Management for the Future: British Airways Plc - Essay Example

? Management for the future British Airways is the pioneering airlines companies in the globe with a vigorous (quantitative analysis will be done later) annual sales and profit generation. The hardcore goal of the company is the appropriation of the commercial benefits in a single campus and in the policy of shifting the operations in the Heathrow Airport which is the largest airport in the world. The Airways Company is engaged in the operation of the international and the domestic scheduled air services in the endeavor of carrying passengers, cargos, freight, mails and other ancillary services and so on. Company Track records from 2003-2010 British Airways operates a channel of international route network which comprises of around 147 destinations in 75 countries across America, Europe, Far East Asia, Australia, Africa, Middle East, and the Indian sub-continent and maintaining a fleet of 242 aircraft. In the fiscal year 2007, the company executed about 33 million passengers and 762,000 tons of cargo. The company recorded a declining revenue growth in the last five years. The revenues of the company grew at a rate of compound rate of 3% from an amount of ?7,688.0 million in 2003 to ?8,492.0 million in 2007 (Premium Company Profile: British Airways Plc, 2008). 2003 Year 2003 was very difficult for the company. The revenue generating mechanism of te company in the first part of the year suffered from the aftershock of the 9/11 incident inculcated with the economic downturn. In the mid phase of the year, the threat of the war in the Middle East created uncertainty and led to the tremendous decline in the demand. At the end of the financial year hostilities with adverse consequences and travel in the Middle East was curtailed. Again the outbreak of the contagious disease SARS (Acute Respiratory Syndrome) took place with its devastating effects on the company’s revenue generation. The company suffered a tremendous loss of around ?26 billion. In that juncture, several airlines went out of business and the others struggled to remain viable. In the United States, the carriers propped up by the government handouts and loan guarantees a competitive advantage not available to nor desired by the company. Against this critical juncture the performance of the company was quite credible. The profits were reaped through massive reduction in the costs rather than on emphasizing on the regime of improvement of the revenue and its yield. The total revenue earned was ?7.7 billion which was a decline of ?650 million from the previous year. The passenger numbers were down by 5 per cent to around 38 million. Increase in the volume of the cargo was around 4.4 per cent and the fall in the yield was by 4 per cent. The capacity deployed in the market declined by whopping 8 per cent and the performance in terms of the revenue passenger kilometers achieved. This led the load enhanced by a percentage of 1.5 per cent to around 71.9 per cent. The drive for cutting the costs and the improvement of the efficiency went under the Future Size and Shape program. A total of around ?1 billion was taken out of the business for the reduction in the unit cost of around 5.5 per cent. The manpower has been reduced by the equivalent of 10,000 people since August, 2001, and by September, 2003, a reduction of a further 3,000 was executed. One of the year’s most prominent and difficult decisions was connected with the retirement of the Concorde fleet. The company made the decision in the light of compelling economic and the technical evidence. The huge decline in the demand for the premium class travel had a heavy effect on the Concorde. The supersonic services across the North Atlantic was reduced by 50 per cent and the traditional Concorde customers stayed away or traded down, and there was faint hope of services returning to the breakeven point. The Concorde has an apex position in air transport history and the company has been extremely proud to have the globe’s only supersonic convey as the British Airways for almost 30 years. With the far-sighted vision, technological supremacy and along with great human endeavor Concorde has occupied a special place in the hearts of people all around the world but especially in Britain, where it was regarded as an iconic emblem. Over its last months of service, Concorde is being celebrated with a program of special promotions and commemorative activities. In order to dissolve the problems an agreement was made between the British Airways and Thomas Cook UK with a 50/50 joint venture company for seeking solutions (Annual Report & Accounts, 2002/2003, p.2). 