Management Strategy for a British Airways - Case Study Example

Company name: British Airways Logo: Title of the report: Management Strategy for British Airways Table of contents Introduction to the study…………………………………………………………...... Background and History of the Company…………………………………….......... Industry Analysis……………………………………………………………………... Political………………………………………………………………………… Economic……………………………………………………………………… Socio-cultural…………………………………………………………………. Technological………………………………………………………………….. Market Analysis………………………………………………………………………. Mission of the Company……………………………………………………………… Conclusion and Recommendations………………………………………………....... 1 Introduction to the Study This paper evaluates the management strategy of British Airways. British Airways is a major player in the global airlines industry. In section 1.1 there is the background and history of the company while section 1.2 presents the analysis of the airline industry where the political, economic, socio-cultural and technological factors are discussed. The market analysis is discussed in section 1.3. This section presents the efforts that British Airways is making in order to remain a leader in the market. Several marketing strategies employed by the company are discussed in this section. Part 2 has the mission of the company while the last part presents the conclusion and recommendations. 1.1 Background and History of the company British Airways (BA) is based at London’s Heathrow Airport. It is the United Kingdom’s flag carrier airline and the largest in the United Kingdom considering international destinations, fleet size and international flights. Its second biggest hub is Gatwick Airport in London. The formation of the British Airways Board took place in 1971and its responsibility was controlling the finances and policies of two large airline corporations based in London. These were the British European Airways Corporation (BEA) and British Overseas Airways Corporation (BOAC) with Northeast Airlines and Cambrian Airways which were much smaller. British Airways began operating the supersonic Concorde on transatlantic services in 1976, the same year they acquired it. Again, in 1976, BA began operating international flights solely to Southeast Asia and North America. Previously, this had been done by British Caledonia, a rival airline. Virgin Atlantic was formed in 1984 and this was the beginning of a long rivalry. The privatization of BA came in 1987 and in the same year BA controversially took over British Caledonian. After privatization, BA experienced a period of extra ordinary growth which resulted in the coining of the company’s slogan “The World’s Favorite Airline”. It the early 1990s, BA became dominant over its rivals in the domestic market. In the 1990s, the company experienced a lot of stiff competition coupled by high costs. Attempts to restructure the airline by CEO Bob Ayling led to disagreements with trade unions. BA made investments in European Airlines in the region, attempted partnerships with international airline and tried implementing a strange ethnic livery campaign aimed at rebranding itself. During the early years of the 2000s, Rod Eddington, the then CEO put in place more cuts on cost, removed ethnic liveries and sent Concorde to retirement. BA went through a price fixing scandal after 2005 when Willie Walsh was the CEO. Heathrow Terminal 5 became the company’s hub. In 2010, threats of industrial action from previous years culminated into a strike March. In April 2010, the International Airlines Group was formed through the merger of BA and Iberia Airlines although BA went on operating under the current brand. 1.2 Industry Analysis British Airways has a corporate strategy which is specifically designed to help the company remain a leader in the Airline services market and to carry on with its expansion as well. The strategy was designed to make the airline fit into the external environment as well as in the prevailing circumstances in the industry. In order to do an in-depth analysis of the industrial environment of BA, a PEST analysis will be used. 1. Political Instabilities in governments and politics in various countries affect the airline industry and the routes that British Airways operates. A good example is the Arab spring that rocked the Middle East and North African countries such as Tunisia, Egypt and Libya (Belobaba, Odoni & Barnhart, 2009). It had the potential to affects the operations of airlines especially the trips through or to the affected parts of the world. In the past, insecurity and political instability has made players in the airline industry to pay a lot of money for insurance and security checks. The regulations and policies set by national and international governments have an effect on the operations of BA and on the entire industry as well. British Airways has to follow regulations set nationally as well as the international ones. Legislations and regulations such as those related to environmental protection, security, safety and health among others are determining factors on how the industry goes (Belobaba, Odoni & Barnhart, 2009). The airline industry witnessed a rise in insurance costs since 2001, because of a rising fear of terrorism as well as the tightening of security checks in airports. 