British Airways: Leadership and Change - Case Study Example

BRITISH AIRWAYS CASE STUDY Problems of the Company Drop in Bookings Weak Demand for seats Seasonal Changes Segmentation Partners Problems AA Skyrocketing Costs Highly Unionized Shortage of Pilots Increasing Fuel Cost Increasing Ground Operations Cost Security Terrorist Threats Effects of Wars Cost of Security Level Playing Field Subsidies offered to rivals Budget Airlines Competition Identity Crisis British vs Global Image 2 Background Formed in 1974, British Airways has been passing through turbulence ever since it was decided to overhaul it with aim to privatization. Between 1981 to 1987 Lord King and Sir Marshal revamped BA and made it profitable by cutting jobs and strengthening management and introducing service oriented policies that brought back customers and earned BA the ”best airline of the year” award in 1988 and 1989. After a gap of three years BA again emerged as the “most prestigious airline” in 2002. Finally BA as transformed itself from a Transport company to a Service company. During 2001-2 the Global recession forced further cuts in jobs and reduction in operations and during 2002-3 the threat of imminent war in Middle East affected operations as this was the most profitable segment. It has also faced competition on two fronts. First subsidies offered to its partner airlines like American Airways and second from Low cost flyers like Ryanair and Virgin Atlantic. It is very highly unionized and faced industrial action every now and then. This results not only in higher wage bills but also loss in operations. Resistance causes friction which affects efficiency and productivity. Ever since 11/9 Security has become a prime issue and highjackings take a heavy tool of traffic and increase security cost tremendously. Insurance costs too have gone up due to war cover and security concerns. Wars also bring in increase in fuel cost and availability issues. A non-issue became an issue when BA wanted an image makeover from being British to Global. This was a costly and pointless exercise. 3 Suggested Alternate Courses of Action ACTION ADVANTAGE DISADVANTAGE Introducing better Aircrafts Will improve load factor and bring in fuel efficiencies Huge loss in replacement cost of old aircraft Introducing premium facilities for Business Class passengers Additional revenue from new introductions like packaged car and hotel facilities and on board entertainment Fresh tie-ups required in non-core areas of operations and retraining of staff needed. Union problems likely. Introducing no-frill travel for economy passengers Will attract new customers and fringe customers Increased numbers mean better management and financial cost of problem handling specially in delays Going for mergers & acquisitions Will ensure bigger and wider market share May cause Anti-Trust actions and problems of cultures between merged entities Value Addition business like cargo and courier operations Very exiting as couriers like DHL raking money and expanding operations with lower cost of operations Moving away from core business and huge financial commitment on new fleet 4 Evaluation of Alternative Courses of Action (ACA) ALL MARKS OUT OF 20, TOTAL MARKS 140 ACA 1 ACA 2 ACA 3 ACA 4 ACA 5 UNION RESPONSE 15 15 15 10 20 RE-TRAINING 20 20 10 5 5 MANAGEMENT CAPABILITY 15 15 10 10 10 FINANCIAL BURDEN 15 15 10 5 10 CULTURAL CHANGE 5 5 15 5 5 IMAGE MAKEOVER 10 10 15 5 5 ECOLOGICAL CONTRIBUTION 15 5 0 0 10 TOTAL 105 85 75 45 65 The method of evaluation is based on the perception of the stakeholder that is the shareholder who will be most effected. 5 Review 1 Better Aircrafts This option is found to be more favourable as it will help to bring down fuel costs substantially and as fuel is the single biggest expense, it looks most attractive. This will also mean bigger wide bodied aircrafts that can take in more passengers and are available in both short-haul and long-haul versions. 2 Premium facilities Although this will bring in more revenue but it will mean a lot of additional tie-ups. This calls for a new division of managers who more travel industry oriented. This could turn into a union problem as BA is already beset with two unions and this might create a new one. Inter union rivalries will increase as clash of interest takes place. 3 No-frill travel This will certainly take some shine off the competition like Ryanair but the huge number of passengers will become more unmanageable and delays that have become a common problem will not be easily forgiven in case of BA as expectations will be unnaturally high. A larger staffing will also invite HRD problems and will in the long run offset the advantage of additional revenue. 4 Mergers & Acquisitions This is a messy route and with current Anti-Trust laws and monopoly restrictions will not find favour with most. In addition cultural shocks will be too much to bear. Previous experience in the merger of the original BOAC and British Cargo mergers also goes against this action. Further it places a heavy financial burden that might take long to get out of and with competition from smaller airlines it might become more of an adventure than a venture. 