British Airways: Analysis of External Environment - Case Study Example

Executive summary

British airways is considered the leading in the UK airline industry. The organization has faced increasing competition from the other airlines that join the industry over the past 10 years. The focus of the report is providing a direction for the company after study of the external and internal environment in which the organization operates. Through the strategies analysis of the operations of the company, it can be suggested that British focus on the service delivery and customer relations to increase the competition that it has in the industry. Despite the even operation of British Airways, there are factors that pose the company to risks of not satisfying the needs of the consumers. The factors are looked into in the essay and the right strategies that cab be developed suggested.

Introduction

British Airways is an international airline that has several strengths in its operation. With over 90 years of experience in the industry, the airline is considered the largest airline in United Kingdom. The headquarters of the company is in London with significance presence in the cities such as Gatwick and Heathrow. British Airways is recognised with strong brands that it has offered (Gaskell, 2009). The brands of British Airways have had a significant commercial value. The company have had strong advertisement for the past years and through this, the consumers have been able to recognise the high value in the goods and the services of the company. One advantage that have made the organization have had in its operation and brand is having an own engineering branch that has the role of maintaining the aircraft fleet.

Despite the smooth operation of British Airways, there are factors that pose the company to risks. British Airways is over dependent in the UK market. More than half of the revenue that the organization has is from the UK market. The dependence that the organization has to the market has made the organization to have little penetration in the globalized market. With the new strategies developed by the organization, the operations are expected to increase in other markets and reduce the dependency in UK markets (Gaskell, 2009). The analysis aims at determining the external and internal factors that affects the operations of the organization and the strategies that have been put forward to manage the crisis.

Analysis of External environment

Macro environmental analysis –PESTEL

Political analysis

This considers how the rules that the government forms affects the operation of the organization. British Airways is an organization that operates international and national planes and this makes the organization to comply with some rules in their operation. Some of the factors that the airline has been able to comply with in its operations include the areas where the airlines can fly, planning, carbon reduction and pricing policies (Woodley, 2006). Unstable political environment have affected the operations of the organization where the operation of the United Kingdom have been unstable due to the collision of the government and the major spending cuts for making savings and reduction in the national debts. Taxation is a factor that has also affected the operation of British Airways as when it increases it will affect the shareholders.

Economic factors

The economic factors have affected the operations of British Airways and the decisions making of the organization. Recession is a major factor that has affected the operation of British Airways. Recession has reduced the number of travellers. The number has reduced since some customers have preferred taking train instead of the airlines. Another economic factor that has affected the organization is raising fuel prices. Increase in the prices of fuel has increased the production cost. This increases the ticket prices to share the burden with the customers. Poor exchange rates have also affected the operations of British Airways. When the rates increase, people do not prefer travelling but they will use internet calls and phone calls.

Social-culture

Aging population has increased in the United Kingdom. This has led to an increased number of older generations that are willing to travel for leisure. This has been a potential opportunity for the organization. The airline has experienced a significant decline in the demands of the consumers and changes in the behaviours that the consumers have in the whole world. Due to the reduction in the global economy, the customers that are from business, premium and individual categories are making choices of cutting their expenses on air travels.

Customers are looking for the value for their money and this has made them demand excellent level of services. They continue demanding high quality prices at lower prices. The consumers have also been more loyal than before. They have had the trend of trying new airlines that they think offer real value.

Technology

The inventions that have been in the industry have affected the operation of the business such that there has been investment of more resources to meet the consumer needs. Online internet services have been widely used by British Airways. The method has been effective in helping the organization become competitive and reduce the costs. The internet has been used for ticket bookings and in self-service check in (Woodley, 2006). The current technological advances that have been developed include departure manager systems, arrival management system and technologies that result into vortex effects.

Environmental analysis

There is increased awareness on environmental impacts. This has called for British Airways to integrate an environmental strategy that considers green issues. When the strategy is not considered then the reputation of the organization and the income will be affected (Gaskell, 2009). Environmental regulation agencies have also affected the operation of British Airways as through the regulations, the operational costs of the organization have increased.

Legal factors

The airline industry has been regulated than before. The regulations have been from the infrastructure, route flights and slot capacity. These have affected the operation of British Airways. There have also been nee security and environmental requirements.

Micro environmental analysis- Porter’s 5 Forces Model

When the Porter’s 5 Forces are considered for British Airways, the competitive rivalry is high since the organization through the services and the pricing that it offers have many competitors that come into the market (The story of British Airways, 2009). The power of suppliers of British airways is high since they are restricted by the sole dependence on supply of fuel and the operation costs.