2. Economic The world economy fluctuates and this affects the airlines and the industry in which they operate. For example, the global recession witnessed in the world around 2008 affected the aviation industry in many different ways. However, the most pressing one in the airline industry was the loss of customers due to the hard economic times. There was a rise in unemployment rates in many countries as tourism dropped around the globe. Many people chose not to travel by air because it was not economically allowing (Belobaba, Odoni & Barnhart, 2009). This resulted in the loss of business for players in the airline industry, British Airways included. The share prices of British Airways were also affected because of the recession. The share price of BA has been observed to drop since 2001. International market prices for fuel are subject to fluctuations. When they go up, airlines are pressed because their profit margins go down. To be able to fit in this competitive industry, British Airways is using the cost leadership strategy to tackle the problem of hard economic times. In this strategy, the company reduces costs so that its profits can go up, but at the same time it sets industry average charges (British Airways, 2010). It also increases its market share by offering lower prices and at the same time, making good profit due to the low costs. 3. Socio-cultural There are many socio-cultural challenges experienced in the aviation industry. As airlines open new routes not known before, the magnitude of socio-cultural challenges rises. Airlines struggle to diversify their services so that they can attract customers from people of various religious, racial and cultural backgrounds. The challenge of appealing to all people regardless of their national, religious, language, cultural and ethnic backgrounds is very much alive in the aviation industry (British Airways, 2010). Aero-planes fly to countries where different languages are used. In order to sustain operations is such countries the airlines must employ strategies that attract people of these languages to them. By doing this, a particular airline such as BA can have a competitive advantage over its competitors. 4. Technological The use of technology in the airline industry has become a popular and very necessary thing. Many airlines have taken to the use of technology to win customers because of its advantages (Adrian & Alison, 2008). Technology is popular with most educated people and in the modern world it has become very essential because of the technological advancement. British Airways has made many efforts to be able to fit in the current airline industry. Plans belonging to British Airways have new technology such as associated and Lotus technology. For example, the seats in the planes have been made with a lot of sophistication and in a very complex environment of information technology that has UNIX being used and other data base applications as well (British Airways, 2010). Other efforts being made to fit in to technology oriented airline industry include the provision of internet flight services by BA and systems for internet ticket booking that reduce cost and competition. BA is gaining competitive advantage by attracting more customers through the incorporation of technology in its operations (British Airways 2010). 1.3 Market Analysis British Airways uses the market strategy which allows it international multi-market segments that give it the comfort and non confrontational atmosphere needed to coexist with other airlines within the industry. British Airways has found this strategy to be very useful in marketing its brand because the strategy aids in reducing friction with other companies within the industry. British Airways also makes use of the product strategy to market its brand (Triant, Oswald, 2006). The brand in this strategy is the name of the company or corporation. The strategy is designed to increase the life cycle of the brand and also to rectify the mistakes made in positioning. Using brighter colors, such as the red color of the airline, the blue and white corporate palette show a reflection of Britain’s union flag. This is a show of the heritage of the company. By way of the value marketing strategy, BA is a leader in creating new products totally different from what other airlines are offering (Shaw, 2011). British Airways provides services such as revenue accounting, flight planning, passenger reservations and operations. BA has the product strategy as one of its most innovative efforts. Through this strategy, the company has won a big market share and it remains a leader in the airline business. Another valuable effort being implemented by BA is the pricing strategy. The pricing strategy allows the company to keep its prices in check because in the industry, price wars can be a cause for losses and at the same time, an increase in price could drive customers’ away (Adrian, Alison, 2008). BA makes use of dual or discriminatory pricing in which it offers services with different prices and classes such as First class, World Traveller Plus, Business and Executive class. In the pricing strategy, the company analyzes the price range acceptable to most customers before fixing the prices. This strategy has worked for the company for some time but the airline has had to change it due to increasing competition. The company brought in changes by reducing prices as a way of attracting more customers (Gail & Keller, 2001). In marketing its product, BA also makes use of the Distribution strategy. In the distribution scope strategy makes it possible for the company to purchase and book its tickets at all travel agencies where they are sold on behalf of the company. The company also provides these in its regional and internet offices. When a customer acquires a ticket through the internet, he does not need to the commission due to intermediaries. By use of this strategy, the customers of the airline save money because they do not spend a lot. Customers find this strategy very convenient and through it, the company has been able to attract customers and sustain them (Werner, 2005). The promotion strategy is another way the company does its marketing. This strategy is facilitated by advertising and public relations. The airline promotes its products through advertising