The British Airways Amidst Crisis - Research Paper Example

The British Airways Amidst Crisis Since the unfortunate attack of the World Trade Center in New York city, the airline industry was bombarded with successive crisis strikes, like SARS, the Iraq war and the ongoing global financial downturn, that have pushed several airlines to bankruptcy. Beyond these, there are still some airlines that were able to rise above the ashes and continue to provide quality service. Despite all the issues being faced by airlines, air travel is still considered as the safest mode of transport (IATA 2006). External crises like these are just the other half of what airlines face everyday; other risks include weather problems that could delay flights, technical issues with the planes and worst an airplane accidents or crashes. To be able to manage events such as these, airline companies employ the theories and strategies of crisis management. This paper aims to discuss crisis management in general how it affects the operation of the business. The paper will particularly analyse British Airways as well as the airline industry and how the global crisis affect it in past years. In addition current challenges and future direction of the company will be discussed.    Crisis Management  Certainty in business is an illusion that managers should recognize. With the continuous change that innovation and prosperity is bringing unto the business world, anything could happen. Expecting that everything will turn out alright and go as planned is like a soldier going into war expecting to to meet any enemies. Any organization may it be in the private or public sector is not immune to changes, failure, error, natural disasters, accidents and crisis. The preparedness of management in facing such events could mean survival or demise for the organisation. According to Booth (1993), management’s objective is to create order out of chaos to ensure survival. This is why theorists of management focus on planning, coordinating, controlling and directing of organisation as well as guiding the organisation from failure and calamity towards success and solidity. Oftentimes, the term disaster and crises are used interchangeably in describing events that cause disarray in an enterprise.   Henderson (2003) differentiates the two by saying that crises are internally induced and can be partially controlled while disasters are generated externally and more catastrophic in extent. Although he continued to explain that the two events have some common features that sometimes dissolve their distinction from one another. Even in some cases, a disaster could advance into a crisis. The difference between the two is further clarified by Ma (2005) as he explained that a disaster is an event, while a crisis refers to a socially constructed phenomenon often as the result of a disaster. He refers to crisis as a state of emergency brought about by actual or expected disturbance of order which calls for immediate assistance. While disasters on the other hand have two types: natural and human-induced events. It can come without notice like the 2004 tsunami or progressively like infections.      Types of Crisis  It was identified by Booth (1993) that an enterprise might face different types of crisis and react to it different manners. Depending on the type of crisis its effect on the overall function of the organisation also differs. The following are the general types of crisis he identified.  Creeping crisis. This is a crisis felt only by selected member of the organisation and with no significant alteration to the overall function of the enterprise, upper management might not be convinced that there is a crisis. Thus no change in the management style will happen and because of inaction, affected individuals might get irritated and loss motivation (Booth 1993).   Routinized crisis. It is a type of crisis that happens from time to time and management has already formulized contingency plans to avert further damage to the organisation. Examples of such events are yearly budget reduction or amendments in government policies. To prepare for such critical situations, training courses and simulation exercises can be conducted. Through activities like these the police, fire and health departments are able to respond to sudden emergencies. Businesses could employ specialized professionals that could design and conduct training and simulations to help employees and critical decision-makers during times of crisis (Booth 1993).    True crisis. The last type is what most individuals will call as a crisis. It is characterized by unforeseen danger or damage that can jeopardize the whole operation of the business. During these situations, management is not prepared and contingency plans are not formalized. Upper management usually is defensive when it comes to their action plans. Some of the action plans could mean forgoing some departments or even employees. Approaches such as these bring internal conflicts that if left unchecked might bring the organisation to its ultimate downfall (Booth 1993).    