Degree of rivalry

The degree of rivalry considered the number of competitors that British Airways have. In the short-haul, British airways have five competitors and 10 major competitors in the long-haul. The number off competitors is in increase as there is increase in the number of low cost airline joining the industry. There is also an increased growth rate in the industry posing increased rivalry to the organization. The aviation industry has increasingly been growing since 2008.

Bargaining power of suppliers

British Airways have three suppliers category. The suppliers include aircraft providers, airline providers and jet fuel. There is no difference in the jet fuels and this has made the organization have no substitute for the product. The aircraft suppliers are bonded with the orders that they obtain from British Airways and this have made the organization and the suppliers have little bargaining power. The number of suppliers is limited in the market and this implies that the bargaining power is not ignorable.

Bargaining power of buyers

The bargaining power of consumers in the industries is measured in terms of the choices the customers make, the perception about the quality and profitability of buyers. There are different organizations offering similar services that are offered by British Airways hence this implies that higher bargaining power (The story of British Airways, 2009). The customers also choose the service providers they want according to the quality they are able to recognize.

Threats of new entry

British Airways has used different strategies to reduce the number of new entrants into the market. The economy of scale that the other organizations have is not easily achievable by new payers in the market. This has prevented new comers in the aviation industry (Gaskell, 2009). Customer loyalty has also affected joining of new companies to the industry. British Airways brand loyalty is significant and cannot be easily replaced by new players in the market. The capital requirement in the aviation industry is high as compared to the capital requirements in the other industries. It is hence higher to reach the desired economics of scale for the organizations that join the industry. This has prevented the joining of many organizations.

Threats of substitutes

The threat of substitutes occurs in the short term. The threats that are in the use of coaches and tra8ins have given British Airways pressure. The use of train is faster in UK but not in Europe. This implies that threat of substitutes is low.

Analysis of the internal environment

Resource based view of the company

British Airways have threshold tangible and intangible resources. One of the most important tangible resources of the company is a fleet of 245 aircrafts that are operating to more than 550 destinations in the world. The other resource that the company have had making it distinct from the other aviation providers are services such as British holidays and the London Eye Company. The services are unique to the company ending its operation. The organization also has threshold intangible resources (Gaskell, 2009). The resources include pursuing the ONE WORLD program through the alliances and the partnerships that it has.

The threshold competencies that the organization has include economies of scale from the suppliers, flight stimulators and cabin training safety training. The trainings increase the quality of services that are offered by the organization. The organization has the competency to manage and fly passengers with safety on various routes (Shibata, 2004).

The unique resources that are owned by the company include monopoly over terminal of Heathrow Airport. The monopoly has added the organization a competitive advantage as compared to the other airlines that have to share the terminal resources. British Airways have been recognised as one of the reputable and premium brands around the globe due to the long experience that it has in the aviation industry.

Value chain analysis

Primary activities

The main activities considered in the value chain of British Airways are those that directly touch the business in the short period and the effects are easily notable and monitored. The main activities of British Airways include marketing and sales, operations, inbound logistics and post-sales services (International Airlines, 2012).

Inbound logistics are used to refer to the goods and the services that are received from the suppliers. British Airways receive competitive advantage in inbound logistics through establishment of on-going relationships. The organization also has developed complex systems for the control of stock and professional training.

The main operations activities that the organization is involved are preparation of services and goods to be sold to customers (International Airlines, 2012). In the supply chain of the organization, British Airways have obtained a variety of competitive advantage in the operational part of the organization through providing the customers improved safety for their language, providing fast check-in services and providing other services such as online bookings.

Outbound logistics in British Airways involves sending the ready products they offer to consumers for consumptions. The logistics mainly relate to the service and manufacturing companies. These services and activities have increased the competitive advantage of the company as the delivery of the services to the customers is considered an element of outbound logistics (Gaskell, 2009). The organization has gained competitive advantage through the delivery of excellent customer services around the whole world.

Marketing and sales of products is one factor that is considered as main ground where various companies gain competitive advantage and is fully used by numerous companies. The competitive advantage expanded in sales and marketing by companies involves marketing operations that includes both the customers and stakeholders of the company. The senior management of the company also contributes greatly to the marketing and sales budget for the company.

