Business Strategy of British Airways - Case Study Example

Table of Contents Particulars Page No 1.0 Company Background 3 2.0 PESTEL Analysis 4 2.1Political Influences 5 2.2 Economic Influences 5 2.3 Socio-Cultural Influences 5 2.4 Technological Influences 6 2.5 Natural Environment Influences 6 2.6 Legal Influences 7 3.0 Porter’s Five Force Analysis 7 3.1 Potential Entrants 8 3.2Threat of Substitute Products or Services 9 3.3 Bargaining Power of Suppliers 9 3.4 Bargaining Power of Buyers 9 3.5 Rivalry Among Existing Competitors 10 4.0 Key Success Factors 10 4.1 Differentiation Advantage 14 4.2 Brand Name 14 4.3 Alliances 15 4.4 Relations with Suppliers 15 4.5 Strong Brand Image 16 5.0 References 17 1.0 Company Background British Airways is currently recognized as United Kingdom’s largest international scheduled airline (World Airline Awards, 2011) flying to over 580 different destinations and carries more than 35 million passengers annually with an earning of over £12.6 billion in 2015-16 and an employee’s strength of over 65000 people from different countries and culture (British Airways, 2016). Since the onset of privatisation in 1987, British Airways has grown significantly and competition in the global airlines has risen tremendously with entrants of new and more airlines in the airline industry. British Airways is a British owned company with primary business of providing international and domestic air passenger services along with other services such as cargo services, aircraft maintenance, aircraft ancillary services, repairing and overhaul and non-airline businesses. British Airlines has been regarded a brand name which is trusted and preferred by a large number of loyal customers all across the globe. Despite numerous political and economical factors causing hindrance in the global airline industry such as the terrorist attack of 9/11 and rising oil prices there has been significant rise in the number of passengers travelling with different airways and the average increase in number of passengers is estimated to rise at a significant rate of 15.3% by 2020 with an anticipated revenue generation of over £116.34 thereby making it a very lucrative industry to work on (Boeing Company, 2013). 2.0 PESTEL Analysis PESTEL Analysis is an important tool in evaluating the external factors which affects the strategic decision making of any organization as it describes and analyzes the various external factors which have impact on the organizational performance in both short and long term business operations. The PESTEL analysis of British Airways is analyzed and discussed as under. 2.1Political Influences British Airways in order to continue its business operations need to comply with heavy regulations set up the International Airline Authority. Non- compliance of the same may result in complete shut-down of the business. Furthermore the security regulations have been strengthened to the highest level due to past terrorist attacks especially after the terrorist attack of 9/11. British Airways need to ensure that international measures on security are compiled by to ensure consumer confidence and gain competitive edge in the industry. British Airways further need to comply and maintain strict controls to ensure that the requirements and policies set up the local government is fulfilled. 2.2Economic Influences Global Financial Crisis has a major impact on all business all across the globe of which the airline industry is no exception. There has been possible reduction in the amount of business travellers as larger organizations are cutting costs and using alternative means of communications such as teleconferencing. British Airways as a result of the same has become vulnerable with UK operating to a poor exchange rate. The oil prices in the past have risen significantly thereby significantly increasing the direct cost of British Airways and affecting its cost structure (Stephen & Hannon, 2005). Furthermore, the UK consumer spending has witnessed its sharpest decline for the past 15 years between July and September 2015, thereby making a direct loss in its number of customers and affecting its revenue generation. 2.3Socio-Cultural Influences The United Kingdom has witnessed an aging population which provides an opportunity for the British Airways as the bargaining power of the employer has risen sharply. There is potential opportunity for British Airways for future sustainable growth as older generations have more leisure time to spend on international travelling. Furthermore the bargaining power of British Airways is more likely to strengthen due to increasing unemployment in UK. The number of emigrants in UK is also increasing which is a positive opportunity for British Airways as it shall increase travelling of the emigrants to their home countries. 2.4Technological Influences Technological advancements have both positive and negative influence on the business operations of British Airways. Positively online booking services and self check-in has become increasingly used by the consumers of airline industry which has a very good impact on the sale of tickets for British Airways. It is important for British Airways to remain updated with such technological advancements whilst avoiding becoming over reliant on the same as these may isolate certain consumers particularly the elderly who won’t feel comfortable using such services (Pagliari, 2008). Furthermore there has been negative impact of technological advancement as diffusion of technological up-gradations in the form of use of teleconferencing used by companies has a direct impact on the travellers by airlines. 