Overview of British Airways and Its Success Story - Essay Example

?Strategic Management Table of Contents Table of Contents 2 Introduction 3 Overview of British Airways and Its Success Story 3 Analysis of British Airways 4 PESTLE Analysis 5 Porter’s Five Forces Model 7 Value Chain 9 Evaluation of Business Strategy 12 Porter’s Generic strategies 12 Recommendations 13 Conclusion 14 References 15 Bibliography 17 Appendices 18 Introduction Overview of British Airways and Its Success Story British Airways is one of the leading British airline companies, which was established in the year 1971. British Airways is a full service international airline of the United Kingdom. The head office of British Airways is located in Waterside of Harmondsworth of England. British Airways was basically developed in order to control two nationalised airline conglomerates namely British Overseas Airways Corporation (BOAC) and British European Airways (BEA) (British Airways, n.d.). Apart from these airlines, British Airways also supports varied other airlines as well such as Cambian Airways and Northeast Airways. Along with scheduled services, British Airways is also affianced in the functions of both international and domestic carrier of freight, ancillary services and mails. It is the largest airline of the UK, which includes a fleet size of 234. British Airways is also a constituent of the ‘FTSE 100 Index’ (British Airways, n.d.). British Airways is the ‘flag carrier’ airline of the United Kingdom and so it is also referred as a national carrier. It is a premium airline of the UK which flies to more than 300 destinations all over the globe comprising total number of customer base of 32 million in the year 2009-2010. Hence, it earned total revenue of ?8 billion in the year 2009-2010, which reveals that it is quite successful as compared to other apparent airways of the UK. Therefore, it is the market leader in this sector in the UK (British Airways. 2010). Apart from this, via its varied types of functions and alliance partners such as Qantas of Australia, TAT European Airways of France and US Airways of the United states, British Airways encompasses to serve its customers outstanding services at every point. Thus, the underlining fact is to satisfy the customers and to enhance their loyalty and dependency over British Airways, which is extremely essential to retain its position in the market of the UK as well as the world in long run. Moreover, it also attempts to augment its operational performance and the quality of practices in order to fulfil customer needs and desires (British Airways, n. d.). This report mainly highlights the varied aspects and importance of British Airways in a brief way. Moreover, a detailed analysis explaining the success story of British Airways is also described with the help of various strategic tools such as PESTLE analysis, Porter’s five forces model and value chain analysis. Moreover, the business strategy of British Airways is also evaluated in an explicit way with the help of Porter’s generic strategies. Certain recommendations are also provided to the managers for further growth and development. Analysis of British Airways British Airways is a reputed airline of the UK and is operated under the parent organisation named International Airline Group (IAG). It is functioning with a common objective of offering an excellent experience of flying to the customers by serving eminent services. This facilitates British Airways to enhance its brand image and identity among other airline players in the market of the UK (British Airways. 2010). In the subsequent segment, the organisation i.e. British Airways is critically analysed in order to evaluate the underlining factors of its success. This can be possible by evaluating both the external and internal factors of British Airways with the help of PESTLE analysis. PESTLE Analysis PESTLE analysis is a vital marketing tool, which is utilised to judge the market conditions. It also helps to detect how various factors such as political, economic, technological, social and environmental factors prove challenging for an organisation. Political Factors The political environment is mainly allied with various government rules and regulations, which significantly influence the airline companies of a particular country. Apart from this, the terrorist attacks in the US also created high impact on the global airline industry. Due to this, the extent of customers reduced to a certain extent, which highly affected the profit margin of British Airways. The government of America imposed various security rules, in order to cope up with these types of threats. The global airline industry has been able to get back on track in terms of airline travel in recent times, which has been a positive outcome for growth and progress of British Airways. A strategic alliance named ‘oneworld’ of which British Airways is a part has also been a substantial factor for the organisation in dealing with the uncertain conditions of the global market. In recent times, it has been made mandatory for all the passengers to offer all necessary facts to the government of America, prior boarding the airline. Otherwise, the visa of the passenger might