British Airways Strategic Options - Case Study Example

British Airways Strategic Options Student’s Name Course Name & Number Date of Submission Executive Summary The objective of this report is to conduct an environmental analysis of British Airways with the aim of understanding the best strategic option that the airline should adopt to ensure growth and competitiveness. The report incorporates a range of tools to help get a clear picture of BA’s external environment, resource and competence, as well as available strategic options. The external environmental analysis clearly shows that British Airways is operating in an environment that it characterized by changing political, economic, social, technological, legal and environmental expectations, which impacts hugely on BA’s operations and strategies. Terrorism, economic recession and environmental concerns top the list. The SWOT analysis indicates that BA has a number of weaknesses and faces many threats. Nevertheless, BA has certain strengths and opportunities that it can leverage to minimize the threats and address the weaknesses. Based on the strategic analysis, this report has come up with a number of proposals with regards to the strategic options that ranks highly in terms of feasibility, acceptability and suitability matrix. Effective implementations of the strategic options will help improve BA’s competitive position in the airline industry going forward. The proposed strategic options include improving people processes, addressing environmental concerns, diversifying service offerings, expanding marketing reach and enhance its brand image. Table of Contents Executive Summary 2 Introduction 5 Analysis of BA’s External Environment 5 PESTEL Analysis 5 Porters Five Forces Model 7 Industry Life Cycle 8 Strategic Group Analysis 9 Resource and Competence Analysis 9 Porters Value Chain 9 VRIN/O Analysis 11 SWOT Analysis 12 TWOS and Ansoff Matrix 13 Ansoff Matrix 17 Stakeholder Mapping 17 Recommendation for Strategic Options: SAF 18 Recommendations 19 References 20 Introduction British Airways (BA) is a UK multinational cargo and passenger airline. The airline was founded in 1972 and has since grown to become the second largest airline in the UK just after EasyJet in terms of passenger numbers, fleet and destinations (Gaskell 2005, p. 2). As at the close of 2015, BA had a fleet size of 293 and flies in about 400 destinations around the world (Jarvis 2014, p. 3). Although London remains BA’s principal business place, the airline has significant presence in other cities, such as Heathrow and Gatwick. As a strategy for tackling competition, BA has since diversified its product portfolio to include aircraft financing, airline marketing, holiday packaging and airline insurance and maintenance. Like any other airline, BA has faced many challenges such as growing competition from low-cost airlines and financial crisis and recession that affected the company’s profits. Despite the challenges, BA has maintained high profitability and was able to post a profit of £651 million (British Airways 2014). Analysis of BA’s External Environment PESTEL Analysis Political Factors BA’s operations are affected by the Antiterrorism Crime and Security Act of 2001 that places restrictions on air schedules and passenger flights in the UK. Additionally, the growing threat of terrorism has resulted in the passage of anti-terrorism sanctions that greatly affect BA’s operations as it has to comply with the new regulations (Katie 2013, p. 41). Economic Factors BA being a multinational company, the persistent weakening of the UK pound to the U.S. dollar and the Euro is affected the company’s performance across all its business segments. Secondly, the Euro crisis has badly affected the performance of BA as the crisis has resulted in a significant reduction in government spending, job losses and a reducing in consumer spending. All these have affected travel and leisure industry, consequently affecting BA’s operations and performance. However, the falling pump prices are impacting positively on BA as it has resulted in a reduction in BA’s fuel cost (Gaskell 2005, p. 12). Social Factors The UK population is aging very fast as over 40% of the population is made up of people above 45 years of age. The aging population favors BA as this population has made money and is willing to spend on leisure and travel to different destinations across the globe (Chen and Popovich 2003, p. 52). Technological Factors Technologically, there has been an increased trend towards online ticketing services, price-comparisons and check-ins all of which affects the operations of BA. This trend means that BA must keep up with these trends to remain competitive (Gregory 2010, p. 43). Legal Factors BA’s performance is affected by legal issues related to price fixing with competitors and strikes by cabin crews. The Open Skies agreement complexity is also a serious concern to BA. Additionally, BA also has to comply with the minimum wage law, as well as environmental laws, which affected the airline’s operations and performance (Katie 2013, p. 54). Environment Factors The UK government and the European Union have passed a number of environmental laws aimed at combating the global warming and noise pollution in the region and the world as a whole. The environmental laws affect BA since it has to comply with the emission requirements and noise pollution limit to operate in the region (Hayre 2007, p. 17). Porters Five Forces Model High Competitive Rivalry The competitive rivalry of the U.K. airline industry is high. There are many airlines in the industry with little differentiation with regards to products and services. For instance, BA flies both short and long haul flights. However, long haul flight services have very little differentiation from rivals in terms of services offerings and prices. At the same time, the short haul segment is highly segmented and has several small players. BA’s main competitors in the industry include Virgin Atlantic, EasyJet, Qantas, Ryanair, Japan Airline Company, Iberia, United Airline Inc and Deutsche Lufthansa Ag world (Jarvis 2014, p. 31). High Supplier power The supplier power is high. The airline industry is dominated by two suppliers, namely Airbus and Boeing (Lynn 1997). The factor that there are few suppliers in the industry means that suppliers have a high bargaining power when it comes to setting prices. Additionally, the fuel prices used in the aviation industry is determined by the global pump prices that depend on the forces of demand and supply. Low to Medium Buyer Power The buyer power in the UK airline industry is low to medium. The airline industry has witnessed in the number of customers over the years to exceed the supply available in the market, indicating low buyer power. However, following the introduction of online ticketing services, consumers are now able to compare prices offered by different airlines, such as BA, thus have some power (Eldring 2009, p. 87). Low threat of new entrants The threat of new entrants into the UK airline industry is low. Entry into the industry requires massive capital investments not only for fleets, but for building brand awareness, which creates a significant entry barrier to small firms. The exiting airlines, such as BA have also built brand loyalty and image for many years making it difficult for other firms to enter and compete. Additionally, the barriers to exit also prevent entrants into the industry following the recent failure of Xl and Zoom (World Travel Awards. 2014). Low threat of substitutes Threat of substitutes is low in the U.K. airline industry. Although there are substitute products, such as buses and trains, these substitutes are not only limited in terms of distance they cover, but also limited by capacity. Therefore, the fact that there are no long haul flights substitutes implies low substitution threat (Gregory 2010, p. 92). Industry Life Cycle The UK aviation industry is in maturity stage as evidences by industry players that are highly entrenched in the economic mainstream as they try to establish products, distribution and other operation aspects. The industry players are currently competing on the basis of prices and service quality as seen with the emergence of low cost airlines, such as Virgin Atlantic and Ryanair. Additionally, marketing strategies of the industry players is aimed mainly at building customer loyalty with the existing customers, all of which demonstrate that the industry has reached its maturity stage of the industry life cycle (Peltoniemi 2011, p. 101). Strategic Group Analysis Prices and service quality are the most important variable in the aviation industry. This emanates from the fact that industry players have aligned their product portfolio according to low cost, as witnessed with Virgin Atlantic, Iberia and Ryanair to enable them charge low prices (BBC 2014). On the other hand, airlines, such as BA and Qantas have emphasized mainly on proving high quality services and products to customers while charging premium prices. The quality and price variables can be determined from prices of tickets for similar routes covered by airlines (Gaskell 2005, p. 22). Accordingly, this is measures against the service quality, such as space, meals, comfort and allowances among others. The strategic group below indicate the there are three strategic groups in the U.K. aviation industry, namely low price-low quality (Beria& Ryanair), Medium price-medium quality (BA, Virgin) and High price-High quality (Qantas) (The Daily Telegraph 2014). However, BA has a huge chance to venture into the low price group by introducing new products that will provide improve service experiences, such as meals, and internet and charge lower prices. Resource and Competence Analysis Porters Value Chain British Airways has attempted to control its value chain through forward and backward integration by ensuring that components of its in-house supplies are controlled to ensure an increase in value system. Primary Activities Operations Enhances security of passenger luggage due to increased risk of terrorism Enhances service quality