Pricing as British Airways Marketing Strategy - Essay Example

Table of Contents Executive Summary 3 Introduction 3 The Marketing Environment 4 Pricing asBA’s marketing strategy 4 Distribution 5 Branding 6 Conclusion 6 Recommendations 7 Bibliography 8 Appendices 9 Appendix I 9 Appendix II 10 British Airways Executive Summary This report was produced to give insights into British Airways and particularly on its marketing operations. Being UK’s largest scheduled airline, a brief background on British Airways would be given so as to guide in the evaluation of its marketing practices including pricing, distribution and branding, borrowing from the airline’s website and various secondary sources. However, this report has the limitation of reliance on not so recent data as retrieved from the British Airways official website. Introduction Founded in 1974, British Airways Plc, commonly abbreviated as BA has been recognised as the largest scheduled airline in the UK (Civil Aviation Authority 2013). Apart from scheduled airline, the organisation also operates both domestic and international carriage of mail and freight and ancillary services (Brownsell 2010). BA flies to over 300 destinations carrying over 33 million passengers in its 238 aircrafts (British Airways 2013, Table 1). From the time of its privatisation in the year 1987, the company has beaten the competition in the market to grow worldwide. The entry of its former Chief Executive, Willie Walsh in 2005 saw BA complete Terminal 5 at Heathrow in addition to various other accomplishments. In spite of suffering from the global economic recession, the airline looks forward to being the most responsible airline globally. As such, the firm dedicates much effort to the development of strategic direction and guiding principles to enable it attain its objectives. Key among them includes efforts geared towards the development and sustenance of effective marketing. The Marketing Environment With the ever changing marketing environment (Haberberg & Rieple 2007), there arises the need for continuous detailed and structured analysis of core dimensions. With the increase in complexity and frequency of terrorist attacks such as the September 11 New York attacks and the July 2005 London attack, there has been unprecedented political instability. As such, deregulated firms like BA need systems that enhance quick decisions. The open skies agreement has significantly changed the regulatory framework. Considering legal factors, BA suffers from Trade Unions’ actions including numerous strike actions in 2004 and 2005. As such, the firm has to consider various legislations on employee rights, environmental concerns and customer rights. Economically, with demand for air travel being highly income elastic, there exists a positive correlation between global economy and air travel demand. The rising cost of oil due to the political climate in Iraq caused an increase in cost of travel which reduced BA’s business volumes. Finally, varied socio-cultural factors affect BA’s marketing strategy including cultural and demographic factors which determine the needs of customers and the size of prospective markets (Shaw 2007). Pricing as BA’s Marketing Strategy British Airways has priced its products so as to allow its customers to choose the level of service that they want. The airline has set its price to a premium level so as to compete with its rivals such as American and Virgin airlines (Balmer, Stuart & Greyser 2009). Its high pricing has been used as a strategy to reflect high quality. Nonetheless, with the economic turmoil and entry of low cost carriers in the market, BA has been forced to provide low cost solutions so as to remain competitive. But even in these low cost services, the airline still retains its quality image together with good customer service unlike in the low cost rivals where ancillary services have been used as the major source of income, charging extra for priority boarding, food and drinks (Haberberg & Rieple 2007). The introduction of the Executive Club aimed at encouraging loyalty among its customers by rewarding with priority boarding, access to BA lounge and provision for additional luggage. With the majority of the cost being fixed, including airport duties, fuel and cost of aircraft, the airline lowers its cost with decreased demand and increases the cost with increase in demand, aimed at encouraging consumption, and therefore allows it to make some marginal returns. After all, the “objective of a firm’s marketing policies should be to meet the needs of its customers, at a profit” (Shaw 2007, p.22). Distribution The airline avails its tickets for purchase from travel agents located in various physical locations, and online through the airline’s website. Travel shops, reservations staff and dedicated websites provide alternative sources for BA’s travel tickets. According to Solomon et al. (2009), e-commerce has greatly changed distribution with airlines reducing costs so as to effectively compete against their rivals. Globally, BA sells 20% of its tickets via ba.com, 54% of which account for the airline’s short haul sales (British Airways 2013). This online booking provides the capability for securing a flight ticket at one’s convenience and avails the tickets at lower cost as contrasted to travel agents. Brownsell (2010) gives an example of an economy class ticket from London to New York which would cost ₤368 from ba.com as compared to Expedia travel agent selling it at ₤432.10. Nonetheless, travel agents provide additional information on hotels or car hire, a fact which BA appreciates and undertakes through its online agent. Branding British Airways has placed great significance to its brand which it has promoted in various ways. The airline has been the tennis tournament, Wimbledon Championship’s official airline and also the tier one partner and official airline for the 2012 Summer Olympics and Paralympics. The airline has also played a significant role as the official airline in the bid of England to