British Airways and Its Entry into Central and Eastern European Markets - Essay Example

?A Critical Discussion about British Airways and Its Entry into Central and Eastern European markets Proposal Background Aviation as an industry has become a profitable business. Its success like any other industry is basically dependent on the fact that there are still unexplored markets out there and if an aviation company succeeds in getting into new regions, it can multiply its profits manifolds. In aviation industry however entering new markets is not easy as airlines need a lot of permissions to fly to their preferred destinations. For domestic routes, an airline gets a national license by the regulatory authority. For international flights, the regulatory authorities of all involved countries have to permit the course and destination. For expansion purpose if an airline to operate from out of a host country, like a multinational it also has to decide a suitable entry mode. Majority of the airlines prefer equity participation in existing airlines, or through mergers and acquisitions. In this paper, the opportunities for British Airways (BA) will be studied for entering the East European Market. Earlier this market was closed but now the airlines like British airways have the option to join this market. Aims & Objectives Eastern Europe has gone through an economic policy change. It is now a free economy and thus now it is possible for the West European and other airlines to enter this market for profitable business ventures. This paper aims to research and find for British Airways a suitable market entry mode. The scope of this research will be to find the best options and to figure out the best one. Here are the aims and objectives of this research: 1. To understand Mergers and Acquisitions: Although East Europe is now a free market, however, every country has its own set of compulsions which any new entrant in the market has to face and which might act as a hurdle in establishing business in such a region. Mergers and Acquisitions can only work for the benefit of trade if both parties joining hands have common synergies. This brings us to the point where understanding Mergers and acquisition becomes very important. This is to be done especially in the light of existing political and economic conditions of the market we plan to enter. 2. To discover the cultural and knowledge base of the region to be explored to see if British airways can tackle them successfully or not. In the long run, investment in any country is not only a financial investment. The culture and environment also play their own very significant role in business success. 3. To evaluate competencies and internal strength of British Airways. This will help show if Mergers and Acquisitions or Joint ventures can be the best solution to entry in east Europe for British Airways. 4. To discover the capability of new venture to be able to merge seamlessly with the global operations of British Airways. This is to be done with special focus on technology. 5. To study customer requirements and needs in Eastern Europe where cost will act as a deciding factor. Literature Review: British Airways is targeting new markets and to enter a new market as an airline, a lot of factors are to be considered. As per (Hill et al, 1990) the four motivation factors include market seeking, resource seeking, efficiency seeking and strategic resource seeking. When the opportunities in home market appear to be limited, the companies in any of the markets and industries have to look for newer options in the markets outside the home zone. On 25 August 2009 the British Airways celebrated its 90th anniversary. The origins of one of the most profitable airlines can be traced back to the birth of civil aviation, the days after the World War 1. Air travel has changed beyond one’s imagination since the first scheduled air service on 25 August 1919. The day the world’s first commercial passenger air service from Hounslow Heath, Middlesex to Paris in August 1919 by British Airways’ forerunner company Air Transport & Travel was no ordinary day. It was a historic event; the launch of an airline that would become to be known as one of the world’s most elite, prestigious and standard setting airline. This first flight was made on a single engine De Havilland DH4A G EAJC aircraft piloted by Lt. E H “Bill” Lawford carried one passenger, a consignment of leather, several brace of grouse and some jars of Devonshire cream. Later, in 1924, Britain’s four fledgling airlines, namely, Instone, Handley Page, The Diamler Airway and The British Marine Air Navigation Company merged to form Imperia Airways Limited which started providing services to Paris, Brussels, Basle, Cologne and Zurich. In the years that followed, many smaller UK based air transport companies had emerged on the scene and a handful of them merged to form the original privately owned British Airways Limited. This newly evolved entity operated from a new airport, Gatwick, and became Imperial Airways’ number one competitor on European Routes. In the late 1930s, following a government review, both Imperial Airways and British Airways were nationalized in 1939 thereby forming British Overseas Airways Corporation (BOAC) (Teece, 1982). The company suffered a lot in the Second World War as many of its flying routes were cut off by the Japanese invasion. For instance, Singapore’s invasion led to BOAC’s route to Singapore and Australia being cut short at Calcutta.  On August 1st 1947, British European Airways Corporation (BEA) took over the British European Airways Division of BOAC operating short haul routes from Northolt (Porter, 1987).  On 16 January 1942, the BOAC achieved another remarkable feat when it flew Winston Churchill MP on a first transatlantic flight ever made by a British Prime Minister. Time saw BOAC becoming the principal British operator of scheduled international passenger and cargo services and it preserved Britain's pioneering status in this industry. The 1950s was the world’s passenger jet era. The BOAC also achieved a magnanimous feat by leading the way with the Comet 1 flying to Johannesburg in 1952, halving their previous flight time. In November 1969, the BEA became world’s first airline to publish an entirely computer-produced timetable. In May 1973, following the recommendations of the Edwards Committee, the government declared it intent to dissolve BEA and BOAC to form The British Airways. The late 1970s saw the addition of supersonic Concorde aircrafts in the fleet and till the year 2000 when the Concords were retired, the British airways spent 27 glorious years of supersonic flight (Hamel et al 1994). In the 2000s, The British Airways saw itself becoming a participant in some international airline agreements as a result of which it saw changes in its management and its profitability increased many folds from its previous tenures. With such a strong background, BA has this ability to form alliances with other airlines to explore new regions like East Europe. The British Airways is part of the OneWorld airline alliance which is one of the three largest global airline alliances in the world. OneWorld saw its biggest expansion in the history in 2007 when Japan Airlines, Malev and Royal Jordanian joined in as