Strategic Management Of The British Airways - Essay Example

No. 12345 British Airways A Strategic Management ABC of XYZ Department of LMN 18 April, Table of Contents Contents Page No 1 Company Overview 03 2 PEST Analysis 03 2.1 Political Factors 04 2.2 Economic Factors 04 2.3 Social and Cultural Factors 05 2.4 Technological Factors 06 2.5 Conclusion 06 3 Competitive Advantages of British Airways 07 4 SWOT Analysis on British Airways 07 4.1 Internal Analysis 08 4.1.1 Strengths 08 4.1.2 Weaknesses 09 4.2 External Analysis 10 4.2.1 Opportunities 10 4.2.2 Threats 11 4.3 Conclusion 12 References 13 Appendix-I 15 Appendix-II 16 1 Company Overview British Airways is one of the leading international airlines of the world that operates scheduled air services on global and domestic levels. The company takes the passengers around the glob, cargo freight and mails to their destinations. It is the UK’s sole worldwide network carrier that transports about 36 million passengers in a year to more than 570 destinations of 148 countries located in all six inhabited continents (Smith, 2010). British Airways, headquarters based at Harmondsworth London (www.britishairways.com), mainly operates in Europe and United States as out of 148 worldwide destinations, approximately 71% operate in these areas. The company’s fleet consisted of 245 aircraft and 40,627 employees at the end of 2009 (Datamonitor). The company earned approximately £9 billion in revenue at the end of fiscal year 2009, 2.7% higher than the last year. 87% of this revenue came from passengers’ traffic while 7.5% and 5.4% came from cargo and other activities respectively (British Airways Annual Report, 2008/09, Data-monitor). 2 PEST Analysis The PEST analysis of British Airways highlights major influences on the airline industry. According to Sanderson and Luffman (2001), this environment analysis indicates “current strategies of competitors, the potential of new competition to enter the market, the behavior of suppliers and buyers, and the availability of substitute products” (2001, p.20). The competitive marketing environment continuously changes, therefore a well thought-out, composed, detailed and consistent analysis is necessary for best evaluation. Despite of the fact that PEST analysis is used on the basis of previous data, interestingly it can be used as a forecast model (Wilson and Gilligan, 1998).  2.1 Political Factors The distressing incidents at the start of 21st century have turned out as the most difficult times for the airline industry. These incidents included the terrorist attacks in New York on September 11, 2001 and in London on July 7, 2005. Moreover, wars in Iraq and Afghanistan have caused an extraordinary political instability in different parts of the world. Due to such political instability and security situation, European Union and United States formulated new security regulations which came into effect in summer 2006. Although governments have taken essential safety and security measures and controlled the activities at the airports effectively along with pricing and planning policies but even then the new political strategy reduced the customer’s traveling confidence on airline. During last few years, substantial regulatory reforms have taken place which has given more opportunities to British Airways and such other airlines. As far as, UK political environment is concerned, that is good. There is no threat of political instability. Government institutions are strong and reliable. In current scenario, there is no such situation or government agreement that has a negative effect on air operations of British Airways within Europe. 2.2 Economic Factors The airline industry is always characterized by peaceful environment and high earning elasticity. Therefore, the air travel business is directly proportional to the peace and stable economy. A persistent political instability has occurred due to war in Iraq and war against terrorism, therefore during last few years, the fuel cost has risen tremendously throughout the world. The trend has been shown as Appendix-I on page 15. In response of fuel cost, British Airways might add 100 million to meet its requirements. Further the decline of GDP is a serious concern for British Airways as it has dropped significantly from 3.9% in 2000 to 0.7% in 2008. The GDP growth rate has been shown as Appendix-II on page 16. British Airways transports the people to their destinations throughout the world for both business and tourism. In case, the global economy falls down, corporate environment decreases, ultimately less number of people will use the air traveling mode for business and exciting holidays. 2.3 Social and Cultural Factors The social and cultural environments vary in different societies. They mainly depend on the nature of business, demographic aspects and custom values. These factors highlight the customer’s trends and the strength of the potential markets. UK people have diversified cultures and therefore have a direct effect on British Airways. British Airways has the slogan of listening and thinking of its customers, passengers and workers to execute comfortable and effective flights. The annual report of British Airways confirms it that “To create a really high-performing business we need to build an inspiring and rewarding workplace where talented people can work to the best of their ability to meet our customers’ needs and our wider social responsibility” (Annual Report British Airways, 2008/09). The flight operations of British Airways revolve around innovation with the focus on globalization. English is the working language in the broad network of the company consisting of 148 countries (Datamonitor). There is a huge contrast between these nationalities and their cultures and it may cause problems of communications and understanding. Previously, the demand of an airline was based on its facilities but due to global economic downturn, the trend has been changed and now it is primarily associated with the prices. British Airways is in dire need to rebuild the confidence of customers especially from Asian countries. 