through online booking system that ensures faster checking and ticketing services (Hayre 2015, p. 11). Outbound Logistics Regarding customer service, British Airways has created a database of airport slots which its customers can use to access information regarding their traveling destinations world (Jarvis 2014, p. 74). Marketing &Sales BA has invested heavily in marketing by allocating a huge budget towards promoting its products and services to its customers and other stakeholders ( Thompson 2001, p. 74). Post sales service BA keeps is customers up to date on services offered, and provides customers with loyalty club cards. Support Activities Firm Infrastructure BA has changed from a bureaucratic structure to a flatter organizational structure to ensure effective decision making in the company effective. HRM BA views its employees as key assets for competitive advantage and periodically introduces programs that aim at keeping employees highly motivated and satisfied. Such is the “Speak Up!” program that gives employees to air their views about how the company is being run and issues affective them so the company can address them to ensure job satisfaction. Additionally, BA ensures that it hires the best talent and offer them attractive and competitive pay package to ensure high motivation in the company (World Travel Awards. 2014). Technology Development BA lags behind most of its major competitors, such as Iberia and Virgin Atlantic in terms of innovation and technology adoption, which is a major undoing as it makes the airline less competitive. However, BA recognizes the value of technological development and recently installed an LCD screen in its airplanes to enhance customer experience (Winch 2014). VRIN/O Analysis British Airways has two key competencies. The first key competency of BA is the fact that the airline is highly innovative and provides high quality products and services to its customers, though at a relatively high price. This is an available competency since BA depends on it for attracting and retaining customers (Lynn 1997). Although BA charges high prices compared to its main competitors, it has managed to attract and retain customers because of the high quality services and products it offers at the high prices. British Airways First, for instance, is synonymous for exceptional comfort. BA fleets are designed using the latest technology that are not only sustainable to the environment, but also provides traveler with unraveled comfort. The technology used also ensures safety of passengers and pollution free, which is rare and imitable. The flying experience with BA fleets is non-substitutable (AitrlineRatings 2014). For instance, BA is the only airline that provides first full flat bed on its Boeing 767. The airline also provides MP3 library, sumptuous meals, video games, and drinks among other offers on demand. The other key competency of BA is that the airline flying to several destinations around the world (over 300 destinations) with more than 261 airplanes. This is a rare and valuable competency for the airline world (Jarvis 2014, p. 13). Finally, BA has built a strong brand image and reputation over the years and is currently ranks among the Super brands (Winch 2014). This competency is non-substitutable as it would take rivals several years to build such a competence. As such, the two competencies described above pass the VRIN Test, thus providing BA with a competitive edge over its rivals in the industry. SWOT Analysis Strengths Strong brand recognition and image Strong support from UK government Largest airline in Britain in terms of stability and financial muscle Operates in many destinations around the world and has the largest fleets Good safety record (AitrlineRatings 2014). Known for good customer service Weaknesses Slow innovation and technology adoption Customers perceive BA as expensive due to high fares charged Reliability issues due to growing terrorist threats Poor employee relations Opportunities Opportunity to leverage on Skytrax quality system as a way of improving its corporate image (Papatheodorou 2000, p. 42). Many rivals exiting the aviation industry Expanding into emerging markets, such as Brazil Competitors facing reliability issues in terms of service delivery (The Daily Telegraph 2014) Increasing budget travelers in the UK Falling fuel costs (BBC 2014). Threats Existing high competition from low-cost airliners, such as Virgin Atlantic and Ryanair Open skies agreement could increase competition by allowing smaller airlines to enter the industry Environmental awareness BA customers increase pressure on the company. TWOS and Ansoff Matrix Exteternal Opportunities Threats 1. Opportunity to leverage on Skytrax quality system as a way of improving its corporate image 2. Many rivals exiting the aviation industry 3. Expanding into emerging markets, such as Brazil 4. Competitors facing reliability issues in terms of service delivery 5. Increasing budget travelers in the UK 1. Falling fuel costs 1. Existing high competition from low-cost airliners, such as Virgin