Strategic Business - Term Paper Example

 «Strategic Business» The airline industry is one that in the past decade has been faced by challenges of huge cost of operation and increasing competitive environment. British Airways is one of the biggest airlines in the world and has therefore been facing these challenges on a rather wider scale. The airline currently boasts of covering over 500 destinations and has four classes for passengers to choose from i.e. 1st class, economy, premium and business classes (British Airways 2010). The airline offers relatively low fares throughout the year making it one of the most preferred airlines of its stature. The dominant force that BA exerts in the market is not without it using various strategies in its operations. This paper will explore British Airways while giving a report on nature of its business, its competitors and its strategic analysis based on PESTEL, SWOT among others. British Airways of all the international scheduled airlines happens to be the largest in Britain. This is a feat it has maintained for quite a long time. Since its actual establishment in 1974, changes have happened both internally and externally. Three years before this four airlines existed i.e. BEA, BOAC, Northeast Airlines and Cambrian Airways where they were all controlled by one board: British Airways Board. The company has expanded since then to the current annual passenger numbers of more than forty million and an employee capacity of well over 50000 with more than 240 aircrafts forming its formidable fleet (British Airways 2010). These employees are based both in the local bases in Britain and abroad. The company’s operations span from carriage of passengers, mail and freight and to other extents ancillary services provision. The other area where the airline has gained prominence is its worldwide cargo carriage which is also a scheduled affair alongside the passenger carriage. BA has proved to be quite a vital trading tool and avenue for investment for the United Kingdom. The airline has been one that many opt to use for business travel, family reunions and holidays. The fierce competitive market in which BA operates has competitors like Virgin Atlantic, KLM, Ryanair, EasyJet, Lufthansa and Air France among others (British Airways 2010). With the mere looking at the competitors it is easy to tell that for the airline to dominate the market a great deal needs to have been done. Despite this the airline has scooped a number of prestigious awards e.g. in 2006 it received the Year Award, in 2007 it received a number of awards namely: OAG Airline of year 2007, Best Western Europe Airline, Best Europe-Asia-Australia Airline and The Best Transatlantic Airline (British Airways 2010). The airline industry as most other sectors were of late hard hit by the global economic meltdown of 2008. However, BA in particular has a promising future as it is gearing its efforts and resources in becoming a reputable airline by being the world’s most responsible airline. Business strategic analysis (BA) All companies and businesses in general require to have a clear direction in which it should follow and its management and employees should always work towards this end. The direction in this respect is well summarised by the use of a company’s mission and vision statements. In this case British Airways has its mission being to be the world’s favourite airline and to achieve this, the company has to provide to its clients with a full service experience both in the in-flight and ground category. BA SWOT Analysis Strengths One its biggest and most valuable strength that the airline has is its brand name. British Airways being one of the leading airlines of the world has gained popularity among many nations and more so due to the many destinations that it covers. BA has one of the newest fleet of aircrafts that are at per with the emerging trends in the aviation technology. The airline has been purchasing new aircrafts of late so as to ensure a comfortable travel for its passengers. There were many complains before by passengers that the aircrafts used before were not comfortable enough. BA operations are not comparable to those of its competitors for example those of Virgin Atlantic which operates 3 times less routes. The company has more varied services offered to customers and it uses these two advantages to lure more customers to its business. The alliances that BA has made as well as acquisitions e.g. acquisition of Iberian Airline has helped it a great deal to emerge as a dominant force in the airline industry. This move has made the company ply more routes that have seen it gain revenues almost matching those of American Airlines and Delta. According to Haberberg and Rieple (2008) having the airline to travel more routes, more than 2 hubs for customers to choose from and having both short flights as well as long distance ones have all made BA to emerge as a better-off competitor. Weaknesses One of the biggest weaknesses that still dogs BA is the slow pace of adopting the new ways of operations from the old standards. This conservative nature of the management has seen sluggish change over the years leading to loss of business to competitors who are more modern and contemporary in their management styles e.g. Virgin Atlantic Airlines. The company also has had a non-ending bad history of losing baggage more than its competitors. According to Harvey (2007) a survey conducted in 2006 and 2007 the revelation was that