2.5Natural Environment Influences With rising consumer awareness on environmental safety there has been enlistment of new legislations such as Climate Change Bill which enforce tight environmental regulations thereby increasing the operational cost of British Airways. Capacity utilisation has been another major threat for British Airways as expansion of the Heathrow would posses potential loss of London’s Green Belt Area (BBC News 2006) thus restricting the capacity utilisation of resources for British Airways. Furthermore consumers today are becoming more aware of environmental friendly products and increasingly looking towards green revolution. Failure to adapt to such integrated environmental strategy by British Airways could possibly bring detrimental effects on the company’s reputation and income generating power (Johnson & Scholes, 2002). 2.6 Legal Influences British Airways operate on a global scale and need to adhere to many laws and policies failing which may bring legal consequences on the firm’s sustainability. Good employee relationship is of significant importance for British Airways and it need to recognize trade unions and industrial actions such as cabin crew strikes so as to avoid industrial actions and interrupted business operations (Bamber, 2009). Furthermore there is upcoming business opportunity for British Airways and its competitors with the new open skies agreement which allows free transportation of aircrafts between the European Union and United States. Relatively restrictions on new mergers have a potential threat to British Airways to enter in potential alliances with American Airlines. 3.0 Porter’s Five Force Analysis Porter’s five force model of competitive analysis is an important strategic tool in identifying the competitive power of a business solution. It helps in retrieving where the power lies in a business (Porter, 2008). A Porter five force analysis of airline industry has been discussed as under along with its connections to the British Airways so that the company can gain competitive sustainable advantage over its competitors in the long run of its business operations. Figure 3.1 Porter’s Five Force Analysis of Airline Industry 3.1Potential Entrants The airline industry is characterised by lower threats from potential entrants due to high barriers to entry. Capital requirements for new entrants are high as aircrafts are costly so is the working capital requirements due to high fuel cost and maintenance cost. Furthermore British Airways has been in the airline business for many decades and has established a brand image of its own with huge pool of loyal customers making it difficult for new entrants to compete with British Airways and other recognized airline operating in the industry. 3.2 Threat of Substitute Products or Services Threat of substitute products or services is high for airline industry as there are numerous substitutes available. For example, people use car or buses or trains within the same area or country thereby making a direct impact on the sale of tickets and revenue generation for British Airways. Furthermore the relative cost of customers to switch to substitute products is low thereby increasing the threat of substitute products. Comparatively both price and quality can be tailor made by customers as per their needs with the help of substitutes. 3.3 Bargaining Power of Supplier’s Bargaining power of supplier’s in the airline industry ranges from moderate to high as the suppliers are in a position to change market trends through their high demand and control on prices and quality of their products and services. Boeing and Airbus are the only two major suppliers on a global scale enjoying the benefits of monopolies and gaining advantage of high bargaining power (Doganis, 2000). 3.4 Bargaining Power of Buyers The bargaining power of buyer’s in the airline industry is also high as there are huge amount of passengers in the airline market who can change the industry trend due to their high demand and many competitors available supplying similar products or services. Buyer can easily evaluate different prices and quality of services offered by different competitors and make a decision accordingly thereby British Airways need to ensure that a price-quality relationship is maintained due to low switching cost of buyers (Wright et al.,1998). 3.5Rivalry among Existing Customers Although the entry of potential entrants is difficult due to high capital requirements still there are a lot of different competitors existing in the airline industry on a global scale making the existing competition intense. Many competitors have been successful in switching the customers of British Airways by ensuring promotional offers and low prices with quality services thereby breaking the pool of loyal customers (Moreira, O’Connell & Williams,2011). With better future potential growth and lucrative profit booking the competition is more likely to increase in future years. 4.0 Key Success Factors British Airways is currently recognized as United Kingdom’s largest international scheduled airline which is possibly due to its many key success factors which has enabled the company to gain sustainable competitive advantage. Highlighted below is the list of five key success factors of British Airways. Table 4.1 Key success factors of British Airways Particulars External Forces/Needs Industry Responses Key Success Factors Differentiation New products or services Technological advancements Diffusion of innovation Development of new products Luxury and other amenities E-ticketing and self check-in British Airways provide both cargo and passenger services with additional services Special search engines for e-booking Better seats, highest leg space etc Brand Name Trustworthy services Loyal Customers Passengers safety and environmental products Maintenance of strict quality and safety controls Price-quality relationship British Airways is the largest and most recognised international scheduled airline. Loyalty programs and additional benefits to club or premier members. Quality services at low or affordable prices Alliances Government regulations and interventions. Strict control by international airline authority Entering into strategic alliances and partnerships Outsourcing of services Strong networking