Strategic Perspective Of BRITISH AIRWAYS

Executive Summary

British Airways is one of the largest airlines operating in the UK. It was initially public company, but then in 1987, it got privatized. In the past decade, British Airways have encountered crises from time to time, which has made its position in the market weak. In addition to this, there were certain promises which company made such as providing advanced technology and working on environmental sustainability, but it failed to do so. This report has analysed company position in the European market and has conducted micro and macro environmental analysis using Porter’s five forces and PESTEL. Moreover, value chain analysis and resource based view is also conducted so as to identify strengths, weaknesses, threats and opportunities. This has led in designing strategies for British Airways.

Introduction

British Airways is UK airline. This airline is operating at London Heathrow which is the main hub. British Airways is modern fleet in the world. This airline was founded in 1924 under the name of ImperiaL Airways. Under this name it operated till 1935. After that, many small air transport companies merged and formed British Airways. In the year 1939, British Airways became nationalized to make British Overseas Airways Corporation (BOAC). BEA and BOAC, together, came under British Airways in 1974. In 1987, British Airways was privatized and since then it has faced fierce competition. The company has been labeled successfully as an environmentally friendly and green technology adaptation and it is one of the pioneer airlines in these strategic decisions. This report has been designed to identify different strategic decisions taken by the company. In addition to this, there are different strategic models which have been used in different questions given in the report. In this manner, the report is divided into different sections. This report has particularly focused on the strategies adopted by British Airways and how these have turned out for the business. In this report, some strategies are also suggested to British Airways to improve their products and services.

1.Micro and Macro Environment Analysis

The first section is divided into two sections. First analyses the micro environment and the second analyses the macro environment using different models.

1.1.Micro-Environment Analysis through Porters Five Forces Model

This is a framework through which competition is analysed and then the business strategy is developed (Porter, 1996). Industrial organisation economies are drawn upon from which five forces are derived that determines the competitiveness in the industry and also identify attractiveness (Grant, 1991). For the airline industry, Porter’s five forces are mentioned in the following headings.

1.1.1.Threat of New Entrants

It is difficult to reach the airline industry as the cost of entering this market is high. Therefore, the threat of new entrants in the airline industry is low. High taxes and strict regulations are another allegations on the entrants. But, a threat can be from the traditional airlines when they enter low cost markets as they already have equipment and standard operating procedures for operations (Airline Business, 2004).

1.1.2.Bargaining Power of  Buyers

Individual flyers and buyers / online portals / travel agencies are two sub-groups in this indusry. The first group buys tickets for various reasons, including business or personal related. The individual flyers buy tickets of specific airline and there are many options available to the buyers. The second group is also acting as a middle man that are working with various airline companies at a time. Their responsibility is to provide best suitable ticket to the customer. These types of buyers are in large number.

The switching cost in this case is low because customer select a flight base on cost and the place where they are going. In the airline industry operating in Europe or US have their own niche market (Francis et al., 2004). There are some that focus on the best services and some focusing on cost etc. The bargaining power of the buyers is low in airline industry.

1.1.3.Bargaining Power of Suppliers

Boeing and Airbus are two main suppliers of the air transport. The inputs in the industry are extremely standardized. The companies only tend to segregate the services.. The suppliers in this industry cannot be easily switched. Firms develop long – term contracts with the manufacturers. The next supplier in this industry is oil supplier. The bargaining power of this supplier is also high. Another supplier is an airport. Parking of airplane is expensive and for this reason the bargaining power of this supplier is high. Since, not many manufacturers are available, it can be said that the bargaining power of suppliers is high.

1.1.4. Threat of Substitute

The risk from the substitute is medium. There are multiple options to fly within same geographical locations such as bus, train car or boat. But, there is s cost to switch. Through plane people can travel far more faster as compared to other modes. In terms of service, cost and convenience, airplane surpasses other modes of transportation (Chan, 2000).

1.1.5.Rivalry

Over the past 15 years, the rivalry has increased due to liberalization. The low fare airlines through their business models have made competition even more causing full service airlines to lower their costs. The rivalry is high in this industry.

1.2.Macro-Environment Analysis through PESTEL

Macro-environment analysis is conducted through PESTEL. PESTEL for airline industry is conducted in the following headings.

1.2.1.Political

Three of the political factors bought a change in the airline industry

  • War and Terrorism: War and the terrorist attacks of September 11th, 2001 has created fear among airline travelers (Sunday Business, 2004). This has affected the airline industry all across the world.
  • Deregulation: Deregulation in the air transportation happened from 1978 – 1997 in Europe.  With the exemption and deregulation, low cost airlines such as EasyJet and Ryanair expanded in the European market.

1.2.2.Economical

This one of the major macro-environmental factor for airline industry. The growth of the airline industry reduced drastically after Spetember 11th, 2001 event (Sunday Business, 2004). In addition to this, the fluctuation in the oil prices affect the profitability of the airline industry.