be clogged by British Airways of the UK (London.usembassy, n.d.). This rule is introduced in order to enhance the security system thereby reducing the risk of terrorism, which is quite beneficial for British Airways. Economic Factors Apart from political factors, the other significant aspect which highly influenced the airline industry has been the economic issues. The recession of 2008 presented considerable difficulties for the airline industry thereby reducing the demand of air tours and travel especially of the leisure travellers. This occurred primarily due to increase in unemployment and also due to turn down in the accrued incomes of the citizens of the country i.e. the UK. Thus, in order to tackle this situation, the airline providers such as by British Airways condensed the rates of the tickets in order to make profit (Ringbeck & Roska, n.d.). Hence, it increased the number of customers, which proved extremely valuable for airlines like British Airways. The Air Passenger Duty (APD) charged to the customers flying from the airports of the UK was also restructured in order to attract more consumers. Moreover, the use of single currency in Europe also proved valuable and boosted the revenue of the airline industry (HM-Treasury, n.d.). Thus, from the above discussion, it can be recognised that the economic factors assisted in the growth and development of British Airways. Social Factors Social environment also offered high impact on the airline industry. Among the varied factors, one significant aspect is the ageing populace of the UK. In the economy of the UK, the number of aged population is quite high who comprise considerable money and time to fritter on leisure activities. Thus, British Airways introduced varied cheap flights to travel in diverse regions (Airvalues.com, 2012). This strategy proved quite advantageous for British Airways as it enhanced its brand value and profitability as well. Technological Factors Technological issues also offered significant impact on the airline industry. The increasing demand of e-commerce is one of the considerable factors which enhanced the efficiency and the effectiveness of British Airways. Due to introduction of internet services, the customers started booking the air tickets with the help of e-media rather than telephone. Now days, nearly every airline concern comprises a personal website, which is quite beneficial for the customers to book their air-tickets. In addition, the customer can also compare the airfares of the other flights as well prior to acquiring the tickets. This augmented the profit margin of the corporations of airline industry like British Airways. Legal Factors The contract of open skies is a policy incorporated in the airline industry which has highly facilitated the international aviation industry. It enabled companies like British Airways to freely transfer flights in between European Union (EU) and the United States, which enhanced its brand portfolio. Due to this facility, various aged citizens availed the opportunity of travelling in diverse regions in leisure. Thus, it helped British Airways to increase its range of customers as well as its total returns (U.S. State Department, n.d.). Environmental Factors In this recent era of globalisation, passengers are highly conscious about pollution so in order to reduce the impact of carbon footprints, airline companies implemented varied modern technologies and equipments. This helped in declining the rate of pollution generated from airlines, which enhanced the reliability and trust of the customers (British Airways, n.d.). Thus, this strategy improved the corporate image of British Airways. Hence, from the above analysis, it can be stated that British Airways is a successful organisation in airline industry. Porter’s Five Forces Model In order to analyse the position of British Airways, it is essential to evaluate the competitive scenario of airline industry. It is also a significant technique, which is utilised in order to analyse the competitiveness of the market in which a company operates. It offers a clear picture of all the strengths and the weaknesses of the organisation along with its opportunities and threats. Competitive Rivalry Due to liberalisation, the extent of competition is increasing at a rapid rate in case of aviation industry. As a consequence of such a transforming condition in the time of recession, a majority of the airline companies like British Airways had to reduce the charges of their tickets, in order to sustain in long run. As a result, British Airways had to experience high rate of rivalry both in case of short and long haul flights in terms of price as well as quality of service (Scribd, n.d.). This offered high impact on the operations of its business. However, due to reputed brand image, British Airways could retain its image among other players namely Virgin Atlantic and Cathay Pacific. This acted as one of the positive factors which attracted and preserved loyal customers (Scribd, n.d.). Threat of New Entrants Threat of new entrants is the other significant factor which offers considerable influence on the actions of any aviation company. This is because it might increase the switching cost of the