Analysis of British Airways in the United Kingdom - Case Study Example

British Airways [Name of the writer appears here] [Name of the institution appears here] Abstract British Airways is the largest airline of the United Kingdom. This analytical essay presents information about British Airways and just how this airline has become so successful in such a short spam of time. The bibliography presents a number of sources in Harvard format. Outline I. Executive Summary II. Introduction III. Structure and key issues of the European airlines industry IV. PEST Analysis for the present and upcoming years of the airline industry V. The airline industry in terms of Poster’s five forces VI. major threats and opportunities confronting British Airways VII. Ways that British Airways might take up to consolidate its improved performance VIII. Conclusion and Recommendations Executive Summary Founded in the year 1924 as Imperial Airways, British Airways is now the largest airline of the United Kingdom, and is counted amongst the largest in entire Europe. A number of airlines merged in the year 1935 under the name of British Airways ltd, which were later nationalized 1939 so as to form British Overseas Airways Corporation (BOAC). In the year 1949, a new airline was launched with the name of British European Airways (BEA) and in 1972, BEA and BOAC combined together and were later joined by many different airlines to form British Airways in the year 1974. British Airways became the most profitable airline in the entire world in the 1990s and also made its slogan “The World’s Favorite Airline”. Now, British Airways has more than five hundred and fifty destinations and that too at the best airports across the world. In recent years, airlines within Europe have seen much growth, and are facing far much more competition. A number of reasons and issues can be related to the emergence of budget airlines all across Europe. The top most reason here being the deregulation of the airline industry in the year 1997, extremely bad economy in the 1990s (which brought up many issues such as lesser productivity etc, and the recent terrorist attacks that took place in the year 2001, after which there was a sudden increase in the price of fuel. British Airways faces a number of opportunities and threats in upcoming years. These include the ever rising security issue, competition from other up coming airlines etc, but British Airways would definitely find its way through these problems. Opportunities include alliance with other airlines, flights to even more destinations etc. Introduction The airline industry across the world has been growing rapidly. In recent times, the usage of airlines has increased, or it can be said that people now prefer traveling by air as compared to other means of transportation. The airline industry is mainly being used by people to travel for business as well as holiday purposes. People now find it extremely convenient and inexpensive to fly to further very exotic destinations to spend their holiday time. As for business trips, most of the companies across the world have a number of international investments, hence traveling to international countries is a must for business men. While the aviation industry has grown rapidly across the world, the European airline industry seems to be most profitable. Europe has played a major role in the growth of the airline industry throughout the world. Low-cost airlines, availability of more seats, even more flights etc are some of the factors that have and will always play an active role in the rapid growth of the European airline industry. A research study showed that in the month of July, 2005, airlines all over the world issued nearly 20.8 tickets to people traveling to and from Europe, which was a whole seven percent increase since July, 2004. Also the same report showed that the capacity of seats in the European -airlines has increased from a mere 3.8 million to/ a shocking 63.5 million, a whole six percent increase (Stanley, 2005). In the European aviation industry, the British airlines have outgrown all of the others. UK’s largest international airline is British airways, which according to its website flies to over five hundred and fifty destinations. Being a low-cost airline, British Airways has gained huge revenue. Just recently, in September, 2006, British Airways announced its half year report which stated that British Airways had earned a profit of £345 million, even there was although the pre-tax profit was £371 million (Good results impacted by disruption, 2006). Structure and key issues of the European airlines industry As mentioned above, the European airline industry has out grown all the aviation industries of the world. The airline industry of Europe has recently gone through a major era of transformation. Currently, the most commonly used airlines of Europe are EasyJet, RyanAir, Air Berlin, FlyBe, jet2, Lufthansa Airlines etc. These airlines are extremely affordable and have opened gateways to travelers to fly easily from one country to another, which has not only enhanced tourism but has also boomed business. As previously stated, the European airline industry has gone through a significant change. Previously, the ideas of traveling to many destinations used to sound absurd to many, but now due to the changes that have occurred in the European airlines industry, traveling to numerous far-fetched destinations is extremely easy for passengers. Some major changes in this case include the deregulation of the European airline industry, the emergence of a vast number of budget airlines etc. All of the airlines now operate with subsidiary airlines, franchises, allied airlines etc so as to provide better services to the passengers. Nearly all of the European airlines have entered into alliances with different airlines so as to strengthen their presence in the industry. Previously, the European airline worked under strict government instruction. Because of this, the airlines could not introduce new packages which would attract passengers, the rates of tickets were extremely high because of which people preferred traveling by other means of transportation or they did not travel at all, plus the destinations were extremely limited. This did not give the aviation industry any chance to