UK's National Airlines: British Airways - Case Study Example

British Airways plc is UK’s national airlines; it was founded in 1924 under the of Imperial Airlines. It is the fifth largest in the world measured in terms of passenger kilometers traveled. British Airways is UK’s largest scheduled international airlines and the third largest in Europe (after Air France-KLM and Lufthansa), operating more flights across the Atlantic than any other operator. It has a fleet of 234 aircrafts and 19 outstanding orders. Presently British Airways flies to over 550 destinations worldwide. The main hubs for BA are London Heathrow and London Gatwick. It’s headquarters are located in Waterside, Harmondsworth, UK.Willie Walsh was appointed the CEO of the company in 2005 replacing the Australian born Rodd Eddington.BA is traded on the London Stock Exchange and the New York Stock Exchange.(LSE:BAY,NYSE:BAB)The current share price, as on 27th march is £499.(with a 52 week high of £579.5 and a low of £277.0). Company History The origin of British Airways corresponds to the origin of the civil aviation industry in the world. On Aug 25,1919 British Airways forerunner company Aircraft Transport and Travel(AT&T) introduced the world’s first daily international scheduled air service between London and Paris. On 31st March 1924, Britian’s four airlines-Instone, Handley Page, Daimler Airways and British Air Marine Navigation-were amalgamated to form Imperial Airways. In 1935 a number of small UK air transport companies merged to form the original privately owned British Airways Ltd.In 1939 Imperial Airways and British Airways were nationalized to form British Overseas Airways Corporation(BOAC).After the second world war BOAC continued to operate long-haul services while continental European and domestic flights were operated by a newly formed company-British European Airways(BEA).In 1972 BOAC and BEA were combined under the British Airways Board which lead to the creation of British Airways in 1974. Privatization. In 1981, a management team was instituted under the chairmanship of Lord King with the objective to run the corporation on more commercial lines turns around its financial performance and prepare it for potential privatization (which implied full transfer of ownership to the private sector rather than simply a sale of minority interest.)The new regime sought to re-organize the company in a number of ways including the following: (i) Substantial reductions in staff numbers through early retirement, redeployement and voluntary redundancies. (ii) Modernization of BA’s aircraft fleet through the acquisition of new generally larger aircrafts and accelerated disposal of older ones. (iii)Improvement to control systems and terminal factors. BA continued to be a public corporation until 1984 when it became a public limited company (plc) in readiness for floatation. In early 1987 the Government sold the entirety of it’s stake in the airline,ie;no minority interest was retained and sales proceeds of £900 million were realized. Recent Financial Performance. The company is enjoying robust financial health. For the year ending 31st March 2006,it had flown 35,634,000 passengers. The turnover for the same financial year was £8’515 million and the net profit was £467 million. Basic earning per share amounted to 40.4 pence. Willie Walsh and change in company strategies In 2005 new CEO, Willie Walsh announced some strategic changes. He announced his plan to sell off BA Connect to Flybe because of dismal profitability prospects. Further he expressed his intention to retain the full-service model of BA.British Airways has been aggressively marketing the full service nature of it’s domestic flights in response to the low cost carriers’ hard hitting pricing policies. Subsidiaries BA Connect was the no frill subsidiary of British Airways operating on a network of domestic and European destinations. The airline was a low cost carrier with limited passenger services. It was a fully owned subsidiary of British Airways until Nov 2006, when it was announced that BA Connect would be sold to Flybe. BA Cityflyer, also a fully owned subsidiary of British Airways plying between regional and European destinations from London City Airport. Its operations were commenced from 25 March 2007. Fleet and Destinations BA’s fleet consists of 234 aircrafts in addition to 19 outstanding orders. The fleet consists of several models of Airbus and Boeing, with an average life of 9.7 years. British Airways flies to every inhabited continent and connects more than 550 destinations worldwide. SWOT SWOT analysis is a strategic planning tool. It is a method of assessing the strengths, weaknesses, opportunities and threats of a business. It involves an examination of the internal and external marketing environment. Strengths Excellent Aircraft fleet British Airways is currently embarking on its biggest ever procurement exercise to replace its aircraft fleet. Excellent fleets of aircrafts are being purchased to ensure comfortable traveling experience. This move was made to counter the unpleasant state of travel and complaints received for the previous fleet used by BA.It has started fleet renewal by placing four orders for Boeing 777-200ER,which will be delivered by early 2009.The aircrafts will be powered with either General Electric or Rolls-Royce engines. It operates one of the largest and most modern fleets of any airlines in the world. Boeing 777-400 wide-bodied aircrafts are operated on long haul routes to North and South America and Far East. Whereas Boeing 767-300 with similar range capacity are used for, the long haul and short haul routes to Caribbean and Europe. (www.britishairways.com) Superior customer service and high levels of customer satisfaction A monthly online survey of approximately 400 passengers in the UK, for the year ending March 2006 indicated the following: 67% of the passengers responded that