customers resulting in downfall of total revenue. However, in case of airline industry, the entrance of new players is quite difficult due to decline of regular needs of the customers. Recent recession has lowered the Gross Domestic Product (GDP) of the economy along with earnings of the citizens as well, which has crucially reduced the demand of the airlines. Thus, it lowered the desire of new players to enter into market of aviation. Similarly, due to hike of fuel prices along with labour cost have minimised the threat of entrance of new airline players (Scribd, n.d.). Hence, it helped the existing players like British Airways to remain competitive in this industry. Bargaining Power of Suppliers The bargaining power of the suppliers is quite high in case of airline manufacturers. This is because airline companies such as British Airways is largely restricted to certain number of specific suppliers for obtaining fuels and various aircraft equipments. In addition, British Airways is also highly dependent on specified suppliers for attaining the engines of the aircrafts, which enhanced their power to a considerable extent (Scribd, n.d.). This depicts high level of loyalty and dependency among the buyers (i.e. British Airways) and the suppliers. Bargaining Power of Buyers The bargaining power of the buyers in case of aviation industry is medium. One of the reasons for such as a scenario is the introduction of information technology (IT). With the help of internet, customers can very easily compare the charges and the availability of seats in varied airlines, which declined the reliability of the customers. Moreover, due to recession, customers always attempted to travel through budgeted airlines, which acted as one of the beneficial factors for British Airways. Thus, in order to cope up with this challenging situation, British Airways soon introduced the ‘Frequent Flyer programme’ which helped the regular travelling passengers (Scribd, n.d.). Hence, this programme helped British Airways to offer value added services in a cost efficient way. Threat of Substitutes The threat of substitutes is also an important factor which offers considerable impact on airline industry. Besides, the threat of substitutes is quite low in case of British Airways. This is due to high capital requirements and intense competition within the airline industry. Moreover, for reaching to global destinations air travel is considered as the premium option among worldwide travellers. In addition, due to recession, unemployment also increased leading to increment of labour cost which is another considerable factor, hampering the path of substitutes (Scribd, n.d.). Thus, it proved quite beneficial for British Airways to retain its uniqueness among other apparent players. Value Chain Value chain analysis is an important technique which is utilised in order to evaluate the internal environmental condition of airline industry. With the help of value chain, British Airways attempted to control the system both by forward and backward improvement. Value chain is one of the most important techniques, which is utilised by most of the organisations in order to improve their business operations and brand association. It includes various elements namely firm infrastructure, human resource management, technology development, procurement, inbound logistics, operations, outbound logistics, marketing and sales and post sales and services. All these components are described below. Firm Infrastructure The hierarchical structure of British Airways is well organised and it also includes a team of proficient employees, which enables in introduction of varied inventive services for the passengers. This helps in increasing the level of satisfaction and reliability of the customers resulting in augmentation of competitive advantage of British Airways over other small sized companies (Scribd, n.d.). Human Resource Management In order to cope up with alternating desires of the customers, British Airways implemented varied training programme for the employees. With the help of these training programmes, the skills, communication power and knowledge of the employees can be enhanced, which might prove helpful to satisfy customer needs and wants (Scribd, n.d.). Technology Development British Airways implemented varied inventive technologies in order to enhance its value over other small sized airline companies. British Airways introduced ‘DAC II’ in order to reduce the NOx emissions. British Airways also introduced ‘phase 5’ combustors in the engines in order to reduce the rate of pollution from the environment. Moreover, it also introduced varied new aircrafts such as Airbus 380 and Boeing 787 which enhanced the efficiency of British Airways among other players (British Airways, n.d.). Procurement Due to reputation along with business relationships and associations, British Airways is capable to leverage variety of suppliers resulting in enhancement of its efficacy among other competitors, which is quite noteworthy. Thus, due to improvement of above mentioned supporting factors, the image of British Airways enhanced by a certain extent. Other than these, the primary factors are also responsible in improving its position