British Airways operate on global scale with many alliances with local airline specific to a country. Successful outsourcing of cargo to provide home delivery services. Maintains strong networking and links with both local and international councils Relations with Suppliers Monopolistic competition. High bargaining power of suppliers Strong relationship with suppliers Looking towards self innovation. British Airways have been successful in maintaining strong relations with suppliers and remain safe to future price changes. Has successfully launched its own flights by latest technological advancements. Successful in persuading suppliers for first supply. Strong Advertisement Government regulations Cost benefit analysis Global coverage with different socio-cultural factors Advertising in both regional and global upfront. Celebrity endorsements Value for money British Airways has been successful in making a brand reputation by strong advertising campaigns Hires both regional and international celebrities for brand endorsement. Maintenance of appropriate funds for advertising its services and products 4.1Differentiation Advantage British Airways key to success is its differentiation advantage as a company achieves sustainable competitive edge only through differentiating its products or services from its existing and potential competitors. British Airways offers both cargo and passenger services along with allied services such as aircraft maintenance, aircraft ancillary services, repairing and overhaul and non-airline businesses. Further it make use of latest technology to provide its own tailor made e-booking counter and provisions of self check-in. Flying in British Airways is more of a luxurious experience than travelling owing to its comfortable seats, superb hospitality, advance aircrafts etc. 4.2 Brand Name In an industry of intense competition and with modern civilization, brand name is an important factor for large profits of British Airways. British Airways has been successful in creating a brand name of its own and have added to its goodwill. It is the largest and most recognised international scheduled airline in UK and is the name trusted on a global scale. It offers loyalty programs and provides its premier members with heavy seasonal discounts along with pre-booking of flights allied services such as window seats, foods etc (Schneiderbauer & Feinsilber, 2002). Customer satisfaction is at the zenith and a price-quality relationship is maintained. 4.3 Alliances British Airways operates at an international level and forming alliances and partnership is an important criteria to ensure quality services as it is difficult a task to ensure complete management on a global basis. British Airways has been successful in maintaining cordial links with local and international councils to enter into strategic alliances as it helps them in sharing resources and gain benefit of wide range of customer network and enhances their chances of route expansion. Furthermore it uses outsourcing services from local authorities to provide door delivery of cargos making it unique and enhance its revenue. 4.4 Relations with Suppliers The global airline industry is dominated by a monopolistic form of suppliers market with two large suppliers namely Boeing and Airbus (Boeing Company ,2007). British Airways gain a competitive edge here due to its strong relationship with the suppliers and entering into long term agreements to remain safe from any future changes in pricing strategy. Further the company has recently being successful in developing its own aircrafts with latest innovation and technological advancements giving an additional benefit on cost reduction and emerging as a new supplier in the airline industry. 4.5Strong Advertisements Advertisement has become an effective promotional tool not to just create brand image but to ensure repeated purchase and develop an image in the minds of its targeted customers. It helps any organization to gather a larger pool of loyal customers and retention of the same. British Airways has been successful in making a strong brand reputation by repeated advertisements both regionally and internationally. Advertisements are designed keeping in mind that in no consequences the cultural values of any people is affected. Celebrity endorsements are done by British Airways at both regional and international level. Further the company ensure maintenance of strict funds for advertisements so as to ensure that the advertisement cost is not a burden for the company. 5.0 References Bamber, G. (2009) Up In The Air: How Airlines Can Improve Performance By Engaging Their Employees, University Press, 2009. Boeing Company (2007). Airline Strategy and Business Models, unpublished. Airline Planning Seminar’s supporting media. Boeing Company (2013). Current Market Outlook 2013-2032. Available at: www.boeing.com. Doganis, R. (2000). The Airline Business in the 21st Century. London: Routledge. Johnson, G.and Scholes, K. (2002) Exploring Corporate Strategy.6th Edition.London, UK Prentice Hall,p.223-254. Moreira, M.E., O’Connell, J.E. & Williams, G. (2011). The viability of long-haul, low cost business models. Journal of Air Transport Studies, 2(1): 69-91. Athens, Greece. Pagliari, R. (2008). Introduction to Airport Economics, unpublished. Air Transport Management Seminar’s supporting media, UK: Cranfield University. Porter, M.E. (2008) The Five Competitive Forces that Shape Strategy. Harvard Business Review, Jan/2008. Schneiderbauer & Feinsilber, O. (2002): Low cost airlines gaining momentum in Europe, Mercer Management Group, p.145-184. Stephen & Hannon,M. (2005) Low-cost airlines – Growing top and bottom lines, Davy European Transport and Leisure. Wright, P., Kroll, M.J. & Parnell, J. (1998). Strategic Management-Concepts. Englewood Cliffs, NJ, USA: Prentice Hall. World Airline Awards (2011) The Airline Industry's Most Prestigious Accolades [online] available from [14 December 2011] Read More