2.4 Technological Factors A growing pressure on costs and prices builds up by the influence of technological advancements. It includes the online reservations and cost synergies from the industry consolidation. In order to a competitive advantage on its competitors, British Airways has to emphasize on the field of e-commerce and aircraft manufacturing. 2.5 Conclusion Post effects of 9/11 have changed the world significantly. In the corporate world, huge organizations have to cut down their manpower strength along with squeezing network (Clark, 2001). The war against terrorism has put two effects on British Airways simultaneously. It has been adversely affected in its Asian operations. The tourism industry has also affected badly, therefore the tourist trends are declining with respect to Asian countries. But in response to this situation, tourism industry has thrived in many parts of Europe and thus has provided new flourishing areas for airline industry. Being the leading airline company in Europe and holding extensive resources, British Airways can earn more profit from this situation. This political situation will encourage the company to emphasize on its domestic and regional air operations. The changing economic and technological environment and global turndown is a real threat for many organizations. British Airways has to focus on its services with respect to customer’s buying power. Online customer dealing will enable the company to save its valuable costs to generate more revenue to the shareholder. 3 Competitive Advantages of British Airways The magnetism of the company to the customer and the ability to get the customer onboard is the key to success of the airline industry. For this, promotional facilities and dedication a chamber for business class enable the company to make repeat customers (McCabe, 2006). The main factor of the success of British Airways is its online dealing with customers. Almost 90% of the reservations and booking of accommodations are carried out through internet. Reservations are also made through telephone (www.britishairways.com) Special discount on online reservation. British Airways works through differential pricing strategies i.e. advance booking or off-peak traveling deserve for special discount (www.britishairways.com) No-frills, point to point air travel services Car and accommodation booking in advance (www.britishairways.com) Friendly customer dealing and harmonious execution of operations Flight safety and passengers security are paramount 4 SWOT Analysis on British Airways             British Airways provides number of services in its domestic and international air operations. The company provides nonstop online flight and seat reservation facilities to its customers. The main focus of its marketing strategy is to maintain the integrity and reputation of the company in the competitive airline industry. The company has earned consistently increasing revenue since FY2005. Core competencies are the combination of company’s resources and it operational capabilities. Fleet efficiency, broad network, profitable corporate, promotional operational developments and technological advancements are the core competencies of British Airways. The SWOT Analysis of the company, presented below is based on these core competencies. 4.1 Internal Analysis 4.1.1 Strengths British Airways consists of first-rate new fleet of aircraft and its average age is about 9.7 years. The effective and worldwide network has made the organization as one of the leading airline company in the airline industry Its major hub of operations is Heathrow Airport London i.e. one of the busiest airport of the world Strong and effective global network, more than 40,000 thousand employees, 570 destinations in 148 countries, 777,000 tons of cargo in FY2009 (http://www.bshares.com). The data of this fleet is listed below in tabular form Type of Aircraft Numbers Type of Aircraft Numbers Boeing 747 55 Airbus A320 35 Boeing 777 42 Airbus A319 33 Boeing 737 22 Airbus A321 11 Boeing 767 21 Avro RJ100 9 Boeing 757 15 Avro RJ85 2 (Source: British Airways 2008/09 Annual Report and Accounts obtained from http://www.bshares.com) Franchises from other airlines to earn huge amount of revenue including Sun Air (Denmark) since 1965, GB Airways (UK) in 1995, COM Airline (South Africa) in 1996, and British Mediterranean Airways (UK) in 1997 Competitive prices with respect to its rivalries and powers of buyers British Airways is the first airline offset product that meets the requirements of the UK Government’s Quality Assurance Scheme. In 2008, over 55,000 tons of CO2 were offset by the customers and about 35% of dry waste was recycled by the company at Heathrow and Gatwick airports Strong online system and execution to retain the old and to attract the new customers. Almost 1/3 of the whole earnings is made through e-system The website provides multiple options to the customer to reserve its accommodation or traveling mode on its destination In 2009, the company had a record-breaking punctuality and customer recommendation scores 4.1.2 Weaknesses British Airways has little scope outside the Europe and United States as almost 62.5% of its operations are held in Europe and 71% in Europe and America (British Airways Annual Report 2008/09) It seems difficult for British Airways to manage economic and cultural changes due to high dependence on specific region. The