among other competitors (Scribd, n.d.). It includes inbound logistics, operations, outbound logistics and post sales and services. Inbound Logistics The excellent relationship of British Airways with its suppliers helped in improving the inbound logistic conditions. In addition, in order to augment the distinctiveness, British Airways also introduced varied types of training programmes among its employees to improve customer satisfaction and reliance (Scribd, n.d.).Thus, improving the activities of inbound logistics also helped British Airways by a considerable extent. Operations Apart from inbound logistics, British Airways also enhanced the security system of luggages of the passengers in order to reduce the discrepancies. In addition, in order to enhance customer contentment, it also implemented the facilities of online ticket booking along with registering additional services as well. This enhanced the quality of varied types of services offered to the customers (Scribd, n.d.). Outbound Logistics In order to satisfy customer demands, British Airways offers huge assortment of slots in the airports to access large number of destinations. British Airways also offers high quality of services to its customers in order to retain its brand personality. It would also enhance its sustainability (Scribd, n.d.). Marketing and Sales British Airways attempts to maintain transparency in its business operations and so it communicates all the vital information to its shareholders and investors. This augments the reliability and trust of the shareholders and the bonding within them becomes more strong and efficient (Scribd, n.d.). Thus, the rate of investment also enhances to a certain extent, which is quite beneficial for British Airways to continue in long-term. They also make marketing of their offerings in terms of air travel using various communication channels such as online media. They have also done certain sponsorship of varied events such as Olympic Games (British Airways, n.d.). Post Sales and Service Post sales and service is also another important component of entire value chain system. British Airways endeavours to offer loyalty club card and frequent flyer programme (FFP) to its customers. With the help of these cards, a customer might avail varied types of discounts in his/her total charge of the ticket. This is a process by which an organisation attempts to retain its loyal customers. In similar context, British Airways also attempts to update various extra services namely credit payment and quick check-out facility to its customers (British Airways, n.d.). Thus, from the above discussion, it can be established that British Airways is quite successful and is the market leader in this sector. Evaluation of Business Strategy Porter’s Generic strategies In this era of intense competition, the main strategy which is taken by British Airways is cost reduction. This strategy is implemented by British Airways in order to cope up with the diverse challenges that have occurred primarily due to recession. This is because, due to recession, the economic condition of the country i.e. the UK has hampered resulting in unemployment and downfall of GDP. Due to recession, the living standard of the citizens declined resulting in lowering of the demand of tours and travels. Thus, the strategy of cheap airfares facilitated both the passengers and the organisations. It enhanced the demand of the airlines which augmented the total revenue of the organisation. Thus, cost reduction strategy helped in enhancing the cost leadership approach of British Airways among other competitors in order to gain competitive advantage. With the help of this strategy, British Airways became the market leader in this sector (Scribd, n.d.). Other than this, British Airways also introduced various training programmes in order to improve the technical skills of its employees in order to enhance the relationship among its customers and employees. This strategy would improve customer reliability and fidelity, which are extremely essential for British Airways to continue its operations. It would also offer a differentiated environment to its customers thereby amplifying their level of expectation. Substantially the other important strategy implemented by British Airways is application of various modern technologies such as ‘DAC II’ and Phase 5’ combustors to reduce the level of pollution. This depicts that British Airways is also quite responsive towards the environmental situations (Scribd, n.d.). In addition, British Airways also endeavours to offer varied extra facilities to its passengers such as loyalty card and frequent flyer programme in order to reduce the switching cost and enhance its dominance over other smaller airlines. This strategy also improved its eminence in the market (Scribd, n.d.). Hence, it can be affirmed from this discussion, that these policies augmented the business portfolio of British Airways by improving its value added characteristics. It would also enhance the market share of British Airways. On the contrary, the expectations of the customers would increase to a high extent and in order to meet such demands, British Airways needs to continuously to make innovation in