The after sale services that includes addressing complaints by customers regarding the product, installation of the products and offering other services to the customers is also another important factor that should be considered by the management (Marriott, 2007). BA recognizes the after sale services as a significant way of developing a competitive advantage in the operation thus they have introduced their club cards and they have also kept a constant exchange of information with their clients by various channels so that they could be able to address the complaints that the customers might have while using their products.

Supportive activities

Supportive activities are the practices that are required to support the business main activities in order to achieve the main goals of the main activities. The supportive activities may not have a direct impact on the business but they must be considered in the business regardless of the business type. The main components of supportive activities in the value-chain analysis include technology development, procurement, firm infrastructure and human resource management within the business.

The procurement function of a business is a key factor in the operation of the business because it involves purchasing the goods and services that are necessary to carry out the business operations. BA usually achieves the competitive advantage in its procurement function because of its large size which makes it to benefit through the economies of scale.

Technology development is another factor that must be significantly considered by companies in order to achieve a competitive advantage because it is a factor that enables the businesses to decrease their costs of operation and advance on their processes. British airways has identified the significance of technological inventions and usually capitalize in the technological inventions to enhance customer contentment.

Human resource management is another important factor that must be considered for the prosperity of a company (Marriott, 2007). Employees are important in offering the companies services that can result to a competitive advantage ion the company’s side. BA sees their employees as a source of a competitive advantage and therefore they usually strive to develop initiatives and programs that increase the job satisfaction of the employees and increase the efficiency of the employees. The company have devised an initiative called ‘Speak Up’ that obtains the employee perspective on the efficiency of operations of the business and therefore increasing the employee job satisfaction.

Another important business support activity is firm infrastructure. It involves the management of the information system, financial planning and the strategic planning of the business. BA gains its competitive advantage in terms of firm infrastructure through its vast amount of information and hierarchy structure (Gaskell, 2009). They also gain the advantage through knowledge and the expertise that the company enjoy.

Analysis of PR crises

From the analysis that have been put up by economic analysts, the British Airways terminal 5 disaster has proved to be more damaging the British Airways brand image as initially thought. The public relationships have been created by the strategic circumstances, management and which are considered to have the ability of blighting British Airways brand for the net years. The brand of British Airways is strong from the services it provides to the gods and the management of the organization. The main disadvantage that the company have faced is vulnerability to crisis. In the analysis of the company, the problem that occurred at terminal 5 in the organization hit the brand of the organization fully.

At the heart of position that British Airways have in the company, there was specific damage that was done to the brand of the organization. At the operation of the organization, there is reliability and reassurance making it prone to a debacle like that which was experienced at terminal 5 (Gaskell, 2009). In terms of branding, there is a difference between contradiction and inconsistency. British Airways in its operations have faced allot of contradictions which are amplified the media coverage in the whole world.

The internal failures that British Airways experience were the breakdown that occurred at the IT system in the baggage handling which had to be picked manually. The crises were also as a result of lack of training of the ground staff (Gaskell, 2009). Many of those that were employed to manually handle the baggage did not know the operations they were expected to carry out in the new system. The failures resulted to the delay in the handling of baggage at the new terminal making the customers either fails to travel with them or just lost making many flights that were scheduled by British Airways be redirected.

The eternal crises that British Airways experienced were breakdown of communication between the organization and its passengers. British Airways failed to inform the passengers on the problems that occur in handling their baggage. The organization is also blamed for poor customer services. After the crisis, the organization did not do more in assisting the consumers in rearranging their travelling plans and the compensations that they were to give out.

The crisis affected the operations of British Airways. Although the organization was not primarily responsible on the staff or the technical failures, the failures had a huge effect on the operations of the organization. The failures brought bad travelling experiences from its customers and a general negative publicity. The negative publicity and the bad experiences damaged the brand image of the organization as being a reliable and trusted international airline.

British Airways are expected to develop different strategies that will solve the problem fully and make the consumers trust in the reliability of the organization. The airline is expected through the current strategies to work closely with BAA to be able to solve the technical problems that the organization experiences and provide the right assistance to the training of the staff and their placement. The British Airways is also expected to give an explanation to the public on the factors that led to the failure and show the implementations and the progresses that the organization has put forth to solve the occurrence of such situations again. The responsibility for the crisis that was experienced in terminal is not to be blamed on British Airways since the terminal is owned by British Airways but is operated by BAA (Gaskell, 2009). It is BAA that is responsible for the provision of the services and management of the ground services of the passengers.

