British Airways' Business Environment - Case Study Example

Business Environment (British Airways) Table of Contents Company Overview 3 External and Internal Environment 4 PESTEL Analysis of British Airways 5 Porters Five Forces Model 8 Value Chain Analysis of British Airways 11 Conclusion 15 References 16 Bibliography 19 Company Overview British Airways is considered as one of the world’s leading international airlines. It is UK’s largest listed airline that flies to 148 destinations at suitable times. Heathrow, which is world’s leading airport location, is the standard place of business serving a wide geographical area. In the year 2009/2010, it was successful in carrying more than 32 million passengers (British Airways, 2009). British Airways was privatised in the year 1987. It is headquartered at Waterside, Harmonsworth, UK (Roy & Singh, 2008). The airline network has been generating economic value by meeting the needs and demands of the customers. It also has a worldwide air cargo business. The major aim of the company is to provide its shareholders with a growing and consistent dividend stream. It further aims at paying its employees and executives with the bonuses. External and Internal Environment In simpler terms, ‘environment’ refers to anything that is outside an organisation, which may affect the operation of the organisation and its present and future activities. The environment is basically thought of being at two levels. One is the generic environment and the other is the task environment (Kew & Stredwick, 2005). There are both internal and external factors that affect the success of a firm. It is to be noted that the firm exercises direct control on its internal factors whereas the external factors are beyond the control of the firm. These factors are economic environment, technological environment, socio-cultural environment, political environment and international environment. Competition is also one of the external factors that affect the operation of the firm. The internal environment constitutes the internal factors like objectives of the business, various departments of the organisation, managerial policies, labour management relation, brand image and corporate image and so on. External environment is of two types namely the micro environment and the macro environment (Jain & Et. Al., 2010). PESTEL Analysis of British Airways Political Environment The head of the British political system is a monarch. There are three main political parties present in the UK and they are The Labour Party, The Conservative Party and The Liberal Democratic Party. In the UK political scenario, there is general consensus on certain factors like UK membership of the European Union and also NATO, the free market based economy, and the rule of law, along with the National Health Service (RogerDarlington, 2010). There has been heavy regulation from the government. Therefore, it is important for British Airways to comply with such regulations if it wants to operate successfully. It has also been found that during the time of the economic slowdown the company has received support from the UK government in order to tackle the financial crisis (Scribd, 2009). Economic Environment After the world has recovered from the recent recession, there has been a shift of people towards the sustainable lifestyle (Meikle, 2010). There has been rise in GDP in the third quarter of 2010 has been by 0.7%. The consumer spending has also increased by 0.3% (Office for National Statistics, 2010). There seems to be an increasing opportunity with the rise in the consumer spending. Currency fluctuation is also one of the factors that affect the operation of British Airways. Social Environment The country has an ageing population. Therefore, it is implied that there seems to be high potential for growth because the senior population have more time to spend on the leisure activities like international travel. The country has around 58 billions inhabitants or 246 inhabitants per square kilometre. The wealth of the elderly people seems to be quite high in comparison to the younger people. The change in the population also seems to have a direct impact upon the organisation. This will affect the demand as well as supply for the product. There is high level of urbanisation which is 89, 5% (Seniorwatch, n.d.). The employment rate for people from 16 to 64 years was 70.6 percent for three months till October 2010, whereas; the unemployment rate was 7.9 percent during this period (Office for National Statistics, 2010). This is going to affect the industry as a whole. The increasing unemployment rate seems to increase the bargaining power as an employer. Technological Environment By the recent study conducted in the year 2009, it was found that 34% of the online consumers plan to use the price comparison site more. Moreover, the industry has been using online booking services and check-ins. It is important for British Airways to remain updated with such kind of technological advances. However, it has been found that few companies have been trying to avoid the online services as there is less reliance upon such services by the elderly people (Scribd, 2009). Environmental Factors The change in the climate is an increasing concern around the globe. Everyone has a role to play for reducing the impact of the changes. Meeting strict environmental condition in terms of emission and noise has been one of the factors affecting the operation of British Airways. The new legislation that has enforced strict regulation can increase the overall cost of operation. There is scarcity of lands with the increasing urbanisation. As consumers are becoming increasingly ‘green’ and are realising the environmental impact of their actions. Therefore, if the British Airways fail to adopt an integrated environmental strategy, then this may lead to