumer spending saw its sharpest decline for 13 years between July and September 2008 (Channel 4, 2008).

BA: More intense competition

Social

1.The UK has an aging population (see appendix 3) (National Statistics Online, 2008).

BA:Potential opportunities for growth as older generations havemore time to spend on leisure activities such as international travel.

2. Increasing unemployment (Kollewe and Sager, 2008).

BA: Increased bargaining power as an employer.

Technological

1.A recent survey revealed that 34% of online consumers plan to use price-comparison sites more in 2009 (NMA, 2009).

BA: Increased consumer awareness and therefore bargaining power.

2. Online booking services and check-in is becoming increasingly used by the airline industry.

BA: BA must ensure that they remain up to date with these technological advances whilst avoiding becoming overly reliant, as this may isolate certain consumer markets (i.e the elderly) who don’t feel comfortable using such technology.

Environmental/Ethical

1.Noise pollution controls,and energy consumption controls (DFT, 2008).

BA:New legislation (e.g. Climate Change Bill) enforcing tighter environmental regulation may increase operational costs each year.

2.Limited land and for growing airports – Expansion is difficult at Heathrow as it would result in a loss in the London’s Green belt area. (BBC News 2006)

BA:Limited capacity=>utilisation of capacity.

3.Consumers are becoming increasingly ‘green’ and more aware of the environmental impact of their actions.

BA:Failure to adopt an integrated environmental strategy could lead to a detrimental effect on the BA’s reputation and income.

4.Cancellations of flights and loss of baggage (Channel 4, 2008).

BA: Such ethical issues could have a detrimental effect on reputation if left unresolved.

Legal

1.Collusion and price fixing.

BA:Restriction on mergers will have an impact on BA’s proposed alliance with American Airlines.

2. Recognition of trade unions and industrial action e.g. Cabin Crew strikes.

BA:Good employee relations are essential if BA wants to avoid industrial action and interrupted operations.

3.Open Skies Agreement (AEA, 2009)

BA:Opportunity for BA and its competitors to freely transport aircraft between the EU and US.

2.2 SWOT analyses

Figure 2-SWOT analyses

S

Internal Strengths

Brand Image

 Partnerships &Alliances

 Financial size and stability

 Terminal 5

W

Internal Weaknesses

Poor employee relations history

 Reliability and trust

 Innovation &change

External Opportunities

Quality System

 Competitors forced exit

 Competitors failing on delivering reliability

 Emergence of new markets

T

External Threats

Open Skies Agreement

 Environmental awareness

 Global economic crisis

 Lower cost competition

3.0 Strategic Planning Model

3.1 Porter’s Five Forces

(Source: Johnson et al., 2008, p60)

It is important to analyse the competitive nature of the airline industry in order to assess the position of BA. The ‘Five Forces’ tool will enable BA to make strategic decisions in order to increase profitability.

Force

Strength

Competitive Rivalry

BA caters for both long haul and short haul flights. Within long haul there is little differentiation between BA and their competitors, in terms of price and service offering.

The short haul market is more fragmented with many small players.

Direct competitive rivalry is fierce, e.g. Virgin has a website opposing the proposed strategic alliance between BA and AA – ‘No Way BA/AA’ (Virgin Atlantic, 2008).

Consolidation of competitors has increased competition.

HIGH

Power of Suppliers

Two aircraft manufacturers = High bargaining power.

BA restricted by sole supplier of fuel to the airport.

Priority of landing slots is given to historic rights of existing users (IATA, 2008).

BA employees use collective bargaining through trade unions in order to increase their bargaining power

HIGH

Power of Buyers

Low concentration of buyers to suppliers means they have little bargaining power.

Increased internet usage has amplified awareness and interaction of customers (Keynote, 2008c).

MEDIUM

Threat of New Entrants

Significant barriers to entry: such as the competitive environment, high regularity requirements and high capital cost requirements.

Barriers to exit are in place which deters new entrants.

The failure of recent airlines such as XL and Zoom is likely to deter new entrants (Times Online, 2008).

LOW

Threat of Substitutes

There are few direct substitutes:

Short haul flights: the Eurostar or a ferry.

Long haul flights: no notable substitutes.

LOW

4.0 Customer Analysis

Over the past decade there has been increasing complexity in customer needs, as the customer has become more educated and demanding. Particularly, the following changes have occurred:

A shift in demographics to older passengers (Keynote, 2008c).

Increased global connectivity allowing the usage of internet and search mediums (e.g. comparison and review websites).