for every thousand passengers’ baggage 23 got lost. This trend has made passengers having a lot to carry to opt to use other airlines instead of BA. There are a number of aircrafts that are being used by BA that date back to 1980s. These aircrafts are not economical and do not serve the needs and expectations of the current traveller. Offering more services in not enough for an airline to remain afloat and BA has ignored this aspect and other airlines are taking its market share with innovation and change strategies. One notable area is that of passenger comfort where other airlines have concentrated on a great deal. Opportunities Terrorism and related activities have made airlines to withdraw their operations from terrorism prone routes. The global economic crisis also went far to affect weak airlines. These two issues have opened up the market more leaving more room to grab a bigger share of the market. There is also the growth of population among many nations of the world meaning that this will most likely translate to market growth. Transatlantic route is one that is also giving new prospects to the airline industry and should be tapped in all ways possible. There is also a notable significant increased demand of air travel which is not being matched by the supply. All these factors are open for BA to tap to its advantage as it has vast resources as well as easy access to external finance. Threats For any business competition stands to be the leading threat of all. The airline industry is one that is being characterised by new entrants which are bringing with them new products and high innovation. Due to competition lowering of air fares has also come in handy and this is resulting to lower revenues of the reduced fares are not being supplemented by increased passenger numbers. EasyJet for example took a huge number of BA’s customers due to their low flights policy change. The world is going green and so are passengers as stated by Harvey (2007). BA as indicated earlier still has an old fleet which is not environmentally efficient. For customers preferring more of green aircrafts BA is not counting as first in the list therefore making environmental awareness critical. Dempsey and Gesell (2006) say that the global economic meltdown has made companies to downsize and adopt other measures that threaten their survival in the long term. BA has laid off quite a number of its employees in order to adjust to the difficult times meaning that in future when the situation changes there is a possibility of not being able to meet demand. Due to the same effect customers the world over are moving to airlines that are offering the cheap flights which is hurting BA’s short term prospects a great deal in terms of revenue generation. Terrorism is the other significant factor that has affected and continues to affect the airline industry. BA for example was forced to retract from the Middle East market due to the terrorism threat that the region poses. Other threats that remain an everyday challenge to BA relate to climatic conditions, aircraft accidents and general safety among others which in one or the other lead to loss of business and thereby the much needed revenue. Ratio Analysis Table 1.0 Financial Ratios – British Airways (British Airways 2010) PESTEL Analysis Airlines world wide are affected by factors that are beyond their control and these therefore form the companies’ external environment. Political factors Companies the world over are needed to comply with certain regulations and market forces that are political in nature as stated by Harvey (2007). The airline industry is affected by heavy regulation that in most cases forces some airlines to ply certain routes and not others. An airline and in this case BA has to comply with these regulations to ensure survival and continuity of its operations. Terrorism is the other issue that makes BA to go an extra mile to put in place tight security measures that go ahead to facilitate customers’ confidence which in turn results to a competitive advantage. Economic factors Global economic crisis in these times counts as the first factor to consider while formulating policies in organisations as suggested by Dempsey and Gesell (2006). The Pound due to this crisis has weakened considerably against the Euro which is resulting to loss on foreign exchange transactions. Due these factors there is also a reduced passenger flow for BA as teleconferencing is fast replacing business meeting and consequently business travel. The unending fluctuations in oil prices have seen the airline have a considerable increase in its operational costs. Consumer spending has seen a decline not witnessed in UK for the past decade meaning that the prospects ahead may be dimmed by huge competition to capture the shrinking market capacity if the situation prevails for longer than expected. Social factors UK in particular has a huge aging population which is known to have increased travel for leisure. This therefore creates an opportunity for BA to ensure that it taps this niche to itself. BA should expect growth in international travel from this age group in the near future. Unemployment rates are increasing meaning that there is need to BA to increase its bargaining power while taking into account the implications that lay offs and other related practices may have on the company. Technological factors According to Harvey (2007) technology in the airline industry is an expensive affair and huge amounts of