full members, while Cathay Pacific's subsidiary Dragonair, five subsidiaries of Japan Airlines and two subsidiaries of LAN joined as affiliate members. In July 2011, OneWorld and its elected members had reached over a humongous 870 destination number in 146 countries. British Airways reaches at 150 destinations worldwide and it also has the attribute of being the only one carrier among a number of ten to fly across all six permanently inhabited continents. Currently you can literally name any country and you will find that British Airways has a flight schedule for that place. But being that expansive and claiming the spot of world’s favorite airline does not come easily. Especially when competitors like Lufthansa, a member of the Star Alliance, the largest airline alliance in the world, is in the race to the number one spot in terms of flights and passengers. At the moment, British Airways has many destinations at its roster. To name a few would be good practice to highlight the great airline’s magnanimous feats. These destinations include Mauritius, Egypt, Angola, South Africa, Nigeria, The Bahamas, Puerto Rico, Canada, Mexico, USA, Argentina, Brazil, Japan, India, Singapore, Thailand, Bahrain, Kuwait, Oman, Saudia Arabia, UAE etc. The European destinations include: Austria, Belgium, Bulgaria, Croatia, Czech Republic, Finland, France, Germany, Gibraltar, Greece, Hungary, Italy, Jersey, Kosovo, Luxembourg, Netherlands, Norway, Portugal, Romania, Russia, Spain, Sweden, Switzerland, Turkey, Ukraine, United Kingdom, England, and Scotland. Europe has been a somewhat of a highly competitive market place for British Airways. The fact is supported further after the expansion of European countries in the region. The merger with Iberia, the Spanish airline giant has certainly boosted British Airways position in the European arena. Despite this fact, one finds the harsh reality that British airways will have to go even harder if it wishes to keep its current and expand its market share in the Central and Eastern European countries. With the presence of Award winning and highly reputed Czech Airlines, it further might get aggravated for British Airways to set its solid foothold in the region and establish itself as the no. 1 among all competitors. Mergers and Acquisitions can be the right way of entering a new market in Europe. The focus must also be on the social and cultural factors of the new region the airline wants to explore. Worth knowing is the fact that Czech Airline has 32 monopoly routes directly from Prague Airport. These 32 routes represent a considerably large percentage of 40% of the total flights and just over 30% of the total capacity. The Czech Airline has, on 27 other routes, represents 40% of the total flights faces direct competition from one other aircraft carrier and while on 7 major European routes it faces two or more competitors. Lufthansa being a member of Star Alliance has also set a bench mark which, although, the British Airways has met a long time ago, will take some time and effort to completely overcome. Data Collection Methods Research Methodology There are two ways in which the research is designed; one is descriptive and the other is explanatory research (Goulding, 2002). Descriptive research involves gathering data from various credible government sources like demographics, population census, social and economic indicators of the country, household incomes & expenditure patterns, employment and income statistics etc. This data helps in describing the patterns and studying them to perform the entire research (Creswell, 2008). This research will be partly descriptive. For comparison and detailed study I will be focusing on the study of annual reports, GDP analysis and study of improvement or recession in the aviation industry. Explanatory research is another part of research design. Descriptive research is the foundation for efficient and effective explanatory research (Symon, Cassell and Dickson, 2000). Explanatory research will explain the causes, reasons and remedies. This research will be partly explanatory. Research design Research design is perhaps the basis for performing any research. It outlines the plan or a design according to which research would be conducted. Research design is defined as the structure of the entire research. The process of gathering data for research is known as research methodology (Cassell, 2006). There are two methods of research that can be used in conducting a research process: 1. Qualitative research 2. Quantitative research Both types of research have their own ways and completely different from each other depending upon the type of research conducted. Let us examine both of them in good details: 1. Qualitative research A type of research method that does not involve studying any aspects of quantity, or statistics is known as qualitative research. It is a method of research employed in many academic and practical institutions. Qualitative research aims are defining human behavior & factors that lead to a specific behavior. The methods investigate how, and why aspects of the decision making process used in the entire research (Gauch, 2002). Qualitative research includes non-numerical methods of collecting and analyzing data based upon the attributes and values of graphs or other sources of data. Case studies are one of the most popular types of data used in qualitative research. My research will be partly qualitative. 2. Quantitative research Another popular method of research is quantitative research. This is exactly the opposite form of qualitative research and involves studying and interpreting data from various numerical sources including graph charts, national census data, historical data and graphs. Quantitative research involves in knowing how many or how often events took place, and how would they effect the entire research process. Basically, this research is quantitative in nature. There are different research philosophies used in research, but the two most important and famous being discussed in this chapter are positivism philosophies, and interpretive philosophies. Positivism philosophies: Positivism philosophies refer to a set of rules, laws or general theories used to describe that the scientist’s approach used to conduct research is the best method. Interpretive philosophies: There are various interpretations of reality and based upon the research a specific interpretation policy should be adopted to interpret how reality affects the entire research process (Kumar, 2010). Every researcher has his/her own interpretation of reality that can easily change the outcome of research. This research will be interpretive basically. Analysis and findings: The expected findings of each objective are: 1. To understand Mergers and Acquisitions: Can they work well for BA in this case? 2. Discover probable barriers BA entry into Easy Europe has to face. Are they surmountable? 3. Evaluation of BA’s internal strength. 4. Evaluation of BA global synergies. 5. Consider the need of new customer segment who will prefer low fare. Conclusion and Recommendations: The existing routes of BA will be studied in detail and the possible expansion into the East European zone will also be studied in detail. 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