Based from Booth’s (1993) classification, true crisis has the most influence and affects several stakeholders of the organisation. Stakeholders include employees, consumers, suppliers, upper management, competitors, government, media and international or local community. Although all of them are affected by a single crisis, each one has a different opinion of what will happen. It is imperative then that management communicates to these stakeholders to be able to have a common understanding of what shall or what has transpired. According to Ray (1999) stakeholders’ perceptions of a crisis are based on whether the cause was internal or external to the organisation, a constant or random event, and an intentional or unintentional act. If the cause was internal, a constant event and intentionally done then the organisation is considered liable for the crisis. However, if it is external, a random event and unintentional in nature then the organisation is not liable for the crisis. However, a crisis is such a volatile situation and does not follow astrict classification. Organisations can be viewed as the victims or antagonists depending on how the enterprise responds to these situations. The opinion of the general public about the organisation lies on correctness of evidence presented, the amount of damage caused by the initiating event and how the company performed in the past (Ray 1999).   Crisis Communication  As a crisis unfolds whether the business is considered a victim or an antagonist, these perceptions could be changed by effective communication. Objectives of crisis management are not limited to finding  a solution to the crisis and restoring normal functions of the business but it also includes upholding or repairing the public image of the company. Most companies rely on their image to attract customers and rise above competitors. A blemished image could mean loss in profits or eventually closing of business. Companies could choose to refuse acknowledgment that there is a crisis and decline to communicate with the media and government agencies, partially inform the public about the situation by holding-up information or giving misleading news or create and keep an open communication outlet where the public could obtain accurate and timely information. If the organisation chooses to communicate, management could use five strategies in corresponding with their audience: denying responsibility, hedging responsibility, ingratiation, making amends and eliciting sympathy (Ray 1999).    British Airways   British Airways started as Imperial Airways which connected the British Empire in earlier times. Imperial Airways is the product of a merger between four pioneer airlines - Instone Air Line, Handley Page Transport, Daimler Airways and British Marine Air Navigation Co Ltd. Services of the airline was initially offered to Paris, Brussels, Basle, Cologne and Zurich. By the 1930’s services were extended to Egypt, the Arabian Gulf, India, South Africa, Singapore and West Africa. A key competitor emerged in 1935 in the form of privately-owned British Airways Limited. However by 1939 a government review nationalised both Imperial Airways and British Airways creating British Overseas Airways Corporation or BOAC. After the second world war  BOAC carry on operating long haul services while Continental European and domestic flights are handled by a new airline called British European Airways or BEA. Up until 1960 both BOAC and BEA are the primary British airlines for scheduled international passenger and cargo services. In 1974, due to substantial financial losses and industrial strife BOAC and BEA merged to form British Airways. After five years, the Government proclaimed that it will sell shares of the airline thus the Civil Aviation Act 1980 was passed to make this a reality. To prepare it for privatisation, Lord King was appointed Chairman and by February 1987 British Airways or BA was privatised (British Airways History 2005).   Currently, BA is considered to be UK’s largest international scheduled airline, flying to over 300 destinations worldwide. This is because of the widespread airline route networks, codeshare and franchise partners. The company also operates worldwide air cargo together with the scheduled passenger services. Main location for operation is at Heathrow, London. The fleet of the company is comprised of 57 Boeing 747, 42 Boeing 777, 21 Boeing 797, 13 Boeing 757, 33 Boeing 737, 11 Airbus A321, 25 Airbus A320, 33 Airbus A319 and 10 Avro RJ 100 a total of 245 aircraft (British Airways 2008).   