Increased requirement for convenience (e.g. new destinations, quick check-in).

Price has become more of a priority

Segments have become more defined within their needs.

Evidence that BA is failing to respond to the changing customer landscape includes:

The amount of BA customers recommending their services reduced from 61% in 2006/07 to 59% in 2007/08 (British Airways, 2008).

BA have been criticised for slow innovation (Doganis, 2006, Pg 165).

Poor reliability and baggage handling (AQR)

Failed attempts to target the price conscious consumer through low cost airline operation (Eirma, 2008).

5.0 Competitor Analysis

5.1 Strategic Groups

Figure 3 – Strategic Group Analysis (Source: Johnson et al., 2008, p73-77.)

Figure 3 illustrates that BA’s direct competitors are those who operate similar services and lie within the same strategic group. The competition is likely to be most intense within this group as they are seeking similar strategies.

Lufthansa and KLM-Air France are the 2 leading European Airlines Member carriers in terms of passenger numbers, with 15.1% and 14.1% respectively of the total number of passengers carried. BA comes in third with 9.3% of the total (Keynote, 2008c).

BA face competition from a small number of serious contenders in the UK, with the main contenders being Virgin Atlantic, and United Airlines in the Star Alliance soon controlling BMI (Euromonitor, 2008). Although they do not lie within the same strategic group as BA the advent of low-cost air travel has changed the face of the airline industry. Airlines such as Ryanair and EasyJet have established themselves among the leading carriers in Europe, whilst the more established long-haul carriers such as BA have struggled to keep up with their counterparts’ growth rates.

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Moreover the economic downturn and sharp fall in oil prices has caused a price war between Emirates, BA and Virgin Atlantic on the London-Dubai route. Fares have dropped by 30% across the airlines. Thus competition still remains fierce.

Based on the strategic group analysis it could be argued that there is a gap in the market for a low cost airline operating a high breadth of service however it is likely the reason no airlines have adopted this strategy is due to the fact that it would be destined to fail. This assumption could be supported by BA’s failed attempt to enter this market in recent years (Telegraph, 2002).

6.0 Internal Analysis

It is now essential to analyse the internal environment in order to formulate appropriate strategies.

6.1 Value Chain Analysis (VCA)

BA have tried to control the system further by forward and backward mitigation. Through controlling many component supplies in-house, and through BA Holidays Plc, BA increases their reach in the value system to the supplier and channel value chains.

Figure 6 – Value Chain (Adapted from: Johnson et al., 2008, p110)

SUPPORT ACTIVITIES

FIRM INFRASTRUCTURE

Structured hierarchy allows BA to make use of a multitude of specialist knowledge in order to gain competitive advantage over downsized firms.

HUMAN RESOURCE MANAGEMENT

Invested in the development of customer service training in 2007 attracting the best employees.

‘Speak Up’ opinion survey encourages employees to provide feedback (British Airways, 2008).

TECHNOLOGY DEVELOPMENT

BA has added value in this category over smaller companies due to slack resources that can be employed to innovate the service (e.g. individual LCD screens).

PROCUREMENT

Due to the size and historical business relationships and alliances, BA is able to leverage suppliers and through economies of scale make efficiencies where competitors may fail.

PRIMARY ACTIVITIES

INBOUND LOGISTICS

Stock Control

High quality training accredited by City &Guilds (British Airways, 2008).

Ongoing relationship with suppliers (e.g. Gate Gourmet.

OPERATIONS

Increased Baggage Security.

Quick check-in services and secure online bookings with ability to pre-book additional services.

OUTBOUND LOGISTICS

Customer Service

Large database of airport slots enable passengers to access the majority of destinations from preferred airport.

MARKETING &SALES

Marketing communications to all stakeholders.

Brand allowing for large budget to be spent in this field.

POST SALE SERVICE

Loyalty club card.

Update communication on other services

Whilst the Value Chain highlights the primary and support activities that add value to BA, there are a number of inefficiencies within these activities that arguably reduce the amount of value provided (see figure 7 and 8).

Figure 7 – Support Activities Value Loss

SUPPORT ACTIVITIES

Firm Infrastructure

Large bureaucratic infrastructure decreases effective communication and increases inertia.

HRM

BA’s employee opinion surveys attracted a mere 35% response rate in 2007 (British Airways, 2008).

Due to high collective bargaining capabilities, BA has contended a number of highly publicised employee relations issues (e.g. Cabin Crew strike over pay, sickness absence, and staffing in 2007 (BBC News, 2007).