detrimental effect on the reputation and income. Legal Environment Price fixing and collusion are certain legal factors that affect the operation of the company. Recognition of the trade unions as well as the industrial action may also have a detrimental affect upon the industry. Therefore, it is important for the company to have good relation with its employees in order to avoid such kind of industrial actions and interrupted operations. With the Open Skies Agreement in the year 2009, there seem to be immense opportunity for British Airways in order to freely transport the aircraft between the EU and the US. Porters Five Forces Model The Porter’s five forces model is the theory has been developed by Prof. Michael Porter. According to him, there are five forces that help to determine the state of competitiveness in the market. The forces also try to influence the profitability of the firm that is already in the industry (Lima, 2006). The diagram below helps to better understand the Porters Five Forces Model. (Lima, 2006). It is very essential to evaluate the competitive position of the airline industry in order to consider the position of the British Airways. With the help of the Five Forces Model, it will be easier for British Airways to make strategic decision with the aim that profitability can be increased. Competitive Rivalry British Airways provide support of both the short haul and the long haul flights. There is little differentiation between British Airways and its competitors in terms of service offering and price. However, the short haul market seems to be more split with small players. There is fierce competition. With the consolidation of the competitors, the competition is likely to increase. Therefore, it can be said that the competitive rivalry seems to have high strength (Scribd, 2009). Power of Suppliers British Airways highly depend upon the fuel prices. Fuel prices are likely to affect the cost directly. This seems to be the biggest threat for the company. There are two aircraft manufacturers; therefore the bargaining power of the suppliers is likely to be higher. British Airways has one supplier for fuel to the airport. The employees of British Airways use collective bargaining technique in order to increase their bargaining power through trade unions (Scribd, 2009). Power of Buyers There is increased awareness among the consumers regarding the company because of the internet usage. It has also augmented the interaction among the consumers. Since there is low concentration of the buyers to the suppliers, it can be said that the buyers have little bargaining power. The strength of the bargaining power of the suppliers seems to be medium (Scribd, 2009). Threat of New Entrant There are barriers to enter for the new entrant as there are lots of competitors. Moreover, there is high regulatory requirement from the government, which becomes the biggest barrier for the new entrant. In order to enter such a segment there is high capital requirement which prevents the entry of the new entrant. On top of that there are barriers to exit which discourage new entrants. In the recent times, the two giant airlines like XL and Zoom have failed in their attempt. This will also deter new entrant. Therefore, it can be said that the potential of the threat of new entrant seems to be quite low. Threat of Substitutes If the customers are not loyal towards the flight then they will surely find certain other ways to travel (Scribd, n.d.). As the company has a very good reputation and strong brand name as well as brand image, it seems the customers are satisfied with the services of the flights (Calleja, 2008). Therefore, the threat of the direct and the indirect substitute are low. For short haul flights, the substitute has been the Eurostar or the Ferry while, for the long Haul flights there are no substitutes available (Scribd, 2009). Value Chain Analysis of British Airways As discussed earlier, the internal factors are close to the company and have a direct impact upon the strategies of the organisation. Therefore, value chain analysis plays a critical role in this regard. This can be made clear with the help of the diagram provided below. (UK Education, 2005). Support Activities Firm Infrastructure The hierarchy has been structured in the manner which permits British Airways to make the use of specialist knowledge with the aim that competitive advantage over the downsized firms can be gained. However, the large bureaucratic infrastructure may reduce the effective communication (Scribd, 2009). Human Resource Management Employees are the assets of the companies. Therefore, it pays attention to keep its employees satisfied with the aim of reaping better service from them as and when required. The company had invested in the development of the customer services training in the year 2007, which helped them to attract the best employees. With the “Speak Up” opinion survey conducted by the company, the employees are encouraged to provide their feedback. This helps the company to improve the performance. Because of high collective bargaining capabilities of the firm, it challenged a number of employee relation issues (Scribd, 2009). Technological Development The company has been continuously investing in R&D in order to encourage innovation and beat the competition and maintain the competitive advantage of the firm. The airways has added value in technological development by employing the slack resources in order to innovate the services. For instance, the airline provides individual LCD screens to its customers for the purpose of recreation. In spite of the fact that company continuously invest in R&D in order to innovate, it has failed to gain the recognition for the new innovation (Scribd, 2009). Procurement It is because of the historical business relationship and the business alliances