Overview of the UK Airline Industry  The UK airline industry has been marred by crisis after crisis from high oil price, airline failures, dreadful airport experience and now ongoing financial crisis. According to a report, air travel has been decreasing for the first time after the industry enjoyed 20 years of growing air traffic. Figures have shown that 18 leading UK airports fell from 20.8 million to 19.9 million fliers last September a 4.5% drop. A major airport like Heathrow was down 3.6%, Gatwick by 6.8% and Manchester by 6.7%. While UK’s biggest airport operator, British Airport Authority or BAA, in overall drop to 5%. The decline in fliers is attributed to various reasons like rising cost of food, fuel and tax that force potential travellers to cut budget for luxuries which include travel (Anonymous 2008).  Although some carriers were able to recover from high fuel prices as prices are sharply dropping the travel industry continues to feel the effect of the global recession. Business travel has always been one of the lucrative sectors but due to financial instability, many business also cut back on travel. The IATA reported that the global airline industry will have a net loss of $5.2 billion this year. The association even fears that actual losses might go beyond the forecast. According to the data of IATA, passenger traffic declined by 2.9% year-on-year in September while cargo traffic fell by 7.7%. The worldwide reduction in passenger count was the worst since the 2003 SARS incident (Done 2008).  September 11 Attack  That fateful day started just like any other day in America. All of the flights involved in the crash were not aware of what will happen since suspicion was not raised during checkpoint at the airport. Four planes are involved in the attacks which were believed to have specific targets on that day. The planes are American Airline (AA) Flight 11, United Airlines (UA) Flight 175, American Airlines Flight 77 and United Airline Flight 93. AA Flight 11 and UA Flight 175 crashed into the North Tower and South Tower of the World Trade Center, respectively. While AA Flight 77 crashed in the Pentagon but due to passenger intervention on UA Flight 93 it hit instead a field in Pennsylvania. No one survived the attacks (Langley 2006).   Nineteen hijackers were later identified and the FBI linked the attack to the Al-Queda group headed by Osama bin Laden. As response to this, the United States declared war on terrorism invading Afghanistan to seek out Osama bin Laden. Due to the attacks, airlines are not allowed to land on US soil for about three days. Flights that are already on the air are redirected to other airports. Many sectors were affected by the attack especially the airline industry, particularly airport security and safety. Stocks drop and business in the Manhattan area halted since offices were destroyed. Thousands of lives were lost as well as billions worth of property (Zarembka 2006).   Prior to the attack airport security in the USA included screening of passengers and carry-on luggage for weapons or explosives, screening of checked baggage and cargo for explosives, controlling access to secure air operations areas, clearing and badging personnel with access to airport areas and aircraft, FAA Inspections and air marshals. Some innate features of the security system could contribute to the leniency that made hijacking the planes possible. First is that there is no central authority in terms of airport security. Since airport security is handled by the FAA, airlines and airport prior to September 11. The decentralized security network caused communication between the entities inconsistent which is evident in the distribution of threat information. Front line employees who are in charge of the actual screening have very little information about any threat to aviation security. Secondly, aside from the disjointed authority and irregular policy, it is the insufficient investment in security. The management just does no see the benefit of putting more money in the security system. Potential gains from the investment do not justify the expense it will take it make it happen. To be able to raise the security level there is need for more employees, enhanced training for personnel and better equipments, all of which require a substantial amount of money. During that time airlines have stiff competition and additional investment on security could mean an increase in airline fares. Thus airline companies are looking for solutions that are adequate and at practical price. Given that there is low instant of hijackings prior to September 11, 2001, airline management does not see the need to invest on more sophisticated security system (Seidenstat 2004)  Following the events of September, the US Congress passed  the transportation security legislation which enabled the federalization of airport security. By the power of the legislation the Transportation Security Administration (TSA) was enacted under the Department of Transportation (DOT). TSA will be in charge of the overall security in USA airports. The FAA, airline and airports are relieved from this responsibility, creating a centralized body for security. Screening for passengers, carry-on luggage and checked-in baggage are handled by personnel employed by TSA. The labour force of the agency is compensated