1.2.3.Social

The low-cost carrier is one of the crucial part in the European airline industry. This factor is in demand in the European airline industry. In addition to this, salaries of pilots is also a social aspect. Pilots in European industry are paid the lowest salaries (Khaled et al., 2005).

1.2.4.Technological

As it has been mentioned hat aircraft manufacturers are developing eco-friendly aircrafts so as to save energy. The latest technology will help the aircrafts to reduce consumption of fuel, but can also help in reducing the costs of operations (Adams, 1997.

1.2.5.Environmental

Pollution, recycling and attitude to the environment are included in ecological factors. Pollution is top most concern for the airline industry. It has been announced that more runway will be built on different airports. The airlines are forced now to adopt “green flying” and environmentalist approach. Social responsible airlines are becoming one of the most common initiatives taken by the companies.

1.2.6.Legal

Legal frameworks are available for company law, employment law, tax law and regulations of the airlines. Lawsuits from workers as well customers have been seen against airlines in recent years. Regulations are becoming stricter. Landing right, redundancy and health and safety are also included in legal factors (Gudmundsson, 1999).

2.Analysis of Internal Environment

In this section internal environment has been analysed utilizing resource based view and value chain analysis. Both of these are discussed in separate headings.

2.1.Resource – based view

The resource-based view is all about the resources and capabilities with which the performance of the firm is affected (Barney, 1996). This also means that the resources are unevenly allotted in the industry (Penrose, 1995). Therefore, it is very crucial for the organisations to be aware of their strengths as well as weaknesses so as to develop strategies with the help of which they can outperform competitors by utilizing the resources and capabilities which a firm own (Barney, 1991). It has been argued that the resources of the company are not mobile through the whole company (Barney, 1991).

Resources in the resource – based view refers to capabilites, assets, organizational processes, information, firm attributes, knowledge etc. These are controlled by the company and this controlling helps the company in strategy implementation that in turn improves efficiency as well as effectiveness (Barney, 1991). Capabilities in resource – based view deals with the abilities of a firm resulting from the utilization of the resources (Grant, 1996). In a broader sense, these include competences, core competencies and dynamic capabilities (Leonard-Barton, 1992).

2.1.1.Resource – Based view for British Airways

2.1.1.1.Resources of British Airways

  • Physical Capital: According to a report of British Airways (2008), the fleet, which the company owns is of 245 aircrafts which have access to more than 550 destinations. This is physical capital of the company through which it gives competition to the other companies such as EasyJet. They also provide additional services (Datamonito, 2008).
  • Human capital: The human capital of company are its valuable asset and they have their own knowledge and skills through which they are operating the company effectively.
  • Financial resources: Financially the company is strong, but it has been affected back in the 2008 recession and by the September 11th attacks. Still, it is in good position. This is the reason the company has invested in obtaining codeshares, subsidiaries and franchise partners. American airlines are one such example.
  • Technologies: In technology, the company has an international customer database through which it stay in touch with the customers all across the globe.
  • Reputation: British Airway is a renowned company globally and it is known as a reputable brand. The repute of brand in the market is because of its long-lasting survival in the airline industry.

2.1.1.2.Capabilities of British Airways

The core competence of the company is that it wons flight simulators, training of ground school and cabin safety training which is a strength of the company. There are different routes which company takes and it has the capability of taking passengers to different routes. In addition to this, flight attendants only handle 12 customers and 64 passengers can travel in BA subsidiary aircraft. BA owns a training school with the name City & Guilds, and it is educating all the cabin crew in the UK.

2.2.Value Chain Analysis

Value chain was suggested for the first time by Michael Porter (1985) so as to identify the value of customer that gets accumulated in the chain of activities which company perform leading to the end product. Value chain has been defined by by Porter as internal activities relates to designing, producing, marketing, delivering and supporting products. There are two aspects in value chain one is primary activities and second are support activities. All in all these help in developing end product. The value chain analysis for British Airways is described in the following heading.

2.2.1.Value Chain Analysis of British Airways

The primary activities and the support activities for British Airways is mentioned in the following points.

  • Primary Activities
  • Inbound Logistics: BA has control on stock. It has high quality training school which is accredited from City and Guilds (BBC, 2008). Company relationship with the suppliers is strong.
  • Operations: Baggage security has increased over the period of time. This has improved after a new channel report against BA (Channel Four, 2008). Operations in check-in services and online bookings have been improved. They also offer pre-booking services additionally.
  • Outbound logistics: Customer services are good. There are majority of destinations which can be availed by the customers through airport database.
  • Marketing and sales: Company is marketing its brands, but Virgin Atlantic is its strong competitor.
  • Service: It offers loyalty club cards to its customers.

 

  • Support Activities
  • Firm Infrastructure: The hierarchy in BA is structured to allow the airline to gain competitive advantage through specialist knowledge. This is lacking in downsized firms.
  • Human Resource management: Customer service training was introduced in 2007 which enabled BA to attract best employees. Employees provide their feedback through “Speak up” opinion survey (BBC, 2008).
  • Technology development: It has slack resources which enable BA to innovate, but it has failed in this aspect.
  • Procurement: It has economies of scale and this has allowed the company to build relationship with suppliers.