Technology Development

BA has failed to gain recognition for new innovation.

Figure 8 – Primary Activities Value Loss

PRIMARY ACTIVITIES

Inbound Logistics

High solidarity between supplier employees and BA employees has created a history of negative industrial action. For example, in 2005, BA employees walked out for two days when Gate Gourmet employees were sacked (BBC News, 2005).

Operations/Outbound Logistics

TV documentary reported on Terminal Five operation difficulties, an emergency landing at LHR, poor baggage handling and flight cancellations (Channel Four, 2008).

Marketing &Sales

A lack of innovation in their marketing communications (e.g. Virgin gaining value over BA).

6.2 Key Strategic Issues

Analysis Tool

Key Findings

Strategic Implications

PESTEL

Global economic crisis.

Higher regulatory requirements.

Increasing environmental awareness.

Decline in consumer spending.

Increased use of the internet by customers.

Focus on technological and environmental issues.

Porters Five Forces

High competitive rivalry and bargaining power of suppliers.

Defensive strategies needed to protect market share.

Customer Analysis

Consumer trends in high convenience and high expectations of service.

Ensure changing customer needs are understood and met

Strategic Group Analysis

Intense competition within strategic group and trend for consolidation.

The biggest other threat comes from low cost airlines.

Although low cost airlines are the biggest threat to BA, moving into low cost market is not deemed appropriate based on previous failed attempts.

Airline Quality Review

BA = poor baggage handling, poor on flight entertainment and low customer satisfaction.

Service Quality needs to be improved to gain a competitive advantage

GE Matrix

Highest growth markets; Asia Pacific and Eastern Europe.

BA has a strong opportunity for market development in Asia and Eastern Europe.

The Value Chain

BA adds value; financial size and stability, brand image, industry expertise, and partnerships and alliances.

BA loses value to competition; employee relations and performance, marketing delivery, reliability, and slow innovation.

BA needs to address the areas where value is being lost to avoid attacking competitor strategies.

Resource Based View

Strong resources including sole access to hub within largest UK Airport.

Strong training competencies.

Utilise BA core competences to gain competitive advantage.

Financial Analysis

Increased profits and lower operating costs.

Lower gearing ratios and higher liquidity.

Possibility of a loss in 2009 as a result of the economic downturn.

Investment resources available.

Increased scrutiny on strategic projects for risk assessment.

7.0 Implementation

Based on the analysis of strategic options it is proposed that two strategies are implemented simultaneously. These strategies are a people processes focused strategy and technological advancement. Figure 12 details the objectives and performance measures of these two strategies.

Figure 12 – Strategy Overview

Strategy

Objectives

Performance Measures

People processes

Aim: Improved stakeholder brand image &profitability

Utilise databases.

Improve service delivery efficiency.

Improve internal communication.

Implement effective review monitoring.

Profit margin increase of 2 – 3%.

Increase repeat purchasing by 25%.

Increase customer recommendation from 59% (2007/08) to 70%.

Improve employee survey rate from 35% (2007/08) to 80% (Value Chain).

Technological advancement

Aim: Customer Loyalty &Market Share

Following succession with test internet implementation, roll out internet on-board internet access.

An appropriate pricing strategy involving complimentary service for first class whilst targeting business class as the most profitable market.

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Continued market research to ensure that this is a valued service and seek opportunities for further development.

Install equipment on remaining 244 aircraft.

Increase business class market share by 10%.

80% of business class customers purchasing internet usage.

Following R&D implement 1 new technological service.

In order for the chosen strategies to be successful effective implementation is essential to organise and enable success and to manage the changes that will impact BA.

8.0 Managing Risk

Risk management helps the organization to identify and address the risks facing their business and trying to increase the probability of successfully achieving their businesses objectives.

Types of risk business need to face:

Strategic

Compliance

Financial

Operational

Three main risk factors affecting all airline are volatility in jet fuel price, foreign exchange and interest rate risks.

Interest Rate Risk:

BA utilizes swap agreements to manage its interest rate exposure.

Foreign Exchange Risk:

BA manages its Foreign Exchange exposure. Any surplus of foreign currency is sold at spot or forward for US dollars.

9.0 Ethics

An ethics strategy should be concerned with ensuring that all corporate activities are ethical, legal, and within all regulatory guidelines. 

An ethics program is more likely to be considered effective if it includes the following components:

1) Statement of Values

The creation and communication of a statement of organizational values is considered to be necessary guidance.

