Corporate Strategy of British Airways - Case Study Example

Corporate strategy Introduction British Airways is located in Waterside, near the London Heathrow Airport in the United Kingdom. It is known as the flag carrier air service of the country. British Airways is the largest air service of the country based on its fleet size, the number of international flights and the international destinations. It is the second largest airline in the country based on the number of passengers carried by it. The British Airways Board was constituted in the year 1971 in order to control the two big nationalised airline corporations named as BOAC and BEA and two other small airlines named as Cambrian Airways and Northeast Airlines. Later, on 31 March 1974, the merger of all the four companies resulted in the formation of the British Airways. The company started its expansion by acquiring British Caledonian in the year 1987 and Dan-Air in the year 1992. It has formed an alliance with the American Airlines, Qantas, Cathay Pacific and Canadian Airlines. This alliance is the third largest alliance after Star Alliance and the Sky Team. The parent company of British Airways, International Airlines Group, is a listed company in the FTSE 100 Index and the London Stock Exchange. The dedication of the volunteers along with the collection of arts and the loyalty and the generosity of the employees and the former colleagues has helped the company to achieve a successful position in the United Kingdom. An overview of the British Airways As already mentioned above, the British Airways is a merger of the four companies BOAC, BEA, Cambrian Airways and the North East Airlines. The current alliance of the company along with the American Airlines, Qantas, Cathay Pacific and Canadian Airlines has made it the third largest alliance. The company is presently operating in 150 different destinations, six of which are located in the domestic land. British Airways is one of the top premium airlines in the world. It provides vital arteries for investment and trade, at the same time meeting the demands of the customers for the holiday trips and family reunion as well as the business travel. World Cargo which is the subsidiary of the British Airways is the twelfth largest cargo airline in the whole world in respect of tonne fright kilometres which is travelled. BA CityFlyer which is a fully owned subsidiary of British Airways operates and carries its customers to twenty different destinations in Europe. Although it focuses mainly on the financial markets, but it has extended its operations and recently achieved a successful position in the leisure market also. There are various other services offered by the company like hotel service, car service etc. As the company operates all over the world, and covers the international areas along with the major areas of the domestic land, it has achieved a remarkable position in the market. Environmental Scanning: PESTEL Analysis An environmental scanning will be done to analyse the macro economic factors. The analysis will be done with the help of PESTEL Analysis: Factors Analysis Political It determines the extent to which the government intervenes in a particular industry. Heavy regulation and control of the government affects the entire airline industry in the United kingdom. At the same time there is a security threat to the customers, like threat from the terrorist attack, due to which a proper control of the government is very important. It is very important for British Airways to take proper security measures in order to reduce the threat. Another factor affecting the British Airways is the problem arising from the trade unions because of the frequent strikes in the company. The government intervention protects the rights of the employees working in this industry. However, the instability in the political environment of the country is a threat to the airline industry. Economic The global recession has resulted in the economic downturn in most of the developed countries. It has occurred mainly because of the weakening of one particular currency against the other currencies. The slowdown of the economy all over the world has reduced the number of passengers which is affecting the business. Moreover, the price war among the companies in this industry has resulted in an immense competition between them. The price fluctuations of oil globally have also affected the airline industry. Thus there is a threat to the airline industry from the current economic crises in the United Kingdom. Social The social factors generally include the cultural aspects of a particular country. The aging population of the United Kingdom prefer travelling by cheaper means as their spending power is low as compared to the other generations. The increase in the unemployment rate in the United Kingdom has decreased the purchasing power of the people. As a result they cannot afford this mode of transport and choose alternative options for travelling. Technological Due to the increased and modernised technology provided by the airline industry, the customers now have a number of choices to make by comparing the prices and the bargaining power. The companies need to get updated along with the new and advanced technologies. It is very important for British airways to adapt technologies which will be favourable for the elderly people also. It should upgrade the systems with time and look after the maintenance of the systems properly in order to achieve competitive advantage in the industry. Environmental The environmental issues like the noise and the energy issues are required to be controlled properly by the government. There are limited lands available in the country for the expansion of the airline industry due to the unavailability of the green zone belt and weak control and regulation of the government. Legal The open skies agreement between the airlines and the government has allowed the companies to buy the other companies. Presently there are many restrictions in the legal framework of the country related to the buyout of any particular company. Industry