they were satisfied with the service, 61%said that they were likely to recommend BA.Customers rated cabin crew highly, with 83% of the passengers saying that they were extremely satisfied with the service. In flight product development: British Airways offers one the airline industry’s most extensive range of in-flight cabins across long haul and short haul networks. It is one of the only two international airlines to offer four cabins on long haul flights. Club World: British Airways was the first international airline to introduce a completely flat bed in business class in 2000.The airline announced in 2005 that it would invest £100 million in it’s Club World cabins focusing on the introduction of a new generation lie flat seat which would be rolled out across long haul flights from the summer of 2006. In-flight entertainment: The Airlines announced plans in 2005 to carry out a major upgrade of its in-flight entertainment system in all the long haul cabins. Diversity of Routes and a Strong Branding. The airline operates a vast network of routes, connecting 550 destinations worldwide, with transatlantic routes being its mainstay. British Airways has leveraged the erudite brand of the UK.After the rollout of flat beds on its London-New York routes in 2000; it has monitored positive changes in its total market share. In terms of magnitude of operations, it is far ahead of closest competitor Virgin Atlantic. Weaknesses The Airline industry faces many distinct challenges.Competetion, regulation; fuel prices are examples of uncontrollable external pressures in avaiation.Some of these variables have the potential to impact passenger experience. In recent times, rising fuel bill, pension deficit problems, increasing competition posed by budget carriers and the open skies agreement, union unrest and the financial impact of security measures at Heathrow have posed serious difficulties for the company. Rising fuel bill According to BBC online, 3 Nov 2006(www.news.bbc.co.uk), ‘BA’s fuel bill for the year as a whole is likely to be £400 million or 30% higher than last year.” Mounting costs have exacerbated the problems faced by the company and will make cost cutting difficult to carry out. Pension deficit problems BA had been facing protests from it’s pilots as it joined other major companies in drawing away from the ‘final salary’ pension scheme that gave retirees income linked to their final salaries in employement.The company faces a pension a deficit of £2.2 billion and is liable to pay £800 million into pension funds this year.(www.ameinfo.com) Open skies agreement The open skies aviation deal between the EU and United States will open up the transatlantic routes to all the airlines in both the jurisdictions. This will intensify competition for the popular routes between London’s Heathrow airport and cities in the United States. Currently only British Airways, Virgin Atlantic, Unites Airlines and American Airlines operate between America and Heathrow; Europe’s busiest airport.BA will also have to yield Heathrow’s landing and takeoff slots. Emergence of budget carriers The emergence of low cost carriers like Ryanair and Easy jet threatened BA’s market share and by 2000 it had slipped from it’s position as a market leader to the bottom of the league and was struggling for survival with staggering debts of £6.6 billion.(www.ameinfo.com).However it pursued rigorous policy changes and transformed it’s procurement methods. Virgin Atlantic is the nearest competitor in the UK. Union Unrest Eruptions of union unrest interfere with the normal functioning of the company and the financial costs of these industrial disruptions can be substantial. In January 2007, BA faced fresh labor unrest as 96% of the cabin crew at one of its main unions voted in favor of strike action over proposed working changes and pension plan changes. The employees’ grievances included sickness absence policies, pay grading and staffing level as well as the airlines proposal to reduce pension deficit.(www.tiscali.co.uk) Opportunities Air passenger growth in Europe Intra European airlines had recorded a passenger growth of 8.2% in 2006, according to the figures released by European Regions Airline Association (ERA).It further indicates an average passenger load of 63.9%,a 2.5% rise over 2005 and the highest load factor recorded since 1987.(www.boarding.no) Growing Markets and Untapped market potential: India and China. Fast growing economies like India and China have abundant untapped opportunities for global as well as national players in the aviation industry. India India is the world’s third fastest growing aviation market after the US and China. It had witnessed 50% air passenger growth over a ten month span in 2006.A slew of global companies are ready on capitalize on the opportunities offered by this enormous market. However, inadequate airport infrastructure is one of the constraints to growth. In 2005, British Airways had announced expansion plans for its Indian operations. It wants to launch direct flights from London to a number of regional cities in 2006-2007.Hydreabad and Kochin are likely to be the new destinations. (http://news.cheapflights.co.uk) China British Airways wants to increase its share in pie in the Chinese market. More than 80,000 people fly between the Mainland and Britain every year, the company expects an annual increase of 15% to 20% in the coming years. Therefore, BA will increase Beijing-London service to six flights a week. (http://www.english.people.com) Threats Terror and Security concerns The aviation industry went into a severe crisis in 2001, the 9/11 events wrecked havoc for the demand of air transport. However, traffic levels have now returned to normal and in terms of profitability, airlines companies in Asia and Europe recovered considerably. According to BBC Online 3 Nov 2006,(www.bbc.co.uk), ‘Tough airport security measures brought in after August’s terror alert have cost British Airways £100 million.’ The article further noted that the strict limits imposed on hand luggage and regular searches caused disruption. This also led to cancellations and delays of flights. A had to cancel 1280 flights between Aug10th and 17th. Fuel prices Increasing fuel prices push up the costs in the and reduce competeiveness.The global fuel prices have been rising consistently and alarmingly. Outdated and insufficient infrastructure for air transport causes a lot of fuel waste. Airlines are now contemplating on overhauling international routes to make them more direct and short. Air traffic control and airport congestion are also two major sources of unnecessary kerosene burn. Environmental Issues The airline industry has been under increasing scrutiny from environmental lobbyists and policy makers for its effect on global warming. According to Friends of the Earth (FOE) airplanes contribute 5% to UK’s carbon dioxide emissions, with the figure set to more than double by 2022.(www.bbc.co.uk).The green groups advocate that the aviation industry should be made to pay tax on the fuel. FOE believes that the absence of fuel duty gives the industry a £9 billion annual subsidy. Consumer Behavior Analysis In recent times, British Airways has refurbished its marketing strategy in preparation for dealing with the nosebleed competition in the aviation industry. While it has to compete with long haul carriers, no frills like Ryan air and Easyjet are nipping at it’s heals in its own backyard. In 2006, Jayne O’Brien was promoted to the position of global head of brand and marketing communications as a part of the Airlines management restructure O’Brien has incorporated some key changes in the marketing strategy with the aim of targeting families and businesswoman besides it’s principal clientele ie;business flyers. The advertising campaign has been made more inclusive and extensive to increase the brand awareness. The airline is planning it’s first ever television ad aimed at businesswoman. Traditionally British Airways has an image associated with the corporate clientele and executives; the company intends to market itself to families as a part of its new strategy. O’Brien has brought in Kylie Minogue as the face of the airline and aired ads on capital radio targeting young flyers. The company has also roped in satirist PJ Rourke and a series of ads will be broadcasted to revamp the image of the company and dispel its old school impression. Competent prices have been introduced for short haul destinations, bringing them at par with those offered by the no frill carriers. To increase the brand awareness BA has introduced an innovative advertising scheme of printing ads on ATM receipts. O’Brien believes that when people are withdrawing money it is relevant to say, ‘only £69 pounds to fly to Paris.’ BA Marketing staff had been despatched to Paddington station to present demonstrations to passengers on how they could save time by checking in online and printing their own boarding pass. Besides launching additional marketing efforts, the company has rolled out several attractive packages to lure passengers. The short haul passengers from Gatwick can now fly club class for £59, less than the cost of checking in an extra suitcase. An online upgradation option is now available for short haul routes from Gatwick. To enrich passenger experience on domestic flights seating and catering have been introduced besides introducing services like the use of airport executive lounge and double luggage baggage allowance. Consumer’s response. British Airways revenues have recorded an increase over the fiscal year ended 31st march 2007.The number of domestic passengers to and from Romania have doubled over the first ten months of the financial year. The occupancy rate has increased by 11% and is now 86% over the same period. A turnover of six billion was recorded for the domestic market in the previous fiscal. The Company was the first to introduce electronic tickets, which now account for 98% of the total ticket sales. Besides a robust corporate performance, the company can also boast of high levels of overall customer satisfaction. According to a survey published in the Global Travel magazine, high-end international travelers favored BA as the preferred airline. The British flag carrier emerged as the top choice in a survey of 13,653 travelers. REFERENCES 1. BTN Online, Corporate Travel Intelligence; ‘one-on one: British Airways CEO Willie Walsh-BA readies premium class product.’31st Oct 2005. Available from http://btnmag.com 2. BUSINESS-SCOTSMAN. COM; ‘BA shares climb after deal on pensions and benefits.’8th Feb 2006. Available from http://business.scotsman.com 3. BA Cityflyer from Wikipedia. http://en.wikipedia.org/wiki_BA_Cityflyer 4. BA Connect from Wikipedia http://en.wikipedia.org/wiki_BA_Connect 5. The Independent. London. ‘In it for the long haul Marketing British Airways.’20th June 2005. Available from http://findarticles.com 6. People’s Daily Online. ‘British Airways to increase capacity in China.’31st Jan 2005. Available from http://english.people.com 7. Boeing news. ‘Boeing forecasts continuous growth for China’s aviation market.’4th Nov 2002. Available from http://boeing.com 8. ‘Growing India’s travel market’.14th Nov 2006. Available from http://marketplace.publicradio.org 9. ‘BA faces cabin crew strike.’15th Jan 2007. Available from http://today.reuters.co.uk 10. JANES; ‘BA begins fleet overhaul.’22nd Feb 2007. Available from http://janes.com 11. UK-Airport-News-Info. ‘Talk of strike action over British Airways pension proposal.’15th Jan 2006 Available from http://uk-airport-news-info.com 12. ‘Call to control low cost flights.’BBC Online; 24th April 2004 Available from http://news.bbc.co.uk/2/hi/science/nature/3625931.stm 13. ‘Dramatic changes saved BA from ruin.’21st March 2007. Available from http://ameinfo.com/114279.html Read More