2) Code of Conduct

A code of conduct or an ethics policy that communicates a commitment to ethical behavior throughout the organization, and explains how these values are to be applied in representative situations.

3) Executive Leadership and a System

A plan and systems for the communication, monitoring, and enforcement of the Code of Conduct. Important consideration in this respect, include:

Richard Branson’s success in forcing British Airways into adopting a Code of Conduct is a warning to companies that do not have a code that they ought to consider adopting one and to those that do that they should make sure it works. Without an effective ethical policy, a company cannot be sure that ethical judgments made by employees are consistent with the strategy of the company and are made at an appropriate level within it.

Ethics protects the reputation of the company. British Airways is a classic example, where large amounts of marketing investment in image were undermined by the public’s perception of its actions.

British Airways’ experience shows that management may be deluding themselves if they consider that all employees in a company will adopt their values and the strategic importance of ethicality by absorbing knowledge from superiors.

10.0 Strategic V Operational Conflict

While strategic and operational planning both offer beneficial aspects, there are some key differences that should be understood. Strategic planning is the formal process of defining the requirements for delivering high payoff results, and for identifying what, and how, to get from current realities to future ones that add value to the organization. It is not rigid nor lockstep, but rather a self-correcting set of defining requirements and relationships for stating “what is” in terms of results, and moving ever closer to “what should be” the results and payoffs. 

Strategic Planning is long term planning undertaken by senior management (i.e. the executives). It involves making decisions which will work toward reaching an organisations mission and vision statements.

&

Operational planning is day to day planning undertaken by front line managers. They report to middle management and enact the leg work of the strategies developed by middle management to achieve strategic goals.

11.0 Recommendation

Although strong and justified strategies have been created within the confines of the report there are a number of issues which BA should take into consideration when implementing the proposed strategies. These are considered briefly below.

11.1 Financial

BA should not have much trouble in implementing these strategies. With an increasingly lower gearing ratio and better liquidity they should be able to secure some funding from financial institutions and obtain the rest from retained profits. However, with the current economic conditions, it will still be difficult to obtain funding and BA will not want to increase its gearing too much.

11.2 People

The recommended strategy to improve relations will require full support from BA’s workforce. As a highly unionised workforce, success in changing the employment relationship will be determined by BA’s ability to work efficiently with each recognised union. In regards to implementing change, due to BA’s history and size the company may experience organisational inertia or myopia. Again, improvements to customer relations may be hindered by an uncooperative workforce, highlighting the importance of ongoing training and support. Similarly, a technological stance will require BA’s employees to develop service knowledge, and it is imperative for the organisation to support them in doing so on a continual basis.

11.3 Legal

The use of Wi-Fi on planes is already allowed by the aviation regulators in the UK, Europe and Rest of the World. However, regulatory approval must be achieved before it can be implemented on planes flying to/from USA (Wlanbook, 2008; Row 44, 2008). The use of external legal consultants should be used when implementing both strategies to ensure that legal requirements are met, especially when performing internal and external surveys and the confidentiality of data.

11.0 Conclusion

As a result of the external and internal analysis a number of strategic options were proposed. It was concluded that a combined strategy approach to improve service quality was deemed most suitable. Due to the current industry climate we have chosen a strategy to consolidate BA’s position as market leader.

Due to the scale and scope of BA’s operations it was decided that the focus of this report would be on scheduled passenger flights. We would recommend further strategic analysis to implement SBU level strategies.

Due to lack of primary research and restricted access to company information there may be limitations in our findings and recommended strategy, however we believe that if the general direction of our suggested strategic intent is followed it will lead to lead to success.

Reference

Johnson, G.and Scholes, K (2002) Exploring Corporate Strategy.6th Edition.London, UK Prentice Hall.

Kathleen B Hass, Richard Vander Horst, Kimi Ziemski (2008). From Analyst to Leader: Elevating the Role of the Business Analyst Management Concepts, 2008. ISBN 1567262139. p94: “As the discipline of business analysis becomes professionalized”

“HYPERLINK “http://www.theiiba.org/Content/NavigationMenu/Learning/BodyofKnowledge/Version16/BOKV1_6.pdf”Business Analysis Body of Knowledge v1.6HYPERLINK “http://www.theiiba.org/Content/NavigationMenu/Learning/BodyofKnowledge/Version16/BOKV1_6.pdf””. IIBA. Retrieved 2008-07-21.

www.britishairways.co.uk


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