grow. The industry was extremely regulated under the government, had fixed flight capacity quotas and the prices were fixed as well. Keeping all these factors in mind, the European Union started taking certain steps to liberalize the aviation industry. This started in the year 1987 when the first step included the introduction of discounted air fares. Even more discounted rates were offered in the year 1989 along with a major change in the 50/50 split in the capacity of airlines that existed between two EU states. Finally in the year 1997, the European airline industry was completely deregulated (European Deregulation, 2001). Although the industry faced some problems in the beginning as it had always been under the ownership, control and safeguarding of the government, but it has pulled through. After the deregulation, carriers are free to launch their services wherever they want within EU member states, and set their own rates as well as capacity. The airlines can now sign the ‘Open Skies’ agreement with countries outside the EU member states. The deregulation of the aviation industry has brought about a lot of competition for the present airlines. Now, with the authority to set their own ticket rates, airlines are constantly decreasing their rates and are now flying to places which have never been flown to before. With the increasing usage of airlines by passengers because of low air fares, airlines have to take a number of steps to survive and prosper. A number of airlines have started cutting down their prices very aggressively, while others have taken steps to enhance the quality of service being offered by them. These include traveling without tickets, enhancements in the entertainment systems along with more comfortable seats (The Airline Industry). The airline industry is highly profitable and this prospect has also played a major role in the emergence of new budget airlines. New budget airlines prosper because of the fact that they A number of airlines are also taking steps so as to cut down costs. These basically include the use of Information Technology (IT). The use of information technology has helped a number of airline companies make full use of this service to cut down costs. This includes the usage of e-ticketing, checking in using the company’s website and also getting your boarding passes online. The introduction of various operating systems, which are very easy to use by employees at the airport, thereby cutting down the number of employees needed at the airport. The internet can definitely not substitute traveling, but it helps a lot with information about traveling. Airlines across the world have started using the e-ticket system so as to cut down the amount of money they have to invest in distribution of tickets. This also helps the new upcoming airlines in surviving and prospering in the long run (Shane, 2004). PEST Analysis for the present and upcoming years of the airline industry The airline industry had been greatly affected after the tragic day of September 11th, 2001. A number of airlines discontinued their flights to certain parts of the world due to fear of being attacked, because of which the industry suffered a lot but somehow survived. The Political environment of an industry is defined by the role played by the government in the country and its effects on the industry under consideration. The industry at hand is the European airlines. Keeping the current political events in mind, the industry might suffer in the future the same way that it did after September 11th. The current political environment of the world might make the European airlines stop their flights to certain parts of the world. This would be extremely disturbing because of the fact that airlines would loose a lot of money. The economic factor can also play a major role in the success of the airline industry. The better the economy of a country, the more air travel demands it has. Hence it can be rightly stated that with the growing economy of the world, the demand for air traveling is increasing as well. Right now, the current situation around the world has taken the oil costs sky high; hence the cost of fuel surcharges might increase. The European airline industry is one of the biggest industries of the world and is responsible for flying people to destinations across the world. So any changes in the economy of the world would have direct impact on the European airline industry. The social and cultural factors vary across the world. Tired of their extremely busy schedules, people these days are spending more and more on traveling and holidays. With the changing lifestyles and current trends of the world, people take up all the opportunities to travel to new and exotic places that are usually far destinations and so is the trend in Europe these days. As for technology, it has always played a major role in the airline industry so as to ensure that the passengers are safe not only in the air but on the ground as well. For example, usage of various machinery to check the passports and luggage of passengers. CCTV cameras are yet another example of technology being used at the airports to ensure safety. Security is a major problem at airports across the world, but Europe especially Britain is at major risk; hence technology is playing a major role at these airports to enhance security (PEST Analysis on British Airways, 2004). The airline industry in terms of Poster’s five forces Porter’s five forces is a theory which states that there are five threats or risks that are faced by every single industry across the world. However, the profitability of every industry varies. Porter’s five forces include rivalry, threat of substitutes, the power of buyers, the power of the supplier and last but not the least, the threats posed by new entrants in the industry. Now if we take rivalry in terms of the European airline industry, there certainly is a lot of competition going on between a number of European airlines. With the current run to become the best of the best airlines in the European industry, with the same purpose of reaching out the same customers and through the same means, the airlines are aggressively cutting down their fares so as to gain the attention of more and more passengers; hence competition is very high. The competition has