above than what private security companies offer to their employees. Screeners of TSA are required to undergo more rigorous training program and are submitted to criminal background checks. Another requirement is that they must be US citizens. Since it inception the TSA provide better explosive-detection machines, air marshal program was extended to domestic flights and perimeter security of airports are strengthen (Seidenstat 2004). Locally, two weeks after the attack the British government is weighing options on how to strengthen security in major airports. Options being discussed are training of armed air marshals, renovating cockpits and letting pilots bring weapon onboard (Gray & Jamieson 2001). Fingerprint scanning for personnel was also implemented in London airports. This is the added security in controlled part of the airports. Personnel now need to scan their ID card and fingerprints to gain access to such areas. While in Frankfurt iris recognition technology is being used to streamline the screening of frequent flyers. Using this kind of technology lets airport securities to focus more on higher-risk travellers (Frary 2004).    On the day of the crash former British Airways Chief Executive Rod Eddington released a statement extending sympathies to families affected by the crash as well as assuring commitment of BA to provide assistance to American Airline and United Airlines. In the statement the Mr Eddington reassured the public that no BA aircraft was used by perpetrators and that aircraft already on its way to the USA at the time of the attack are either diverted or are already on its way to the UK. Service to USA, Canada, Tel Aviv and Islamabad are immediately cancelled. Aircrafts bound to the selected destinations remain grounded until the 14th when the FAA confirmed that BA can fly again to the USA. Security measures implemented by BA are deemed acceptable by FAA that is why BA flights are allowed back again in US airspace. Initial flights are use to immediately transport stranded passengers of BA in the JFK airport. BA also made efforts to communicate with its passengers about flight schedules and any assistance that the airline could extend (British Airways History 2005).   The aftermath of the attack did not stop there but was felt in the subsequent months and years to come. Due to declining travellers since the attack, two weeks after September 11 profits were down by £40 million. Also about 190 services were either suspended or cancelled. Since the company is losing money drastic measures are needed to be taken to be able to survive one is a 15%  pay cut which BA claimed was understood by its employees (Gray & Jamieson 2001). Pressures to tighten security grow and since September 11 the company have spend over £100 million on security alone. The money was used for additional airport perimeter patrol and security training for personnel station in Heathrow and Gatwick (Frary 2004). To alleviate the money loss from the attack BA move to remove 23% of its workforce, the company claims that most of it is voluntary by offering elected severance or early retirement. Also BA sold some of its surplus property assets with expected amount of £80 million and it did receive government compensation amounting to £22 million. Money raised from efforts is used to support operations which could be considered as the one of the worst time in aviation history (Done 2002). Another measure that BA used to regain some of its lost profit is introducing additional security and insurance surcharge on all of its flights. This is a move that was also done by other 124 airlines in the world. Surcharges apply to all type of passengers in both international and domestic flights. Security measures that were added by BA also included extra baggage searches , increased security around aircraft while on the ground and reinforced cockpit doors (BA adds surcharge 2001).   Actions and response of BA during this time of crisis have proven the maturity of the company. Terrorist attack like this do not happen on regular basis and no one could have been prepared enough to handle a situation as drastic like this. The immediate statement release of the company reassuring passengers and their relatives about the safety of all BA flights just shows the commitment of the company towards its customers. Extension of assistance to affected passengers and affected airline company shows the company’s compassion to all affected individuals. Open communication is also apparent when BA needs to take radical measures to save the company such as pay-cuts and employee reduction. The company also communicate to the public the reason for additional surcharge. All of these actions are inline with the crisis management.  SARS  Severe acute respiratory syndrome or more commonly known as SARS is a new virus that causes respiratory disease in humans. It has no cure and no available vaccine to date. It is a member of the corona virus which usually causes the common cold.  