GDP rate of Europe is expected to fall from 0.8% of 2008 to -04.8% in 2009 (Regional Economic Outlook: Europe, 2008). Due to high dependence on Europe, British Airways may face new challenges in terms of economy Global recession has adversely affected the British Airways as cash flow remained 41.1% short in 2009 as compared to the cash flow of 2008 (Datamonitor, Oct 2009) British Airways met a serious high debt scenario in 2009 as its net debt was 56.3% to total capital ratio in FY2009. It was 27.6 points higher than the FY2008. These high debt obligations affected the flexibility of the company and reduce the ability to use the cash flow in terms of interest, principal, lease payments, and general corporate requirements ((Datamonitor, Oct 2009) The success itself of British Airways creates difficulties in the instant training of old and new staff 4.2 External Analysis 4.2.1 Opportunities Virtual reality of the company’s huge set up, resources and infrastructure pose opportunities to use them in terms of simulation, network software, and exchange of expertise with other airline companies British Airways emphasizes to make corporate alliance and mergers with other airlines. A agreement of expected merger at the end of this year has been done with Spanish Airline Iberia (Brothers, 2008) The company has done an agreement with American Airline and Iberia about air operations from North America to Europe and flights between the US, Mexico and Canada; as well as between the European Union, Switzerland and Norway ((Datamonitor, Oct 2009) British Airways can increase its span of operations in coming years as the airline industry is expected to expand in European market share from 5% to 25% in 2010 (International Travel News, 2003). According to Boeing, world cargo business industry will grow with a rate of 5.8% till 2030 while the recent and expected future growth of US Airline is also an opportunity for British Airways to make extra earnings 4.2.2 Threats Although globalization can be an opportunity and strength but if its tricks and treachery are not countered vigilantly, it can act as a threat as well A mistaken analysis can transform the technological changes and customer’s behavior into a threat Increasing political instability and terrorism in the operational areas of Middle East and other Asian countries Operational prices may increase due to increase of fuel cost Global recession has put an adverse effect on airline industry. According to IMF, the world’s over all GDP has dropped significantly from 5.1% in 2007 to 3.1% in 2008. Eventually the customer’s confidence has also dropped. Moreover, the premium traffic has also reduced by 2.8% throughout the world. British Airways is not away from these adverse effects and its operations, revenue, and financial conditions has affected badly (Regional Economic Outlook) Mergers and acquisitions between other alliances may adversely effect the operations of British Airways e.g. mergers between Delta and Northwest Airlines and between America West Airlines and US Airways in October 2008 and September 2005 respectively (Datamonitor, Oct 2009) A tremendous competition in the airline industry in terms of fares, facilities, customer service, schedule, safety, and frequent flight program. These factors create extra challenges for British Airways 4.3 Conclusion   As one of the leading transportation company, the role of British Airways is cruicial for many other corporate organizations. On the basis of its above stated strengths, the company is continuously improving its innovative systems and procedures. Worldwide network, competitive prices and huge annual turn over enables the company to extend its network to the new emerging markets of Western Europe and China. The aim for rendering better services to the customers will maintain the better image and reputation to the competitive market. Mergers and acquisitions strategies and improving service standards can attract the new customers as well as make them as repeated customers. The increasing customers guarantee improved services to the customers and employees of the company as well. Although continuous innovative approach and changing facilities can sometime create problems to the company but with the application of efficient leadership style and maintenance, targets can be achieved effectively. References British Airways, (2008/09) Annual Report and Accounts, obtained from http://www.britishairways.com/ Brothers, C. (30 July 2008). British Airways in Merger Talks, The New York Times http://www.nytimes.com/2008/07/30/business/worldbusiness/30air.html?ref=todayspaper British Airways, Company Profile, Datamonitor, 23 October 2009 International Travel News (2003), available on http://www.internettravelnews.com/article/20223 Friday, 28th November 2003 McCabe, R.M. (2006). Graziadio Business Report, 09, Retrieved April 8, 2008, from http://gbr.pepperdine.edu/064/airlines.html Regional Economic Outlook: Europe, Reassessing Risks, International Monetary Fund, April 2008 Sanderson, S.M. and Luffman, G.A. (2001). Strategic Planning and Environmental Analysis, European Journal of Marketing, Vol. 22(2), pp. 14-27 Smith, P (10 July 2009). "Ask the Pilot: Welcome to the Six Continent Club!” http://www.salon.com/tech/col/smith/2009/07/10/askthepilot326/index1.html Wilson, R.M.S., and Gilligan, C. (1998). Strategic Marketing Management, 2nd edition, Butterwoth Heinemann, Oxford Clark, A. (2001).Airlines Face Bankruptcy, The Guardian, 20 September 2001 Appendix-I Rise of Oil Prices (1998 to 2009) (Source: http://www.whatmattersweblog.com) Appendix-II GDP Growth Rate of UK Year GDP Growth 2000 3.9% 2001 2.5% 2002 2.1% 2003 2.8% 2004 3.0% 2005 2.2% 2006 2.9% 2007 2.6% 2008 0.7% (Source: http://www.wikipedia.com) Read More