increased a lot after the deregulation of the industry has taken place, due to the fact that consumers now have a number of airlines to choose from. They have the internet to compare ticket pricing on and then decide which airline they want to use while keeping their comfort and budget in their mind. To keep up with the competition, airlines must make sure that even if they charge a little more than their rival companies, they should provide the best services to the passengers. Moving on, the threat posed by substitutes is another problem. A substitute here means the availability of other, much better options. In the case of the European airline industry, people have a vast number of airline companies to choose from. They can easily compare the ticketing prices over the internet and hence select the package or the airline company that suits them and their budget the best. This can at times cause problems for the airlines that charge a little extra. Then again there are so many budget airlines now available in Europe with extremely less air fares that all of them face the same threat from each other. Buyer’s power is something that has to be gained by all the airlines of the industry. Buyer’s power means the impact of the customers on a certain industry. Now if one airline develops packages in the long run which are very attractive for the customers, then that could be a problem for the other airlines. This also brings about more and more competition and rivalry so as to gain the attention of customers and that too providing them with the kind of services which would make them want to use the same airline over and over again whenever they travel. The relationship between the buyer and the suppliers has to be very strong in order to maintain a good position in the market and to come up with the best results and productivity. The power of the product or service being supplied in this case has to be very powerful to convince the consumer enough to use the same service again and again. Now taking the European airline industry, with the extremely competitive environment that it is operating under, every single airline has to make sure that the kind of service they are providing is one of a kind. For this, airlines have to make sure that they provide the best services not only in the air but on the ground as well. This can include e-ticketing, issuing the boarding passes over the internet, more comfortable seats, better entertainment etc. New comers in the industry usually come up with the best services and the cheapest air fares so as to survive and prosper in the extremely competitive market. Now that the European airline industry has been deregulated, more and more airlines are coming up all the time. SO in order to make sure that the new entrants do not pose any threats to the previously established companies, they have to make sure that while they lessen the air fare, the kind of service they provide should not go down too. According to sources, “average fares tend to drop 20% or more, spurring new sources of demand. The added competition, together with pricing freedom, means that new entrants often take market share with highly reduced rates that, to a limited degree, full service airlines must match. This is a major constraint on profitability for established carriers, which tend to have a higher cost base. As a result, profitability in a deregulated market is uneven for most airlines. These forces have caused some major airlines to go out of business, in addition to most of the poorly established new entrants” (Airline, 2006). Major threats and opportunities confronting British Airways Being a country’s most favorite and largest international airline and maintaining that trust between yourself and your consumers is definitely not an easy thing to manage. But over the years, British Airways has worked hard to maintain that trust as well as excelling its services during flight as well as on the ground. In order to do so, British Airways has always differentiated its services as compared to its other rival companies. These services have played a major role in satisfying the demands and the needs of the passengers. British airways is very popular across the world for the high standard of services that it offers. Not only is it popular because of its flights, but also because of the dedicated and committed work force. Like any other successful organization or airline, British airways also confronts certain threats as well as opportunities. Threats such as rivalry, extreme competition, the effects of the current global politics etc cannot be overlooked. While opportunities such as alliances with foreign airlines or being able to fly to even more destinations are always there as well. The worst threat posed to British airways, under the current circumstances is the effects of the global environment. The current situation in Iraq might force British airways to cut down its routes and destinations to certain parts of the world. This would affect the profit gained by the company to a great extent and its stocks might fall down just the way they had after September 11th, 2001. With falling stocks and people choosing to travel by other means, British Airways would be facing a very hard time. Apart from that, competition is confronted by British airways. Currently, British Airways faces competition from nearly twelve airline companies including Air France-KLM and Lufthansa. With the emergence of more and more budget airlines, British Airways is bound to have more and more competition posed at it. Security steps that are taken on the ground and on board do not come cheap as well. For this purpose British Airways might have to increase airport taxes, which might take away more passengers from it. This can also be related to competition and rivalry as people would definitely choose other airlines over British Airways for traveling purposes. Increasing oil prices would demand for more and more money, which would be charged to the passengers; hence making it even more expensive for the passengers who would definitely choose other airlines over British Airways then (What now for British Airways, 2001). But, on the other hand, British Airways has a number of opportunities posed at itself as well. Even if the company faces any major losses, or is