2004 The year of 2004 was a period of recovery from the devastating economic ravages and the fluctuations. The year initiated with the immediate after math of the war in Iraq and was vulnerable to the threat of terrorism and Severe Acute Respiratory Syndrome (SARS) epidemic which inflicted to the performance of the company. There were prior signals of the demand improvements in the market for the intercontinental premium travel and air cargo , the achievement of the year came from the strict cost reduction regime at the juncture of the downward pressure in case of revenue yields . The strategy of the Future Size and Shape strategy resulted in the quite significant savings rate at the end of the financial year and led to the huge manpower reduction. But the fact was that the amount of reduction in costs for the people, procurement and distribution exceeded and the savings helped the company in further product innovation and holding of the cash reserves at a record level (Annual Reports 2004, p. 7). The availability of the e-ticket for the customers flying with British Airways and Qantas was for the first time introduced in the month of April with the new uniform created by the leading British fashion designer Julien Macdonald for more than 25,000 staff including flight crew, cabin crew, dispatchers and check-in agents which resulted in the provision for the facilities for a record number of British Airways' customers which included in the checking of the online facilities in ba.com providing almost around 100,000 people checking the status on different grounds sitting at the comfort of their homes (Explore our past, 2000-Present). In the arena of strategic management the company took resort of the procurement framework in order to assess the competing software products and the suppliers. The procurement group also launched an initiative for the improvement of the quality as well as the reliability of the supplier which was implemented in April 2004. The policy was on the increase in the compliance to the preferred suppliers, extension of the number of the Ariba Buyer catalogue for the encompassment of the further commodities and the suppliers and it was critical because it was used in the simplification of the ordering process and the encouraged use of the preferred suppliers. It also enhanced the requisition accuracy as well as the acceleration in the approval process with the reduction in the invoice mismatches. Further roll out to the overseas operations and subsidiaries were made through (British Airways: A journey in Procurement Transformation, 2009, p.11). The airways in December launched its first drive-through check-in facility for Club World passengers as well as a new check-in and lounge for First passengers at Grantley Adams Airport in Barbados (Explore our past, 2000-Present). 2005 Willie Walsh was appointed as the CEO of the company in 2005 with the retirement of the previous CEO. Although the company stuck onto the cost reduction regime, the year has been tough for the management as because there were continuous oil price hike inculcated with an environment of the continued competitive environment. There was too much capacity in the market and airlines propped up by their governments continue to undercut prices aggressively. But there were massive change in the industrial relations scenario. There were designs made for the improvement of the communications and the creation of the atmosphere where the effective industrial relations could be established (Annual report, 2005, p.4). A path breaking strategy named as the British Airways Performance Share Plan 2005 was established with the is the long-term incentive plan awarded to key senior executives of the Company, directed towards the shaping and the delivery of the business from the medium run to the long run business achievement (Report of the Remuneration Committee, n.d.). 2006 The effective implementation of the British Airways Deferred Share Plan 2005 took place in the year 2006 which were provided to the qualifying employees based on performance and service tests. It was decided that it would be awarded at a time when a bonus was triggered subject to the employee remaining in employment with the Group for three years after the grant date. The relevant management population was supposed to receive a percentage of their bonus in cash and the remaining percentage through the British Airways Deferred Share Plan 2005 (Share options, n.d.). The profit of the year was amounted to around ?451 million against a profit of 377 million in the previous year. No interim dividend was paid by the company in the year. In order to magnify the strengthening behavior of the balance sheet of the company, the Board of directors decided in not recommending the payment of a dividend (Annual Report 2006, p. 4). 2007 Year 2007 was a year of achievement. The economic conditions were degenerating and the fuel price was also incessantly high. The company kept their focus on the establishment of a c competitive cost base as a part of the business plan for the guarantee of the record profits of the year. Record profits and operating margins were around 10 per cent in the year 2007/2008. The emphasis on the customer promise under the banner of BA Basics and Brilliance’ achieved a customer recommendation score of 59 per cent during the year. The business model also emphasized on the development of an involved and motivated workforce through optimal training plans coupled with support in the possible development of the employees. In case of the operations department, the ‘Ready to Go’ performance occurred at an average level of around 34 per cent during 2007/08 with a summit of around 65 per cent in January 2008 (Annual Report 2007/2008, p. 32). 