Through its spread the virus has mutated to various strains that causes varying symptoms, contributing to its mass transmission. The genetic code of the virus lies on the RNA instead of the DNA making it more deadly and infectious. Common symptoms are 100.4 Fo /38 C o fever together with chills, headache, and body aches. Cough will develop after 2-7 days then additional respiratory symptoms emerge like shortness of breath, difficulty in breathing, hypoxia and pneumonia. After which the capillaries of the lungs will start to leak fluid within causing the lungs to fill up with so much fluid that oxygen is not distributed properly to the blood stream. Victims of SARS usually die of asphyxiation and lung damage. With the absence of cure infected patients usually are given supportive care like ventilators and liquids to avoid dehydration (Hammond et al 2004).  Transmission of the disease is usually through face-to-face contact in droplets when victims cough or sneeze. The virus is airborne and can survive for several hours on surfaces touched by carriers. Potential victims acquire the disease by touching such surface and then their mouth, nose or eyes. It can also take the oral-faecal route of transmission. Although tests have shown that the virus can survive on various conditions it can be decontaminated by normal concentration of common disinfectants. It is believed that the virus originate at the Chinese province of Guangdong where the initial case was reported in November 2002. Development of the virus is unknown due to the slow response of the Chinese government and its failure to seek help from outside organization like the World Health Organization (Hammond et al 2004).   Since the onset of the disease in November 2002 the Chinese government fail to recognize the severity of the situation and delayed information dissemination to health organizations. On February of 2003 the government finally admitted that there was an outbreak but release a statement that it is under control. Global uproar caused by the disease force the government to make public some information about the disease. However the government is still reserved about SARS information that might have contributed to the worldwide epidemic. Streets of major cities of China remain bare throughout the SARS scare. Residents are afraid to take public transportation, impose a self seclusion in their houses and wear mask while out in the streets. When the problem was already too much to handle by April the Chinese government allowed international intervention to resolve the issue. The poor conduct of the officials were perceived as unhelpful and a contributing factor to the fast widespread of the disease. There was cover-up and tampering with official tallies of victims. These actions have lowered the credibility of the Chinese government and shortly after the announcement of the disease key Chinese officials that have direct responsibility for the disease were fired from post. This move however had little effect on the already tarnished image of the governing body (Hammond et al 2004).    The airline industry was just recovering from the declining sales brought about by previous crises - September 11 attack and Afghanistan war – and now it is hit with another major blow. Since travellers are weary now to travel to Asia a survey of 180 airline companies shows that 27% of the airlines cut off services in the Asian region causing loss in profits. European airlines like Delta Air reported a 21% decline in air traffic. KLM Royal Dutch also experience the same situation. On the other hand Asian airline like Singapore Airlines cut 125 of it services because of the decline in demand in Asian flights. Korea also felt the crisis even it has low cases of reported SARS victim. The air traffic at Seoul’s Inchon International Airport drop from 58,000 a day to 35,000 while Kuala Lumpur International Airport in Thailand had a 27% drop in air traffic. As a response to the disease the Malaysian government halted issuing visas to foreigners coming in from infected countries (Hammond et al 2004). The impact of SARS on tourism is more felt in Hong Kong which depends a lot on tourism. Both Cathay Pacific Airways and Hong Kong Dragon Airlines cut their services since no one wanted to fly into the country. Drastic measures were taken by both airlines to keep the business going. Cathay and Dragonair asked employees to take unpaid leave due to low demand in flights, this strategy allows the company to save money and at the same time avoiding letting go of employees. It was reported that this approach was accepted by 99% of the employees. When the travel advisories were lifted by WHO both airlines offer promotional price to lure customers and regain loss profits. The scheme worked and both airlines return to normal business by the fourth quarter of the year (McKercher & Pine 2004).  