in need of help, in the European states, the government would have to support it; hence even if the company faces some hard times it would still be there in the long run. As the company has previously made it through very bad situations, the future of British Airways seems to be stable. Recently, British Airways has involved itself in a Climate Change Programme, under which the company would take all necessary and possible actions to ensure that minimum amount of carbon is emitted as it poses a great threat to the society and the global environment. Feedback from experts give us the notion that because of this step, the company has positioned itself as a very responsible airline. According to sources, “the investment community has acknowledged this, and because of this it has enabled British Airways to attract investment. A final benefit has been that owing to its and other companies’ attitudes to environmental sustainability, there is a genuine prospect of expansion at Heathrow Airport offering new opportunities for growth to British Airways” (Toyne, 2006). As stated, British Airways has gained the attention of investors, thereby increasing the number of investments it would get in coming years. Because of better investments, the company would definitely be successful and then alliance with foreign airline companies would be something that British Airways would definitely start working on again. The worst threat posed to any airline these days is lack of security. If there is a lack of security, flights might get delayed, lives might be lost and because of these issues the company would lose its passengers. In order to get over this issue, British Airways has always called for international cooperation. Tightened and even stricter security measures are some of the steps that British Airways might take. The airline has also put up a list of things that are allowed to be taken on board, except which nothing would be allowed (Flight delays in the UK expected to continue due to increased security, 2006). Ways that British Airways might take up to consolidate its improved performance The success of British Airways can be directly related to the kind of services that it offers. Be it on air or on the ground, the airline presents the best services to its passengers. The airline has developed a trust with its passengers, which makes them want to use the same airline for their travel purposes. Not only does this trust make it easy for the passengers to choose which airline they prefer, but it is extremely profitable in terms of revenue for the airline itself. Now in order to maintain this trust and its services, the airline has to take certain steps. These can include: I. Creating a work force which is committed and provides excellent levels of services to the passengers. II. Taking every possible step to ensure that the journey is pleasurable for the passengers. III. Reaching out to investors and gaining investments. For this purpose, the airline has to make sure that the investors have enough belief in it as being a responsible airline (Caleo, 2005). Conclusion and Recommendations In the light of the above discussion we can hereby culminate that the European airline industry is expanding to a very high degree, infact it is one of the most profitable industries across the world. The onset of budget airlines after deregulation has proved to be very profitable for the industry and has turned out to be very good for the passengers as well as now they have a wider variety of airlines and budgets to choose from. British Airways is the largest international airline of Europe. The kind of services that it offers is unique, but there are certain threats posed to it because of the current global situation and also because of the rival companies. The company has survived through some very hard times in the past and it would definitely pull through if there are any ever again. Because of the previous financial loss that the company suffered, it had to cut down on costs due to which many people lost their jobs and the company invested more in information technology to make up for lost revenues. Now that the airline is stable once again, it has to make sure that the same problem is not faced by it in the future. The current global environment would definitely impact the airline and for that the company should prepare itself. To remain United Kingdom’s favorite airline the company has to maintain and enhance the kind of services that it offers to its passengers. E-ticketing, comfortable seating, better entertainment onboard etc can play a major role in doing so. Appendix Company Type Public Fiscal Year-End March 2006 Sales (mil.) $14,814.4 1-Year Sales Growth 0.9% 2006 Net Income (mil.) $257.5 1-Year Net Income Growth (61.7%) 2005 Employees 49,490 Bibliography Airlines. (2006). Retrieved on November 18, 2006 from: http://en.wikipedia.org/wiki/Airline#Early_development_of_airlines_in_Europe Caleo, R. (2005). The Success of British Airways. Adventure Travel Tips. August 17th, 2005. Pp.1. European Deregulation. (2001). Retrieved on November 18, 2006 from: http://airlinesgate.free.fr/articles/industy4.htm Flight delays in the UK expected to continue due to increased security. (2006). Airline Industry Information. August 11th, 2006. Pp.1. PEST analysis on British Airways. (2004). Retrieved on November 18, 2006 from: http://www.studentcentral.co.uk/pest_analysis_on_british_airways_10996/ Good results impacted by disruption. (2006). British Airways Press Office. November 3rd, 2006. Pp.1. Shane, J. (2004). A Fundamental Restructuring of the Airline Industry. Retrieved on November 18, 2006 from: http://66.102.7.104/search?q=cache:vt7e1H7Eg58J:ostpxweb.dot.gov/S-3/Data/ABA%2520Finance%2520Subcomte%2520Speech%2520%2520(8-6-04).pdf+structure+of+european+airline+industry&hl=en&gl=pk&ct=clnk&cd=4 Stanley, Margareta. (2005). Inter-Regional and Low Cost Traffic Drives European Airline Growth. OAG Worldwide Limited. July 4th, 2005. Pp.1. The Airline Industry. Retrieved on November 18, 2006 from: http://adg.stanford.edu/aa241/intro/airlineindustry.html Toyne, P. (2006). British Airways. Retrieved on November 18, 2006 from: www.article13.com/CBI/CBI_CSR_Case_Study_BA_March_06.pdf What now for British Airways?. (2001). BBC NEWS. September 20th, 2001. Pp.1. Read More