on the internet, through magazines, radio, through newspapers and also on transit. This strategy is very important since there is a lot of competition within the airline industry. The strategy has made the airline remain a leader in the industry because it finds it easy to sell the brand to markets that are in existence as well as those not existence (Gail & Keller, 2001). British Airways also applies the competitive strategy which is based on the high quality services it offers because of the technological advancement it has. BA also beats its competitors through cost reduction, shorter designs to market cycles and services and products of a better quality. This strategy has made the company more competitive in its industry (Adrian & Alison, 2008). Another marketing effort being used is the implementation of the Customer Service Strategy where British Airways satisfies its customers by offering services and products with high quality, better terms of service and at a reasonable speed. Using the Delphi Technique is helpful because through it, the operational research group offers consultancy services for British Airways’ divisions. BA is divided into teams among them revenue management, sales, operations, profit development, marketing and airports and all these are for provision of better services to customers (Triant & Oswald, 2006). BA also applies the differentiation strategy. With this strategy, it is able to present very attractive products and services that are also unique. The strategy is working because the company is able to carry out meaningful research, bring in innovations and development and give high quality products and services to its clients. BA also has very effective personnel in its sales and marketing departments. This strategy gives BA the capacity to compete in the market and to beat its competitors (Shaw, 2011). Another strategy being used in marketing is the focus strategy. It allows the company to focus on specific niche markets in which they understand the needs of the customers and they offer services that are suitable for those specific markets. In such markets there is strong loyalty to the brand. Directing its attention on specific markets makes it possible for the company to channel resources and investment to such markets making the volume of business to go up. With the above strategies in place, BA grew its market by 5.7 % in 2009 and this paved the way for the company to reach profit levels of £9.2 billion. The airline is believed by many to be the most comfortable transport medium (Werner, 2005). 2 Mission of the company The British Airways Mission Statement gives the purpose of the company and why it exists. The mission statement gives guidance to the actions the company takes, outlines the overall goal, guides decision making and chats the path (British Airways, 2010). The mission provides the context within which the strategies of the airline are formulated. British Airways is guided by the mission “to be the most exclusive and first choice airline for all airline travellers.” Through this mission statement, the airline is dedicated all the time to the provision low fare flights around the year to destinations around the globe, high quality cargo services as well as professional maintenance. It also offers the best by setting the standards of the industry by way of advanced innovation (British Airways, 2010). The mission is the driving force of the company because it is the reference point for the decisions made by the company. It is the compass point for the airline since it gives direction on what should be done in various circumstances. 3. Conclusion and Recommendations In conclusion, this report has evaluated the management strategy of British Airways. British Airways is flag carrier airline for the UK and it is a leading carrier in Europe and the rest of the world. British Airways is very competitive in the airline industry although the industry is characterized by a lot of challenges. The challenges facing airlines in the industry are majorly of a political, economic, socio-cultural and technological nature. The airline has made various efforts to be able to remain relevant in the market. These efforts are packed in form of strategies being implemented by the company. They include the market, product, pricing, distribution, promotion, competitive, customer service, differentiation and focus strategies. The mission of the company is aimed at making it the leader in the industry with the best quality services all the time. This report recommends that since British Airways is threatened by competition from other low cost airlines such as EasyJet, it should revise its charges and try to offer discounts and low prices that will are better than its competitors. It is important for British Airways to continue revising all its marketing strategies to ensure that they are the most suitable for the market. The airline industry is dynamic and things keep changing. Revising the company’s strategies will help it to remain relevant, competitive and popular with clients. References Adrian H., Alison R. (2008). Strategic management: Theory and application MacMillan. Belobaba P., Odoni A., Barnhart C. (2009). The Global Airline Industry New York, Oxford British Airways (2010). About British Airways, [Online], Available: http://www.britishairways.com/travel/about-british-airways/public/en_gb. January 9, 2014. Gail B., Keller M. (2001). Handbook of airline strategy: Public policy, regulatory issues, challenges and solutions, McGraw Hill. Shaw S. (2011). Airline marketing and management, Ashgate publishing Triant F. G., Oswald S. L. (2006). Designing and executing strategy in aviation management, Sage. Werner D. (2005). Strategic management in the aviation industry. Ashgate publishing. Read More