On the height of the SARS scare BA responded to the threat by instructing its aircraft bound to Hong Kong to land in Thailand instead. Pilots and crew members are booked into hotels, the move is a safety measure to avoid exposure to the virus. The company is not the only one taking precautionary actions but the passengers as well. Due to fear of contamination many passengers of BA avoided the Asian routes thus code-share partner Cathay cut 48 flights to Hong Kong as passenger avoid the destination (Lea 2003). March figures of BA were all grim as passengers in Asia/Pacific flights drop to 25.6% as compared to March 2002 figures. Africa and Middle East passenger count also went down to 15.1% while Americas felt a 6.9% drop. Even domestic flights are affected as it drops to 3.4% (Pain 2003).   Just like any other airline British Airways had admitted that the company was struck by the SARS scare and was forced again to reduce its manpower by 3,000 people. It is reported that most of the employees do this in a voluntary manner in the spirit of collective commitment to business recovery. Revenue of the company that year was mostly from cost cutting measures implemented rather than an increase in tickets sale. Fliers are reduced by 5% by the end of the year. The reduction of cost programme is called ‘Future Size and Shape’. The programme aims to reduce costs, restructure the short haul operations and remove complexity from the business. Under the programme BA have explored other distribution channels like the internet which save the company about £100 million. Also the programme was supported by the trade union representatives making reduction in manpower smooth and acceptable to employees. (British Airways 2003).    The approach of BA towards the SARS incident is reminiscent of how it took action during the September 11 attack. Since the company is still struggling to recover from the initial blow of 9/11 the SARS dilemma has put the future of the company in the brink. However strong upper management involvement and unyielding support of the lower ranks helped the company to stay afloat above the crises it is facing. Again open communication of the company to its employees and public is one of the strong points of the management BA is executing curing a time of crisis. The open acknowledgment of problems exhibits the transparency of the company which helps in maintaining its image. The implementation of a programme like Future Size and Shape right after the 9/11 crisis, facilitate an easier coping environment for BA when SARS hit. Problems brought about by external factors like the 9/11 attacks and SARS have a long-lasting effect not only to the business of BA but to the aviation industry in whole. Other stakeholders are also affected like airline manufactures, suppliers and other private sectors that offer business to the airline industry. But sound management and prompt action can make a difference in the survival of the company.                             References  Anonymous 2008, ‘End of our affair with air travel?’, The Independent on Sunday 12 October, p. 16  ‘BA adds surcharge’ 2001, South China Morning Post 28 November, p.2  Booth, S 1993, Crisis Management Strategy, Routledge, London  British Airways 2003, British Airways 2002/03 Annual Report and Accounts, CTD, UK  British Airways 2008, British Airways 2007/08 Annual Report and Accounts, CTD, UK  British Airways History 2005, British Airways, Available from: [22 November 2008].  Done, K 2002, ‘Fears over BA ease as traffic improves’, Financial Times 5 April, p. 19  Done, K 2008, ‘With oil crisis behind it, airlines face falling traffic’, Financial Times 30 October, p. 16  Frary, M 2004, ‘The price we pay to remain secure’, The Times 7 June, p. 26  Gray, A & Jamieson, A 2001, ‘Armed guards will make the skies safer’, The Scotsman 28 September, p.6  Hammond, K, Overby, J & Rayburn, M 2004, ‘The China Syndrome: The Impact of the SARS Epidemic In Southeast Asia’, Asia Pacific Journal of Marketing and Logistics, 16(1), 69-94  Henderson, J 2003, ‘Communicating in a crisis: flight SQ 006’, Tourism Management, 24, 279-287  IATA Corporate Communications 2006, The Air Transport Industry Since 11 September 2001, IATA, Switzerland  Langley, A 2006, September 11: Attack on America, Compass Point Books, Minnesota  Lea, R 2003, ‘SARS Precautions Keep British Airways Crew Overnight in Bangkok, Thailand’, Knight Ridder Tribune Business News 3 April, p.1  Ma, R 2005, ‘Media, Crisis, and SARS: An Introduction’, Asian Journal of Communication, 15(3), 241-246  McKercher, B & Pine, R 2004, ‘The impact of SARS on Hong Kong’s tourism industry’, International Journal of Contemporary Hospitality Management, 16(2), 139-173  Pain, S 2003, ‘Killer bug adds to the woes of UK air travel’, Birmingham Post 4 April, p.24  Ray, S 1999, Strategic Communication in Crisis Management, Greenwood Publishing Group, Connecticut  Seidenstat, P 2004, ‘Terrorism, Airport Security, and the Private Sector’, Review of Policy Research, 21(3), 275-291  Zarembka, P 2006, The Hidden History of 9-11-2002, Emerald Group Publishing, Oxford Read More