its range of services. Recommendations According to the internal and external evaluation of British Airways, it can be avowed that in order to retain its ascendancy over other competitors, it is essential to offer high concentration over research and development. The managers of British Airways could mainly focus on two objectives namely technological progress and customer processes in order to enhance its service portfolio and proficiency in the market. These strategies would improve the devotion of the customers along with its brand attributes. It would not only improve its corporate image but also its revenue, which is one of the prime objectives of any organisation. These strategies would also enhance the relationship within the shareholders and stakeholders and increase the rate of investment. As a result, the prosperity of British Airways would also improve leading to enhancement of its output as well. Thus, it can be said that the employees of British Airways should attempt to implement these strategies in order to retain its competitiveness in the market. Conclusion From the overall discussion, it can be said that although British Airways is a successful organisation in the airline industry but it needs to focus constantly on research and development. This might facilitate British Airways to remain as a leading company as well as a profitable brand. Moreover, it might also improve the procedures and various functions of British Airways as well. This can be possible only with the help of innovations in customer services. It has been observed that in order to retain its brand uniqueness, British Airways also introduced various discounted fares to the aged populations of the UK in order to augment its demand. Besides, British Airways should also introduce various inventive equipments as well as technologies in order to amplify the pleasure of the passengers. This is extremely essential for British Airways to remain competitive and cost-effective in the coming years. British Airways also endeavoured to provide diverse range of credit facilities to its customers in order to increase the range of passengers. It would increase the productivity and affluence of the organisation. Hence, for the above reasons, diverse ranges of strategies are taken by British Airways in order to make continuous enhancement of its market value and brand loyalty. It would also prove beneficial for British Airways to enhance its leadership among other apparent market players. References Airvalues.com (2012), “British Airways Cheap International Flights” http://www.airvalues.com/british-airways.aspx Accessed 13th April 2012. British Airways (No Date), “History and Heritage” http://www.britishairways.com/travel/history-and-heritage/public/en_gb Accessed 13th April 2012. British Airways (No Date), “About British Airways” http://www.britishairways.com/travel/about-british-airways/public/en_gb Accessed 13th April 2012. British Airways (No Date). “2009/10 Annual Report and Accounts” http://www.britishairways.com/cms/global/microsites/ba_reports0910/pdfs/Strategy.pdf Accessed 13th April 2012. . British Airways (No Date), “Air Quality - Investing In New Technologies” http://www.britishairways.com/travel/csr-air-new-technology/public/en_gb Accessed 13th April 2012. British Airways (No Date), “Monthly Credit Business account” http://www.britishairways.com/cms/global/pdfs/Terms_and_Conditions_Commercial.pdf Accessed 13th April 2012. HM-Treasury (No Date), “Air Passenger Duty: Business Jets” http://www.hm-treasury.gov.uk/d/apd_business_jets_and_northern_ireland.pdf Accessed 13th April 2012. London.usembassy (No Date), “About The Embassy” http://london.usembassy.gov/about-us.html Accessed 13th April 2012. Ringbeck, J. & Roska, D. (No Date), “Flying through Stormy Skies How Airlines Can Navigate the Global Recession” http://www.booz.com/media/uploads/Flying_Through_Stormy_Skies.pdf Accessed 13th April 2012. Scribd (No Date), “British Airway External Environment Analysis” http://www.scribd.com/doc/51015810/11-1273-British Accessed 13th April 2012. Scribd (No Date), “Strategic Report” http://www.scribd.com/doc/23329171/British-Airways-Strategic-Plan Accessed 13th April 2012. 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Appendices Value Chain Supporting Activities Firm Infrastructure: Hierarchical structure is well structured; Capable Employees Human resource Management : Training programmes to its Employees Technology Development : ‘DAC II’; Phase 5’ combustors; Airbus 380, Boeing 787 Procurement : Good reputation and bonding of British Airways helped to leverage its suppliers Primary Activities Inbound Logistics Operations Outbound Logistics Marketing & Sales Post Sales Service Training programmes Online ticket booking Customer services . Communication with Loyalty club card Shareholders . FFP Excellent Relationships Security System Huge Databases Sponsorship Sources: (Scribd, n.d.). PESTLE Political: Government regulations to reduce terrorists attacks Economical: Cut down of fares due to recession Social : Reduction of fares for ageing population Technological: New techniques such as DAC II’; Phase 5’ Legal : Open skies agreement Environmental: Decline of carbon footprints Read More