2008 The year was followed by success and failures. In the achievement paradigm, the move towards the terminal 5 performed a record breaking levels of performance and the ready to go performance averaged at a percentage of around 46 per cent with a with a record high in March 2009 of 64 per cent. With the good performance at the Heathrow the good performance across the network the Ready to Go performance performed at the level of 53 per cent. This resulted into the record levels of customer satisfaction with punctuality, pride and satisfaction for the improvement. But the company failed in meeting the financial targets because of the doldrums in the trading conditions. However the move to the Terminal 5 saw a much significant operational performance and achieved the record-breaking punctuality and customer recommendation scores (Our Key Performance Indicators, n.d.). 2009 The year was a disaster for the company. The financial performance scrapped and the dividends fell sharply rapidly with a huge loss in the business of around ?401 million. The BA from a record profit last year encountered around an amount of ?3bn fuel bill, with the sudden deterioration in the pound value with its transatlantic business customers due to the banking crisis. The largest airline in Heathrow also declined in the offers to the investors because of the dire state of the airline market. Shares in the flag carrier fell 6.6% to 152p without any signaling of recovery. Also the BA imposed a pay freeze without the payment of bonuses to the management. The airlines cut off 2,500 jobs reducing the payroll over 40000 people (Milmo, 2009). 2010 This year was a year of challenges and subsequently developing strategies for mitigating them. The problems encountered by the British airways was the raising of the finance at the time of continuing crisis debt markets, radical reduction in the historic cost base, changing the working practices, completion of the planned merger with Iberia, winning of an anti-trust agreement for the cooperation with the American Airlines and Iberia on North Atlantic routes; and tackling the ?3.7 billion pensions deficit successfully. The company entered into the recession financially with the plans of the fleet replacement plans financed to the year 2013. In August 2009, the company raised an amount of ?350 million with the help of a convertible bond issue for the excellent performance in the recession. The year also saw the reduction in the unit cost by a percent of 6.5 with a decrease in the fuel bill. The unit costs excluding the fuel also fell around by 1.8 per cent. The cost base became far more competitive with the platform set for the propelling growth in the future (Annual Reports, 2010). Scenario planning for the future Environmental issues The industry of the airlines is highly regulated and the environmental factors play a dominant role in this case. The company has wide scale reputation in taking into the account the environmental factors. The company from the routes that it fly, the business with whom the company cooperates , payment of the infrastructure costs, safety , security and all the environmental impact are governed by the company under the purview of strict regulation regime (Annual Reports, 2010, p.25). It is very much mandatory for every airline for meeting a comprehensive range of local, national as well as international environmental regulations. The approach of the company as for example in 2005 for the net CO2 emission by the year 205 leads a robust commitment of the industry in the reduction of the carbon emissions (Annual Reports, 2010, p.26). The company’s Boeing 777-300ERs with their highly competent fuel efficient and environmental performance in 2010 is a great move towards the ultimate protection of the environmental factors (Annual Reports, 2010, p.30).The optimal destination program was designed under four streams which are the Environment, community, investment, workplace and Marketplace. The practical way in which the company strives depends on the responsibility of the day to day workings (Annual Reports, 2010, p. 36). The European Advanced Biofuels Flight Path Initiative is also a roadmap with clear milestones designed in the achievement of the annual production of around two million tonnes of sustainably produced biofuel for aviation by 2020. The implementation of the plans proposed has been order to address the critical issues like the type of bio fuels required will be done in a two step method. The first phase of the opening was the opening of the first of its dedicated production plants by 2015 followed by the second series of plants which should be starting its construction by 2016 and be operational by 2018. Thus it can be said that the environmental policies chalked out by the companies are well justified for the achievement of the sustainable environmental dynamics in an around the time frame of 2018-2020 (Hupe, 2011, pp.28-29). One of the dynamic targets of the company is that of the decline in the Carbon dioxide () by a scale of 25% starting from 111 g/ pa km [where pa km represent passenger kilometer] in the year 2005 to the 83 g/ pa km by the year 2025. Long term dynamic targets are subjected to the reduction of netemission by 2050 with respect to the year 2005 being considered as the base line year. Fig 1. Target of the company in carbon dioxide decline (Corporate Responsibility Report, 2010/2011, p. 10) From the above diagram, it can be depicted that British airlines is highly destined towards