Business Environment 2 - Assignment Example

Market structures, pricing and output decisions The key factors that influence British Airways pricing and output decisions include airport capacity, technology, fuel costs, costs of leasing or buying aircrafts and cost of labour. Accordingly, the route structure and distance of freight must be factored in the pricing decision. Network-Legacy Airlines use the Hub & Spoke model for the international flights, and long routes and mainly consider the number of passengers flying the route. For the domestic flights, British Airways flies directly to the destination airport and ensures a low-cost structure in the costing system (Stonehouse & Houston, 2013).

The airline operates in a oligopoly market structure that is characterised by few large players that control the pricing decisions in the market. In this case, the airline must consider the strategic pricing decisions made by other competitor airlines. The airline industry in the UK is characterised by high barriers of both entry and exit due to high capital outlay required to start operations and cumbersome regulatory environment. In addition, the dominant airlines enjoy considerable economies of scale of operations and price wars in order to attain high market share (Stonehouse & Houston, 2013). . The company is agitating for the Open Skies policy that will enable its flights to access US airports and total liberalization of the aviation industry across the major markets.

Market forces affecting British Airways Several market forces affect the operations of British Airways across the world. The pricing decisions are influenced by the supply and demand of air travel services in the particular geographical market. The airline has attained economies of scale in North American and European markets and thus has been able to implement a low-cost travel plan through its Iberia subsidiary. Accordingly, the industry is characterised by formation of strategic alliances and partnerships such as the SkyTeam and Star alliances that dominate the European market.

The airline has entered in to partnerships with major sporting teams, logistic companies and hotels in order to provide full services to its customers. The company is currently increasing its presence in key international cities and building its leadership position in London. Accordingly, the airline has embarked on delivering differentiated services and attaining superior customer value for longhaul premium customers. The airline must improve its margins through creating new revenues streams in order to remain competitive (Stonehouse & Houston, 2013).

Business and cultural environment of British Airways British Airways operations must comply with the business and cultural environment prevailing in the external market. The airline operates in stable political environment in the North American market and European countries. However, the current political turmoil in several Asian countries has hindered the operations of the airline in the affected countries thus leading to a decline