Analysis: Porte’s Five Forces Model The Porter’s Five Forces Model shows the influence of the industries by means of five different forces. The analysis of the airline industry will help to understand the threats related to the micro economic environment. Rivalry from the existing firms- It is determined by the number of existing firms competing in the market. When the products or the services provided are undifferentiated, then the firms undergo price competition. This occurs more when the demand decreases or when the growth is linked to the profit in the market shares (Buzzell, Gale, & Sultan, 1975). The airline industry is composed of a highly competitive market. The old airline companies give tough competition to each other. The aircraft seating configurations are same for most of the airline companies and the frequencies as well as the timings are also same for most of these companies. There is less number of companies in the market which provides a frequency advantage to the competitors. Their pricing pattern is also almost the same which increases the competition. Thus the rivalry from the existing airline companies is very high for the British Airways. Bargaining power of the customers- The switching of the airplanes involves high cost. Maximum airline companies use Boeing aircraft. Huge investment is required in buying the spare parts and training the employees about the products. The competitor Airbus needs to provide various discount offers and free training to the pilots in order to move away the Boeing and pay the switching costs, if they want to stop this financial investment. Thus the bargaining power of the customers is low. Bargaining power of the suppliers- There are a large number of suppliers in the market providing air services and air traffic control. The airports demand high charges from the airline companies and these companies have no option other than paying the amount demanded. These airports show good financial returns in order to make these companies realise about the monopoly power that they possess. Thus the bargaining power of the suppliers is very high. Threat from the substitutes- Substitutions take place in the airline industry when a better way of meeting the customer needs is found from by the airline companies. The most effective substitution will be the introduction of new electronic methods of communication for the business purpose. Various methods like video conferencing and emails have reduced the needs of travelling to different areas. Another significant substitution is the mode of surface transport, for example- transport by means of rail. One advantage of travelling by rail is that it provides transport from one city centre to the others which cannot be provided by the airlines. Email as an important mode of communication has reduced the urgency of sending important documents via airlines (For Example- the publishers can communicate with the readers through the internet, which is a cheaper method of communication rather than using air freight.) Thus the threat from the substitutes is also high. Threat from the new entrants- The new entry in the airline industry is not very difficult especially when it is a short distance travel. However, there are many regulatory limitations to their entry as well. There are a large number of regulatory barriers to the entry of the new entrants in the international market. The factor which supports the new entry is the availability of the resources by these entrants. Unavailability of the resources or high expenses involved reduces the scope of the entry by these firms. When recession takes place in the airline industry, the employees lose jobs and join the new ones with lesser salaries. A new entrant has an opportunity to attract the employees and compete in the market. Thus British Airways possess a threat from the new entrants in the market. The threat of new entrants in the international market is low comparatively. The availability of quality services will retain the customers and also help British Airways to achieve competitive advantage in the market in the future. According to Powell (1990), (Ohmae, 1989) and (Doz, 1988), the airline companies are forming strategic alliance at an increasing rate due to various related factors. British Airways should also take steps to form strategic alliance with reputed companies to expand its operations in the new market. SWOT Analysis The SWOT analysis provides the companies the foundation for realising the alignment of the organisational issues (Ansoff, 1965; Porter, 1991 and Mintzberg et al., 1998). It helps to postulate different strategies to overcome the threats and the weaknesses. According to Glaister and Falshaw (1999), Dickson (2002), Valentin (2001) swot analysis is one of the traditional and most respected methods of strategic planning. Panagiotou (2003) has stated that the swot analysis is used more than any other tools for strategic planning. Strength The strength of the company lies in the brand quality and also the new fleet of the airship which provide satisfaction and comfort to the travellers. The operational employees and the service provided by British Airways is the greatest strength for the company. They have the ability to retain the customers by developing expertise in the ground of the customer service. The company maintains the quality of the services by upgrading the systems continuously and innovating new methods of providing standard level of services to the customers. Weakness One of the main weaknesses of British Airways is the poor relationship between the company and its employees. The relationship with the staffs is no more in a good shape because of the continuous lockouts and strikes and also the lack of faith and trust of the employees on the company. The airline industry is diminishing slowly. The company must adapt innovative ideas and techniques of operations in order to sustain and compete in the existing market. It needs to update the marketing techniques with the changing situations in order to retain its position in the market. Opportunity There are