be the 2018 Football World Cup host. The purchase of ba.com from Bell Atlantic in 2002 aimed at creating an internet domain that bears the company’s acronym. In 2011, the airline launched a major advertising campaign in that decade which encompassed a cinematic advert running for 90 seconds to celebrate the 90 years of its heritage and launching its new slogan, “To Fly. To Serve” (Balmer, Stuart & Greyser 2009, p.7). The tail fins of BA airplanes have been for long known to bear the Union Flag scheme (Brownsell 2010, Figure 1) despite the short period when the airline had adopted the widely rejected world images and ethnic logos. Conclusion It would be appreciated that BA has adopted marketing strategies that aim at conquering new markets and retaining their customers. In the wake of high competition from its rivals, including Virgin and American airlines, BA has adopted a segmented pricing strategy where customers pay for what they perceive as affordable, even though all segments adopt the service quality determined by the airline. These prices shift with demand due to the fixed costs that the airline has to incur. In addition, BA provides a variety of distribution options with its online option being cheaper than the other options such as use of travel agents due to the decreased cost of intermediary trading. In addition, the Union Flag branding as a mark of quality has made the airline stand out distinctly among the rest, sponsoring various major events. Even so, BA operates under stiff competition and needs to constantly review its marketing strategies to ensure that it sustains its competitiveness. Recommendations Therefore, in order to achieve a sustainable competitive advantage in marketing: 1. BA has to maintain its presence through alternative distribution channels such as the travel agents so as to serve its majority and wealthier clientele who desire to have the services of a travel agent. In fact, with effective marketing of its online services for travel agency, the airline could increase its online distribution from the current 20%. 2. Marketing the Executive Club in a more effective approach and ensuring that such customers receive the accompanying benefits would go a long way in enhancing the customers’ loyalty and referral. 3. Feedback questionnaires would be an effective approach to gather from the customers the reasons for which they prefer the airline, be it for their prices, quality or other tings which in turn would make BA respond accordingly so as to ensure customer satisfaction. 4. The airline should continue with the strategy of shifting price with demand so as to reach out to promote its brand among off peak and business travellers. Otherwise, the market continues to be competitive and strategies have to be constantly aligned to the anticipated changes. Bibliography Balmer, JMT, Stuart, H & Greyser, AS 2009, ‘Aligning identity and strategy: Corporate branding at British Airways in the late 20th Century’, California Management Review, vol. 51, no. 3, pp. 6 – 25. British Airways 2013, History and heritage, viewed 6 March 2013, http://www.britishairways.com Brownsell, A 2010, ‘British Airways adopts ‘balanced’ marketing strategy during fresh walk-outs’, Marketing, 26 May 2010, viewed 6 March 2013, http://www.marketingmagazine.co.uk Civil Aviation Authority 2013,Welcome to UK Civil Aviation Authority, viewed 6 March 2013, http://www.caa.co.uk Haberberg, A & Rieple, A 2007, Strategic management: Theory and application, Oxford University Press, Oxford, UK. Shaw, S 2007, Airline marketing and management, 6th edn, Ashgate Publishing, Hampshire. Solomon, MR, Marshall, GW, Stuart, EW, Barnes, B & Mitchell, VW 2009, Marketing: Real people, real decisions, Pearson Education, Essex. Appendices Appendix I Figure 1: BA plane bearing the Union Flag branding on its tail fin (Brownsell 2010). Appendix II Table 1: Operating and financial statistics for five years ending 31 March 2010 (British Airways 2013)     2010 2009 2008* 2007 2006** Traffic and capacity   Revenue passenger km (RPK) m 110,851 114,346 118,395 112,851 109,713 Available seat km (ASK) m 141,178 148,504 149,576 148,321 144,194 Passenger load factor % 78.5 77.0 79.1 76.1 76.1 Cargo tonne km (CTK) m 4,537 4,638 4,892 4,695 4,929 Total revenue tonne km (RTK) m 15,588 16,054 16,797 16,112 15,909 Total available tonne km (ATK) m 21,278 22,293 22,872 22,882 22,719 Overall load factor % 73.3 72.0 73.4 70.4 70.0 Passengers carried ’000 31,825 33,117 34,613 33,068 32,432 Tonnes of cargo carried ’000 760 777 805 762 795 Revenue aircraft km m 618 644 644 637 614 Revenue flights ’000 257 279 281 276 280 Operations             Average manpower equivalent (MPE)   37,595 41,473 41,745 42,683 43,814 RTKs per MPE   414.6 387.1 402.4 377.5 363.1 ATKs per MPE   566.0 537.5 547.9 536.1 518.5 Aircraft in service at year end   238 245 245 242 284 Aircraft utilisation (average hours per aircraft per day)   10.43 10.68 10.91 10.82 10.29 Unduplicated route km ’000 628 621 629 589 574 Punctuality – within 15 minutes % 81 77 63 67 75 Regularity % 98.0 98.6 98.2 98.5 98.8 Financial             Passenger revenue per RPK p 6.30 6.85 6.42 6.44 6.31 Passenger revenue per ASK p 4.94 5.28 5.08 4.90 4.80 Cargo revenue per CTK p 12.12 14.51 12.57 12.74 12.94 Average fuel price (US cents/US gallon)   189.24 284.06 245.26 209.60 188.22 Interest cover (note 2) times (2.9) (3.6) 15.4 16.7 6.0 Dividend cover times n/a (5.2) n/a n/a n/a Operating margin (note 3) % (2.9) (2.4) 10.0 7.1 8.5 Earnings before interest, tax, depreciation, amortisation and rentals (EBITDAR) m 642 645 1,780 1,549 1,666 Net debt/total capital ratio (note 4) % 52.0 56.3 28.7 29.1 44.2 Net debt/total capital ratio including operating leases % 63.1 62.8 38.2 39.6 53.0 Total traffic revenue per RTK p 48.31 53.00 48.91 48.79 47.53 Total traffic revenue per ATK p 35.39 38.17 35.92 34.35 33.28 Total operating expenditure per RTK (note 5) p 52.76 57.38 46.91 49.26 47.26 Total operating expenditure per ATK (note 5) p 38.65 41.32 34.45 34.68 33.10 Read More