Atlantic and Ryanair 2. Open skies agreement could increase competition by allowing smaller airlines to enter the industry 3. Environmental awareness BA customers increase pressure on the company. Weakensses 1. Slow innovation and technology adoption 2. Customers perceive BA as expensive due to high fares charged 3. Reliability issues due to growing terrorist threats 4. Poor employee relations Opportunities to overcome weaknses Improve employee engagmeent, innovation and people processes Ensure innovation and faster technological advancements Address weakssnes to minimize threats Address envornment concerns among employees through CSR and adoting sustainable initiatives Strenths 1. Strong brand recognition and image 2. Strong support from UK government 3. Largest airline in Britain in terms of stability and financial muscle 4. Operates in many destinations around the world and has the largest fleets 5. Good safety record 6. Known for good customer service Strengths to maximize opportunities Focus on segment Expand product and service offering Introduce complimetary services to capitalize on exiting cartegories Strenghths to minimize Threats Diversifitication into lower cost product market Renovate brand image Ansoff Matrix Markets New Market Development Market company products in new geographical regions Increase distribution channels Adopt different pricing policies Diversification Diversify product portfolio by venturing into substitute services, such as ferries and cruise but maintaining the same quality Increase scheduled flights numbers Existing Market penetration Consider renovating and modernizing business approaches and the image of the brand Adopt environmental sustainable initiatives Product development Technological advancement by adopting latest technologies, such as internet access on flights and ticketing. Integrate mobile computing peripherals Existing New Products and services Stakeholder Mapping BA has a number of stakeholders that either have an interest in the company of impacted by the activities of the firm. The key stakeholders are customers, suppliers, employees, investors, sponsors, the government and the community. BA treats its stakeholders with a lot of respect and integrity and ensures that stakeholder interests are safeguarded (British Airways 2010). The company is working hard towards ensuring that it maximizes return on shareholders’ investments while also ensuring that its activities are sustainable, as well as engage in CSR initiatives as a way of giving back to the community (Chen and Popovich 2003, p. 14). BA also ensures that stakeholder concerns are addressed in time by engaging them through a variety of communication, including the company’s official website, social media and public relations department. Recommendation for Strategic Options: SAF Strategy SAF Justification Improve People Processes Suitability Affects BA’s recent criticism attention on reliability and trust (SWOT) Strategy is in tandem with BA’ objective of keeping employees highly motivated to motivate, productive and committed. Acceptability Employees and customers would most likely show high interest Feasibility Because the UK aviation industry is highly unionized, there is a likelihood of receiving external support Improved Environmental Stance Suitability Help improve BA’s image (SWOT analysis) Meet the social needs of consumers Acceptability Customers will view BA as a responsible company, thus associate with it. Feasibility Not feasible Diversify Service Offering Suitability strategy aligns with the existing BA strategy for improving consumer experience Need to address the current segmentation strategy given the recent drop in BA’s business class passenger numbers (BBC, 2014) Profitability and sustainability of the short haul provides demand provides incentive for market share growth Segment Focus Suitability strategy is in tandem with BA strategy of enhancing consumer experience Success of the short haul demand beings incentive for market share growth Acceptability Development of database marketing in accordance with BA’s loyalty club as this will improve customer relationship Feasibility Feasible as other airlines, such as Virgin Atlantic has succeeded with the strategy Recommendations The analysis clearly shows that British Airways has many strategic options to pursue to help it build a strong position in the market and gain a competitive advantage over competitors. Accordingly, if BA opts to pursue market development, the company should focus on Asia Pacific and East Europe to ensure profitability. Nevertheless, based on BA’s current position in the market, the airline should consider pursuing market penetration for growth as this strategy will enable BA expand and establish a strong position in the market, build good reputation among first customers, as well as discourage competitors from entering the industry. Suitable penetration strategies that BA should consider adopting include launching a belligerent marketing campaign and cutting prices. 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