many opportunities available to the airline industry which should be utilised by the companies. The current market scenario shows credit crunch in all aspects. This is favourable for the airline companies as they are concerned about the price and also the needs of the customers. The reduction of the cost structure of the airship has resulted in the reduction in the operating cost of all the airline companies. There are new markets with high potential. British Airways should take step to expand its operations in these markets and achieve success in its business. Threat The threat to British Airways is from the competition arising from the airlines providing the same services but at a cheaper rate. At the time of the credit crunch, the company needs to reduce the business travel in order to keep itself away from various security threats. Due to the tough competition in the industry, the company needs to focus more on the marketing and the branding. This is too much expensive and also can affect the profitability of the company in future. Strategy Evaluation After the environmental scanning of the British Airways it has been observed that there are various factors like the political and the economic system of the country which do not favour its operations fully. There is large number of barrier present in the environment like the government regulations, the economic recession, the price fluctuations of oil etc. which does not support the business and increases the challenges for the company. Moreover, the frequent strikes and lockouts by the employees reduce the efficiency and decrease the performance of the company. The company needs to improve the relationship with the employees in order to increase the operational efficiency. The industry analysis using the Porter’s Five Forces Model states that the extreme rivalry between the existing firms is the major concern for British Airways. The company should implement a proper pricing strategy in order to overcome this extreme rivalry and achieve competitive advantage in the market. The company can also implement the strategies of merger or acquisition in order to expand its operations. According to Berry (1994), the companies should revise the competitive strategies as well as the growth strategies to maintain their position in the market. British Airways should form strategic alliance associated with the joint marketing, ground facilities and reduction in the redundancy and duplication in the operation (Oum et al., 1996; Borenstein and Rose, 1995). The Swot analysis indicates that the main threat to the company is due to the high competition from the airlines providing services to the customers at a cheaper rate. The company should focus on its pricing strategy and implement new strategies to attract more customers. However, if the company maintains the quality of services and provides some additional features to the customers, then it can retain the customers irrespective of the issues related to the price. It should also provide some attractive and special holiday packages to the customers to achieve success in this tough competition. The company can gain competitive advantage in the market even at the time of economic downturn by investing in efficient and new aircrafts which will provide satisfaction to the customers. It can introduce new products to facilitate the customers, for example- it can introduce new and comfortable business seats while travelling for long distances and can also renovate the style of the cabins. The company should provide first class service to its customers at every point of time. It should try to build a strong position in UK as well as other countries across the globe. Conclusion British Airways possesses the potential to lead the airline industry in the United Kingdom. There are certain challenges that the company is facing presently. The company needs to upgrade its systems and bring innovation in its services in order to compete with the competitors in the existing market. It should also take steps to expand its operations into the new markets to attract more customers. It should take important measures to maintain the financial stability in the present situation of global recession. References Ansoff, H.I., 1965. Corporate Strategy. New York: McGraw-Hill. Berry, S., 1994. Estimating discrete-choice models of product differentiation. RAND Journal of Economics, Summer, pp. 242-62. Borenstein, S. and Rose, N., 1995. Do airlines in chapter 11 harm their rivals? Bankruptcy and pricing behavior in U.S. airline markets, Working Paper No. 5047, National Bureau of Economic Research, Cambridge, MA, February. Buzzell, R. D., Gale, B. T. and Sultan, R. G. M., 1975. Market share — A key to profitability. Harvard Business Review, January-February, pp. 97-106. Dickson, P.R., 2002. Dynamic versus static SWOT analysis. American Marketing Association, Conference Proceedings, 48(2), pp. 257-79. Doz, Y., 1988. Technology partnerships between larger and smaller firms: some critical issues. Cooperative Strategies in International Business, 17(4), pp. 317-38. .Glaister, K.W. and Falshaw, J.R., 1999. Strategic planning still going strong. Long Range Planning, 32(1), pp. 107-16. Mintzberg, H., Ahlstrand, B. and Lampel, J., 1998. Strategy Safari: A Guide through the Wilds of Strategic Management. New York: Free Press. Ohmae, K., 1989. The global logic of strategic alliance. Harvard Business Review, 67, pp. 143-54. Oum, T.H., Park, J.H. and Zhang, A., 1996. The effects of airline code sharing agreements on firm conduct and international air fares. Journal of Transport Economics and Policy, 30(2), pp. 187-202. Panagiotou, G., 2003. Bringing SWOT into focus. Business Strategy Review, 24(2), pp. 8-16. Porter, M.E., 1991. Towards a dynamic theory of strategy. Strategic Management Journal, 12, pp. 95-117. Powell, W.W., 1990. Neither marker nor hierarchy: network forms of organization. Research in Organizational Behavior, Vol. 12, pp. 295-336. Valentin, E.K., 2001. SWOT analysis from a resource-based view. Journal of Marketing Theory and Practice, 9(2), pp. 54-69. Read More