the reduction of the carbon dioxide emission and protecting the environment to the utmost. Noise production is one of the negative environmental externalities produced by the flights. The company sets for themselves a target of reduction in the noise per flight by the rate of around 15% by the year 2015.Hence it can be asserted that the environmental policies chalked out by the company is well justified for the achievement of the sustainable environmental dynamics within the time frame of 2018-2020. Corporate Social Responsibility The British Airlines have adapted the fresh policy in the development of the corporate social responsibility which is known as the Responsibility Procurement which is a new multi faceted approach which allows in the understanding of the responsibility. Again on the other hand, the Property Operations team is also responsible for the delivery of the reductions in the energy and water consumption in building the portfolio across the UK. In the year 2011 the company targeted at the reduction of the energy consumption by 20 per cent. Focus is also on the good housekeeping and the colleague engagement and the targeted investment. The significant milestone was achieved without impacting the effective running of the business and the future focus is on the reduction of the energy to a further level. With the continuous improvement the company also has gained the re-accreditation to the Carbon Trust Standard. The project is a government backed independent validation of the drive to make the company achieve a more energy efficient and carbon saving opportunities within the business. The company has also learnt from the re- accreditation for placing the energy reduction target of an additional 5% carbon savings by the end carbon savings by the end of the year 2013. Numerous other projects have also been identified and the investment strategy for 2012 has been ensured for the minimal carbon emission. Mr. Counsell expected the emissions to rise between the year 2020 and 2025 and then come down with the implementation of market based measures like EU Emissions Trading Scheme (ETS) which played an important part in the decline of the emissions. The airline was one among the few airlines companies which advocated in the ETS being restricted to the intra-European traffic initially. Mr. Counsell was concerned about the competitive distortions which arise through the carbon leakage as it was believed that the scheme may not deliver the carbon reductions as planned. The airline talked with the EU policymakers for finding a way out for attaining solution to the problem as for example of auctioning applicable to the international flights (British Airways sets off towards its destination of becoming the world's most responsible airline, 2008).Thus the company is built on a notion of high corporate responsibility platform set ready for the smooth functioning of the future in the time frame of 2018-2020 (British Airways Corporate Responsibility Report 2011/2012 Environmental Responsibility, p. 32) Technology Over the last few decades British Airways has evolved from a loss making state owned national carrier and has transformed into a solid customer focused, publicly listed and a much consistently profitable airline. A large part of this accredited to the clear vision of the management team in achieving against the turbulent operating environment. The air travel business is greatly reactive to the economic cycles and when the industry lost 10 billion great Britain pound the British airlines run in total profit. As the cross border cross-border ownership and landing rights are rigidly controlled the company has stressed on the partnerships through various airline investments in America, Australia, France, and Germany and through non-equity franchise links in the UK creating a milieu of technical operation (Moyer, 1996).The company has also entered into a program with Rolls-Royce where engines belonging to the airlines are generally sent to the manufacturers for the purpose of testing the bio fuels. Thus a technical environment will be created where the company will be relying on techniques which will be very rigidly targeted towards the efficient use of fuels for protecting the environment and maintaining a clean platform of the same in the time span of 2018-2020. Analysis of future performance The study of British Airways in detail states that the company focuses on the policies which centers on the concepts of customer experience, rigorous planning for growth and securing a leading position in the corporate responsibility program. Again an upgraded experience for all the customers of the company is a major strategy for the company for the achievement of the long run success. For the maintenance of the efficiency of the services structuring of the new aircraft and services are deemed to be necessary for the company and for that reason minimization of the costs is one of the fundamental decision variable for the proper functioning of the company. For the proper investment in the new aircraft and services, the need to control costs without compromising the performance of the future should be the foremost priority of the company. The rising fuel costs and economic downturns should be maintained should be always kept in mind for the future growth