One problem that has increased the crisis that is experienced in the organization is the cultural and geographical difference for the consumers of the organizations. Collaboration between the international organizations have been a challenging factor in strategies that are implemented by the organization as some of the strategies are against the cultural or the geographical conditions of other consumers.

Strategic analysis

There are different strategies that have been put up by British Airways to prevent the problems such as that which was experienced in terminal 5. One of the strategies that have been put up by the organization is communication strategy. The communication strategy has three areas that the organization can choose from to determine the best that satisfy its operations. The strategies include profile strategies, pull and push strategies. Strategic analysis is an important part in the organization (Endres, 2009). The strategies that have been put up in the organization have come up with characteristics that are associated with the organization and how to attain competition in the industry.

The corporate strategy of the organization has been perfect in achieving the needed personnel to perform the activities of the organization. The aim of the corporate strategy of the organization is to attain along lasting stand in the organization with the action of the stakeholders of the organization. The strategies have taken into consideration the goals and the objectives of the organizations. In the corporate strategy, British Airways have taken into consideration orientation where the personnel are given the right direction in the organization. There is also taking into consideration in composition. British Airways have had the understanding that the current competitive markets can only be made safe for companies and businesses with good composition of their business activities (Gaskell, 2009). The organization hence has worked towards luxury carers and low cost careers.

One business strategy is upgrading on the customer experience. The crisis that was experienced with British Airways transformed the operational performance and customer services (Endres, 2009). The network has been made into exceeded punctuality in the checking of the luggage of the customers and ensuring that the consumers are satisfied.

Fleet planning

Fleet planning is a vital factor in every air transport operation since it is used to determine the aircraft that should be operated and the number of aircrafts that should be operated to achieve the requirements of the corporate. Fleet planning involves assessing new and current types if aircrafts and linking their costs of operation and determining the compatibility of the new route network and the existing aircrafts. The company tries to influence the aircraft manufacturers to produce aircrafts that can cope up with changes in future. The company together with other colleagues involve in Aircraft and Maintenance Purchasing to negotiate profitable contracts with engine and aircraft producers.

Business development

The company shows an important part in the co-ordination of broad business planning. One of the function that they perform ids to track and define the strategic priorities of the company. From here they engage in corporate strategy development by producing an outline that can last for the next five years. The strategy covers the departmental targets, the fleet plan, alliance strategy, and the financial targets and projections. The corporate strategy also covers the market projection and the investment projects. The company recently focuses on refining their performance actions across the airline and evolving a new business situation that will enable them to strategize for ten years rather than five years.

Network planning

British Airways plans to commercially develop a worldwide schedule to enable them to maximise on the value of their network services. The company gets involved in recommending the available new routes, competitive timings, capacity changes and any additional frequencies (Corke, 2006). The company also conduct large-scale examinations in the partnership with other colleagues. Together with developing long term airline plans, the company represent the evaluation in partnership with the other colleagues who are in the area of the strategy.

Operational research

The team that is responsible for research of the company contribute much to the direction of strategy of British Airways. The operation, profitability and performance of the organization have been linked much to the research carried out in the markets of British Airways. Whenever the research team apply their skills, the stress is made on the provision of practical outcomes that directly influence the business. Many of the professionals that are linked to the research of British Airways are expected to come up with pertinent experience which is from inside the business (British Airways among latest breaches, 2015). In the situations, the organization looks for the capacity to challenge multifaceted difficulties with a lot of sureness and the right communication skills to pass practical skills to the others who are non-technical.

Conclusion

From the internal and external analysis of British Airways, the organization is considered to have more opportunities for its expansion and have the right resources that it needs to satisfy the needs of the consumers and remain the most desired and valued airline (Seekings, 2008). The analysis of Five Porter’s Forces shows the potential of the organization. When the Porter’s 5 Forces are considered for British Airways, the competitive rivalry is high since the organization through the services and the pricing that it offers have many competitors that come into the market. There are no threats to new entry of firms into the industry due to the high capital requirements.

British Airways terminal 5 disaster has proved to be more damaging the British Airways brand image as initially thought. The disaster and crisis was not well management and this reduced the trust that the consumers have the in the organization. The organization however developed strategies to ensure that the crisis is well managed when such situations occur (British Airways among latest breaches, 2015). The strategies have also been implemented to increase the business operation of the organization. The organization has invested much into planning, research and the right decision making for effective operations. Many of the professionals that are linked to the research of British Airways are expected to come up with relevant experience which is from within the industry.