that the company is able to leverage its suppliers. Through economies of scale, it has been successful at bringing efficiencies at their work where the rivals may fail (Scribd, 2009). Primary Activities Inbound Logistics The stocks of the company seem to be well under the control. The employees are provided with high quality training that is accredited by City & Guilds. Moreover, the company has maintained good relation with its suppliers, for e.g. Gate Gourmet. There has been high solidarity between the supplier employees and British Airways (BA) employees have encouraged negative industrial actions (Scribd, 2009). Operations The British Airways has increased the baggage security as this is the service that is highly demanded by the customers. It has also employed number of other facilities like quick check in services along with secured online bookings. The customers can also pre book certain kinds of additional services. This makes the flight highly efficient and effective in terms of the services and operations (Scribd, 2009). Outbound Logistics Improved customer service is one of the outbound logistics for the airlines. With the availability of the large database of the airport slots, the passengers are able to access the widely held destinations from the preferred airport by the passengers (Scribd, 2009). Marketing and Sales The marketing and sales initiative is one of the most important factors in the value chain analysis. It helps to build strategies for the companies. British Airways communicates regarding its marketing and sales strategies to all its stakeholders. The company allows for large budget that can be spent in this field (Scribd, 2009). Post Sales Service British Airways has various membership programmes for its customers like the loyalty club cards. It also makes people aware of its recent updates on other services (Scribd, 2009). Conclusion The flights that operate in the present day seem to provide more facilities and have a completely different picture in comparison to the flights that used to operate in the recent past. The heavy regulation from the government has been affecting the operation of British Airways. In the similar way, the other elements of the PESTEL analysis seem to exert tremendous impact upon the operation of British Airways. The biggest challenge for the company would be to overcome the weaknesses like the poor employee relation and innovation and change among others. There seems to be tremendous opportunity for the company with the competitors failing to deliver the reliability. It can be recommended that the company focuses upon the technological and the environmental issues. The company needs to adopt defensive strategies in order to protect the market share. It also needs to address those areas where it has been loosing value to competition. If these parameters are taken into consideration then it will help the company to achieve success in the long run and gain an edge over competition. References British Airways, 2009. Annual Report 2008/2009. Who Are We? [Online] Available at: http://www.britishairways.com/cms/global/microsites/ba_reports0809/pdfs/BA_AR_2008_09.pdf [Accessed December 28, 2010]. Calleja, J., 2008. Effectiveness and Efficiency of British Airways and Virgin Atlantic. SWOT Analysis. [Online] Available at: http://www.speedyadverts.com/SATopics/html/leadership_in_tourism2.html [Accessed December 28, 2010]. Jain, T. R. & Et. Al., 2010. Business Environment. FK Publications. Kew, J. & Stredwick, J., 2005. Business Environment: Managing In a Strategic Context. CIPD Publishing. Lima, T., 2006. Michael Porter’s “Five Forces” Model. Barriers to Entry. [Online] Available at: http://www.cbe.csueastbay.edu/~alima/courses/3551/MurderCleaners/FiveForcesPorter.pdf [Accessed December 27, 2010]. Meikle, J., 2010. UK Economic Recovery Poses Threat To Environment. Environment. [Online] Available at: http://www.guardian.co.uk/environment/2010/nov/30/uk-economic-recovery-environment-eu [Accessed December 27, 2010]. Office for National Statistics, 2010. Brief Analysis. Consumer Spending. [Online] Available at: http://www.statistics.gov.uk/default.asp [Accessed December 27, 2010]. Office for National Statistics, 2010. Labour Market. Employment. [Online] Available at: http://www.statistics.gov.uk/cci/nugget.asp?id=12 [Accessed December 28, 2010]. Roger Darlington, 2010. A Short Guide to the British Political System. Three Arms of the State. [Online] Available at: http://www.rogerdarlington.co.uk/Britishpoliticalsystem.html [Accessed December 27, 2010]. Roy, A. & Singh, B., 2008. Change Management in British Airways. British Airways-A Snap Shot. [Online] Available at: http://www.scribd.com/doc/16037785/British-Airways [Accessed December 28, 2010]. Seniorwatch, No Date. Socio-Economic Environment: United Kingdom. United Kingdom. [Online] Available at: http://www.seniorwatch.de/country/united_kingdom/Socio-econenvir%28UK%29.htm [Accessed December 27, 2010]. Scribd, No Date. Today-s-Airline-Industry-Ryanair-Against-British-Airways-BA. Porter’s Five Forces Analysis of the RYANAIR. [Online] Available at: http://www.scribd.com/doc/22732690/Today-s-Airline-Industry-Ryanair-Against-British-Airways-BA [Accessed December 27, 2010]. Scribd, 2009. British Airways. Strategic Report. [Online] Available at: http://www.scribd.com/doc/23329171/British-Airways-Strategic-Plan [Accessed December 28, 2010]. UK Education, 2005. M. Porters Value Chain. Images. [Online] Available at: http://www.ukeducation.org.uk/UkeduFrames/Documents/images/Value_chain_Diagram_1.jpg [Accessed December 28, 2010]. Bibliography Huda, R., 2007. Strategic Management. External Industrial Environmental analysis for Singapore Airlines. [Online] Available at: http://www.scribd.com/doc/14477098/External-Industrial-Environment-Analysis-for-Singapore-airline- [Accessed December 28, 2010]. Read More