perspective as it have been seen that the company since 2007 has initiated innovative business plans for the fast pace development of the future performance of the company. The BP 11 scheme initiated in the year 2007 directs towards the implementation of the new plans for the growth of the company (British Airways 2007/08 Annual Report and Accounts, p. 34-35). The company also encountered the rise of the emerging markets in the countries of China, India as well as Germany which spends more than almost half of the amounts in the research and development in the UK. The identification of these markets as potential threat is also an important variable in the development of the business performance of the company in the long run (Budget 2012: UK business chiefs attack Government growth plans, 2012).Another important dimension in the future growth of the company is regarding the corporate social responsibility on which the company has always focused on from the very beginning. The company is committed towards meeting the paradigm of the environmental impacts towards a next level by the ultimate reduction of the carbon emissions with the reduction and the recycling of the waste with the minimal contribution in the reduction of the air and noise pollution and also the maintenance of the robust community relations programs. In the recent time frame, the company has concentrated on the partnership in the London 2012 Olympic and Paralympic Games for the development of the community activities with the inclusion of various community works in the East London along with the launch of a travel bursary for the young athletes. The company believes in putting the corporate responsibility as a central part and it will help in the standing out of the company from the potential competitors. The company has a tending notion towards maintaining a leading position in the corporate social responsibility dynamics (British Airways 2007/08 Annual Report and Accounts, p.35). The cost of complying with the European Union ETS will be differing from airlines to airlines and will also depend on the emissions as well as the size of the free allocations received. Larger airlines will be receiving larger shares of allowances with the airlines developed within the span of 2004-2006 will be on the spree of purchasing more permits for the compliance with the scheme. The EU ETS compliance in the year of 2012 will cost approximately around ?30, 8 million and so the cost management scenario of the company needs to be given an utmost emphasis (Aviation emissions and the EU ETS, 2012). The acknowledgement of the company for the creation of the tourists travelling to destinations by air that the company is taking responsibility for and have been setting up an objective for leading the environmental performance of the tourism industry. As an integral part of the environmental management program , the British airways sets for itself a goal which optimally educate travelers and also has established the agenda of Airways Tourism for Tomo rrow Awards to encourage performance of the tourism industry. As part of the environmental management programme, the company views itself as environmentally and socially responsible programs among all the sectors of tourism industry (Newton, 2012, p.105). Along with that the usage of alternative fuels and cutting edge technology leads the airlines company in developing a jet propulsive platform of growth long with a massive positive contribution towards the environmental up gradation. Conclusion The giant airline company British airways through its magnificent endeavor have developed itself from a jeopardized condition to a quite developed and profitable organization. The management through its complicated yet path breaking policies have adapted serious measures for reaping ultimate utility keeping the environmental factors as its primal objective. The company has been facing tremendous financial pressures in the time of recession and yet through its dynamic management policies has been able to create a solid base for itself. The company is also well aware of the environmental factors which it has taken into consideration from the very beginning and its successful policies have been the indicators of the future credibility of the company. The other airline industry will also learn from the policies taken by this company and will be appointing several optimistic techniques in the coordinated approach of establishing a better and accelerating future. References 1. Annual Reports 2004, available at: (accessed on 30 June, 2012) 2. Annual report, 2005, available at < http://media.corporate-ir.net/media_files/irol/69/69499/AnnualReportandAccounts2004-2005.pdf> (accessed on 30 June, 2012) 3. Annual Report 2006, available at < http://media.corporate-ir.net/media_files/irol/69/69499/Report_2006.pdf> (accessed on 30 June, 2012) 4. Annual Report 2007/2008, available at (accessed on 30 June, 2012) 5. 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Aviation emissions and the EU ETS, (2012), available at < http://www.sandbag.org.uk/site_media/pdfs/reports/Sandbag_Aviation_Briefing.pdf> (accessed on 19 July , 2012) Newton, V, (2012), British Airways – Towards Sustainability, available at < http://infohouse.p2ric.org/ref/40/39761.pdf> (accessed on 19 July , 2012) Read More