5 Value Added Business This certainly a bright spot but the biggest disadvantage is that this mans moving away from the core business of passenger carrying. It will also mean building of separate facilities on ground as well as a different set of staff and accompanying commercial and marketing division, logistic management, ground fleet etc that will be too expensive to begin with. 6 Conclusions During the years following privatization everyone has been in a winning situation in British Airways except the share holder. This stakeholder has been the hardest hit and from a high of 768 p per share he has seen the lowest at 150 p per share. The departing employees have had their compensation, the present ones have got their raises, the management has been generally successful in achieving the turnaround of the company but the shareholder has been left high and dry. He did get some good returns for a few years but a rather bleak future of uncertainties still faces the company and the burden will finally fall on him to bear. Under these circumstances any further ploy to improve the company’s heath must understand that this stakeholders’ view are important for the survival of BA. If they are ignored then BA’s stock valuation will fall dangerously low to levels where it will become a target for a takeover. From the above study it is clear that BA needs a business plan for its survival and growth in the short term as well as the long term. In the short term it must look further outward. Rather than pursuing a limited goal of cutting expenditure it must look at expansion and rejuvenation of the fleet as another viable option. Today size matters and the money comes from either the high end of business travelers or the low end of common tourist. Business travel is increasing because today business has turned global and executives and marketing men need to be traveling all the time They are also used to a certain lifestyle and their hectic schedule demands that the journey be more comfortable and relaxing. This is a paying class and will certainly pay for facilities provided. The way to please them is to provide on board facilities to meet this challenge. This also means BA will require new types of advanced aircrafts with better accommodation configurations. That they come with benefits like fuel efficiency is the added benefit. This will also mean that pilots and support engineering staff have to be upgraded and the stewards and stewardesses retrained to offer better services. But these investments and extra expenditure will be more than offset by the huge potential revenue. The paradox is that there is an equal opportunity in catering to low paying tourist class that is invading the world in hordes. They are used to frugalities and will not require much service except for the constant smile but they are a taxing lot. Here too different configurations are required but new fuel efficient aircraft is a must. The huge revenues will justify the investments in this case too. The choice is for BA to go for one of these. It is recommended that BA goes for the Business travelers as it already has an image of solidity and size which this traveler recognizes and cherishes. The Image indeed plays a vital role here and BA can certainly play this British role to the hilt and get the most out of it. The low fare paying tourist is really not its cup of tea and is best left to be left for fringe budget airlines that are shunned by the business traveler. Implementation & Evaluation The best of Plans will fail if not carefully planned and executed. BA has show remarkable resilience in implementing its PPF and MPF programmes and should do it again by using professional assistance from companies or professionals with proven track record. It has to first evaluate the new aircrafts offered by both the Airbus and the Boeing companies and choose the best suited for both short-haul and the long-haul sectors. It would be best if it chooses a mix from both and not rely upon one supplier alone. The configurations have to be carefully matched to the new requirements that it will conceive to be the customer choice. Extensive surveys from amongst its existing customers can easily give it rich data and its analysis will provide it the clue to the customers emerging requirements. It will have to draw up a pilot training programme for its new aircrafts. It has to work out a suitable compensatory package for them that will make them more loyal and reduce attrition and pinching by rival low budget carriers. It will also have to re-orient its staff at various levels, both cabin crew and airport staff to cater to the whims and fancies of the business traveler and to influence his future flying decisions in BA’s favour. Above all it needs to see that the management and unions agree to the future plans and compliment each other in this effort to make it successful. Read More