Pounds have been invested by airline companies in order to keep up with the emerging technological trends. New technology also calls for training of staff members which is also an expensive endeavour. BA has no choice but to embrace the new technology in IT and have better aircrafts that are more comfortable and efficient to run and maintain so as to assure itself of a future as a competitive force to reckon with. Price comparison sites are becoming more and more popular by the day and consumers are taking this avenue to choose airlines to use. This calls for BA to have better bargaining power so as to attract as many customers as possible. Online booking is the other trend that BA has to keep up with so as to remain relevant although the elderly market should be kept in mind as they are not amused by this technology in particular. Environmental/ Ethical factors Dempsey and Gesell (2006) say that new legislations are coming up every day that are bringing with them tight environmental regulations which are proving costly to airlines. This is in respect to noise pollution together with controls on energy consumption. The land for expansion of airports it also quite limited nowadays leading to BA and other airlines to use the limited capacity available. There is also the need for BA to adopt an integrated approach towards its strategies as pertaining to the environment. This will in the long run ensure good reputation and consistency in returns pattern as customers are more aware of the need to be green. As stated earlier BA has a bad reputation of baggage loss and flight cancellations which in ethical terms is inappropriate and may lead to a steady decline in the number of customers for the airline. Legal factors There are various restrictions that have been put in place that are making the airline business less attractive as stated by Haberberg and Rieple (2008). These regulations for example have made it not possible for BA and American Airlines to merge despite the huge theoretical gains that such a merger may bring. There is need to have good employee relations so as to avoid collisions with trade unions and unnecessary strikes that bring in interruptions which proof to be costly. Porter’s 5 Forces Competitive rivalry BA is experiencing competitive rivalry in its line of operations i.e. passenger, cargo and mail air transportation. The rivals are Virgin Atlantic, Swiss Airways and Lufthansa among others. Due to this fact BA is endeavouring to offer services of the highest quality at almost the same price as the competitors. New entrants BA market is increasingly being invaded by new entrants who are bringing with them high product differentiation. This differentiation is in respect to customer service, convenience and quality. The airlines that are posing huge challenge in terms of venturing into BA markets are American Airlines and Lufthansa. Substitute BA is offering a wide range of specialised services under its subsidiaries. BA World Cargo for example is a cargo subsidiary which is giving the general carriers a hard time and it is emerging strong in its line of operation. The other is Open Skies that goes to New York, comes to Amsterdam and to Paris. According to Harvey (2007) this route has huge activity and the subsidiary aims at offering the unique needs of customers of these routes. This policy of BA having substitutes for its own services goes a long way to curb the negative effects of specialising in one brand name and clientele. Buyers BA has the aim of offering the customers with the best service possible especially high status passengers as well as the premium cabin. The strategy here is to keep changing the ticket prices as the market calls. Emirates for example has been a major force in this respect when it comes to the UK – Abu Dhabi and Dubai routes. Suppliers BA for many years had problems with slots for equipment and accessories as it used to get the same from other airlines e.g. Brussels Airlines and United Airlines. However, with Heathrow airport things have been made significantly easy as well as cost reductions witnessed. According to Dempsey and Gesell (2006) BA now boasts of 40 percent slot for its equipment and accessories at Heathrow Airport. Recommendations British Airways is one of the leading of the world class airlines and definitely the largest in the UK. With incorporation of new technology, high quality services that meet customers’ needs and skilled workforce, BA can be the market leader in all segments of its operations. The company needs to relax its conservative nature in order to take advantage of the niche that exists in exotic markets that are not yet ventured in and be able to deal with its competitors on the same level. These and more weaknesses addressed above need to be looked into and all options explored. There is also the need to have more mergers and more subsidiaries as well as more product differentiation so as to keep with the changing trend as strategies of survival to both near and distant future. References British Airways 2010, British Airways 2009/10 annual report and accounts, viewed 20 August, 2010, from . British Airways 2010, Explore our past, viewed 20 August, 2010, from . Dempsey, PS and Gesell, LE 2006, Airline management: Strategies for the 21st century, 2nd edn, Coast Aire Pubns. Haberberg, A and Rieple, A 2008, Strategic management: Theory and application, Oxford University Press. Harvey, G 2007, Management in the airline industry, Routledge. Read More