Analysis of the Strategy Options for British Airways - Term Paper Example

British Airways Table of Contents Introduction 2 Strategy Options for British Airways 2 Porter’s Generic Strategies 3 Ansoff Matrix 4 Evaluation of Strategic Options 6 Resource Based View of British Airways 7 Risk Assessment of Strategies 8 Recommendations 9 Conclusion 9 9 References 10 Introduction British Airways is regarded as one of the largest aviation organisations across the world. Since its formation in the year 1974, the company has experienced huge expansion in the aviation industry and has become an admired flying enterprise internationally (British Airways, n.d.). The company had commenced a series of renovations since it had privatised and registered in the London Stock Exchange. Presently, aviation organisations worldwide are striving to become one of the top preferences for customers for air travel. In the age of fluctuating oil costs, increased competition and economic turmoil, aviation companies like British Airways require to make appropriate strategic choices so that it can maintain its position in the industry (Taliadoros, 2006). The report will analyse the strategy options for British Airways by using methods such as Ansoff Matrix and Porter’s Generic Strategies in order to recognise the major strategic elements of the company. Furthermore, the report will analyse those strategies considering the resources and risks for implementation and making suitable recommendations for British Airways. Strategy Options for British Airways Presently, aviation customers search for those airlines which provide quality service, on-time arrival and departure and reasonable rate all together. Thus, aviation organisations do not have any other alternative but to defy the traditional business strategies and develop new strategies (Dostaler & Flouris, n.d.). Several tools help to analyse the strategic choices available for British Airways in order to stay competitive in the market. Porter’s Generic Strategies According to Michael Porter, an organisation can improve its business performance by implementing three kinds of strategies which are cost leadership, differentiation and focus. The following table will depict the different strategic options for organisations in order to strengthen their market position: Competitive Advantage Low Cost High Cost Competitive Scope Broad Cost Leadership Differentiation Narrow Focus Source: (Thomson & Baden-Fuller, 2010). Among the three strategic alternatives, British Airways has implemented differentiation strategy in terms of quality. British Airways provides quality services to the customers for generating a valuable traveling experience. It provides healthy food options, quick track change network, superior sleeper facilities and in-flight shower system among others. These differentiating services help British Airways to develop a unique brand image for the company (Office Application Development, 2010). Ansoff Matrix Ansoff matrix is a popular marketing management tool which helps to recognise potential alternative strategies British Airways can consider. British Airways needs to refine the ideas by identifying appropriate methods for accomplishing the strategic options. Growth can be accomplished by internal improvement or else it can be achieved by acquisition and progression of market/services (Bowhill, 2008). The following table will illustrate the Ansoff Matrix and different strategic options: Products Present New Market Present Market Penetration Product Development New Market Development Diversification The major strategic elements of British Airways for differentiating the services are: Improving interactions with employees and developing them towards high performance Provide outstanding travelling experience to the customers Increase financial performance Maintain superiority in business operations Maintain good relationship with suppliers, communities and other elements of aviation industry (British Airways, 2010) According to the Ansoff matrix, British Airways has the following strategic options which are: Market Penetration: In order to succeed as a low cost aviation, aviation organisations usually follow market penetration strategies. In market penetration strategy, organisations recognise specific route between two locations and then intend to achieve market share on the chosen route. The strategy option available for market penetration for British Airways is to concentrate on different customer segments. Product Development: Product development in aviation industry includes introduction of new kind of airlines. For developing the products, there are several options available for British Airways which are technological advancement and improved services. Market Development: Market development in aviation industry consists of expanding new markets. British Airways can develop the market through increasing the service offering. Diversification: In diversification strategy, organisations shift into entirely new products and services in order to grow. It can be either interrelated diversification or distinct diversification. Interrelated diversification denotes diversifying within a familiar industry, whereas distinct diversification denotes diversifying in a completely different industry. British Airways can diversify its business to other sectors of transport market. Evaluation of Strategic Options Strategic Option 1: Segment Focus: In order to grow the business, British Airways can focus on other market segments such as commercial class customers, which is known as one of the most lucrative segments in aviation industry. Strategic Option 2: Technological Advancement: British Airways can improve technology such as overall quality of services as a part of growth strategy. The technological aptitudes of aviation organisations progressively impact on the choice of leisure as well as business class travellers. Thus, better enhancement in the airborne services can enrich the overall performance and raise the long-term revenues of British Airways. Strategic Option 3: Increase the Service Offering: As a part of growth strategy, British Airways can increase the services such as raise the number of flight destinations. The emerging markets of China and India bring suitable opportunities for British Airways to raise the number of flights and services in order to gain higher market share. Strategic Option 4: Expand Business within Transport Market: Diversification can allow British Airways to increase the business reach and expand into other auxiliary transport services such as rail or road transport services. It can help to minimise the risk in the transport sector business (Scribd, 2009). Resource Based View of British Airways The resource based view will help to analyse the various options with respect to resources as well as risk for British Airways. The resource based view concentrates on inner abilities of a company in forming strategies and implementing them. Tangible Resources: The tangible resources of an organisation denote physical resources and business resources. The financial performance of British Airways is quite strong. In the year 2010, the total amount of tangible resources of British Airways was almost £345 million. The worth of British Airways’ assets, plants and equipments as of 2010 was £118 million. With respect to aircrafts, it has several aircrafts which include Boeing, Airbus, Avro and Embraer (British Airways, 2010). In the year 2010, British Airways had almost £121 million worth aircrafts. Thus, with this amount of tangible resources, British Airways has the opportunity for improving the technology and increasing the service offerings (British Airways, 2010). Intangible Resources: For several organisations, intangible resources are more appreciated than tangible resources (Grant, 2005). Intangible resources encompass knowledge, technology and status of the organisation (Henry, 2008). In the year 2010, British Airways had £269 million intangible assets which include goodwill of £40 million, software of £27 million and landing authority of £202 million (Walsh & Williams, 2010). The intangible resources of British Airways also include relational assets. British Airways had developed several strategic alliances such as OneWorld, American Airlines, HEICO Corporation and American Express among others (British Airways, 2009). Furthermore, British Airways has slots in several airports which provide the authority to departure or land at prevalent times (Haberberg & Rieple, 2008). Thus, with sophisticated intangible resources, British Airways has the possibility to generate better returns if it increases the service offerings. Risk Assessment of Strategies In order to implement any strategy there is need for assessing the risk. The operational complexity of British Airways inherent in the business generates several risks for it to implement the strategic options. The aviation industry is highly regulated and there is intense rivalry which leaves the company vulnerable to several threats. International Economic Slowdown: The revenue generation of British Airways is highly sensitive to the economic circumstance of the market where it operates. The improvement of services of British Airways requires significant investment which can impact on the cost structure as well as the profits. Thus, the key customer segments may move to other aviation companies if the cost of air travel of British Airways becomes higher (British Airways, 2008). Government Interference: The aviation industry is strongly regulated nowadays. The possibility of such regulation ranges from infrastructural matters concerning slot sizes and route flying approvals. Thus, it can provide risk for raising number of lights and destinations for British Airways (British Airways, 2008). Competition: Competition is a significant risk factor for British Airways. The price competition from other aviation organisations can pose threat for British Airways to improve the technology and raise number of markets. Besides, competition restricts in entering into new markets for British Airways (British Airways, 2008). Recommendations The strategic options of British Airways are highly vulnerable to above identified risks. Besides, British Airways faces huge competition from other airlines such as Virgin Atlantic, United Airlines and easyJet among others in terms of cost. Thus, in order to remain effective in the market it can be recommended to British Airways to improve its position on the core differentiation i.e. service quality by improving the services. British Airways also needs to concentrate on other economy-class customer segment because they represents significant amount on air traffic. To deal with the competitors’ offerings, British Airways should reduce the operational costs to gain higher profit. It is recommended that British Airways needs to research on other transportation segments so that it can diversify its business and expand the market. Conclusion From the above analysis, it can be observed that British Airways implements defensive measures to survive in the competition. The company had effectively defended itself from the wave of economic recession and maintained its position in the industry. Even though British Airways was quite reluctant regarding taking measures for low cost air flights, it had also not remained conservative in the varying environments of business. The strategic focus for British Airways is always to provide excellent services to customers. The strategic options for British Airways can assist in improving the performance while maintaining its differentiation aspects as a premium aircraft in the global market. References British Airways, No Date. Celebrating 90 Years of Flying with Pride. Explore Our Past. 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Office Application Development, 2010. British Airways Bases for Differentiation. University of Madeira. [Online] Available at: http://www3.uma.pt/filipejmsousa/ge/British%20Airways.pdf [Accessed March 20, 2012]. Scribd, 2009. Strategic Report. British Airways. [Online] Available at: http://www.scribd.com/doc/23329171/British-Airways-Strategic-Plan#outer_page_3 [Accessed March 20, 2012]. Thomson, N. & Baden-Fuller, C., 2010. Basic Strategy in Context: European Text and Cases. John Wiley and Sons. Taliadoros, E., 2006. Forward. British Airways Flying Towards Success. [Online] Available at: http://etaliadoros.net/pdfs/UA01%20Foreword_Synopsis.pdf [Accessed March 20, 2012]. Walsh, W., & Williams, K., 2010. Balance Sheets. 2009/10 Annual Reports and Accounts. [Online] Available at: http://www.britishairways.com/cms/global/microsites/ba_reports0910/financial/balance.html [Accessed March 20, 2012]. Read More