3.Analysis of PR Crises

Three cases are discussed to cater the contents of this section. These are mentioned in the following sub – headings.

3.3.1. Crisis 1

First crises mentioned here is a crash of BA Boeing 777 on January 17th 2008. This crash took place at Heathrow airport. There were 152 people in board. All of them survived. This crash happened due to product failure and it wasn’t the company’s fault. Hence, came under a violent unintentional act. But, safety of airline called into action. The good point which saved company was having a low crisis history (BA, 2008). Initially what cabin crew did clear up the premise of the airplane. BA is always successful in implementing safety procedures. British Airways management continuously updated media (Allport, 2010). All the news on media was positive for the company because it was praising the cabin crew, which averted the disaster  (Webster, 2008a, b). Contingency planning is present in organisations to deal with unexpected events (Schneider, 2004). Strategic contingency planning is specifically developed when an overall strategy for organisation is made. In this case, cabin crew took all the headache and effectively managed the situation because they were trained.

3.3.2. Crisis 2

Soon after the crash of airplane of British Airways, opening up at Heathrow terminal 5 on March 27th 2008 was also  a crisis situation because people had in their minds the incident of product failure. Opening up terminal was loaded with technical glitches on the very first day of operation and this created a national embarrassment (Transport Committee, 2008). Before this crisis, BA also had negative reputation that arose because of luggage loss (Robertson, 2008). Until this crisis, there are reports that management was aware of the problems in the aircraft, but due to lack of communication British Airways oversees the issue (Webster, 2008d). Until this crisis, the company improvision was slow as well as ineffective. Everyone was blaming every other people in management. (Brown, 2008). This blame game shows that corporate governance was lacking in British Airways and no one held responsible for the miss-management and ineffective operation as corporate governance means to management relationship with stakeholders and developing agency (Roe, 1994). This also points out that  ethical climate was lacking in organisation.

3.3.3.  Crisis 3

Another major crisis which company faced was in October 2009 and it was because of a dispute in the cabin crew. Cabin crew did strike against British Airways and they resulted from internal disagreement. The company had disputes with its workers and there was a negative history related to this. This crisis was intentional and it was nonviolent to the industry. Management in this case was aware of the strikes to be happening and they had a contingency plan for that. News were all over media, Youtube and other online portals (Cowen, 2010).

Previously, it is mentioned that to handle aircraft crisis, the company did not have contingency strategic planning, but in this case company already had a plan. The company was socially responsible towards employees and for this reason they handled this issue. In this case, company likewise in the first crisis managed to save its reputation, same happened here. Utilising the principles of reputation management (Giovinco, 2015), company shaped up the perception of public. This is the reason, the company financial position was not affected.

4.Strategic Analysis

This is the most important section as it has discussed various strategies of British Airways and has also suggested some of the strategies with the help of which company gain competitiveness.

4.1.Business Level Strategy of British Airways

4.1.1.Cost Leadership

Cost leadership strategy is one of the easiest strategies to comprehend as it relates to minimizing company cost. This aspect is very important for British Airways as over the period of time company profitability has decreased. Company’s failure in providing low fares to the passengers is one of the prominent failures. This was because the company was unable to generate profits. This can be done by introducing new routes. It has been stated by Parnell (2011) that when cost is kept low, the company gets the advantage and this is very important for the airline industry as through this strategy competitiveness can be gained as mentioned by Puzell (2011).

When there is cost leadership, then the company becomes able to set market prices, but it is noted that British Airways is not following cost leadership as there are other companies which are giving low fares to the passengers such as Ryanair and EasyJet. In contrast, business level strategy of British Airways is purely dependent on differentiation. According to Porter (1998), it has been unveiled that when cost leadership strategy is pursued by the companies then it is expected that they should perform above the average, which in this case is not visible. This means that there can be another strategy which British Airways is following.

4.1.2.Differentiation

Differentiation takes place when a focus on supplying a unique product or service to the market which is not yet provided. Differentiation takes place in the firms not following cost leadership strategies and it relates to the external business environment as most suitable ways are identified to meet the needs of the customers (Proctor, 2010). In case of British Airways, diversification is seen by its presence in most geographic positions. There are 400 destinations which are served by British Airways and most of the revenue is generated from passenger and cargo service.

The total revenue generates from passenger and cargo service was 44.3  in financial year 2012 (British Airways annual report, 2013). Nineteen point nine percent  (19.9 %) of the revenues were generated from US and Canada. 16.4 % of revenue was generated from Continental Europe (Datamonitor, 2013). Consequently, there are more opportunities for British Airways in diversified geographic location. But, the company needs to focus on more geographic positions such as large Asian Countries such as India and China. This will create a positive image of British Airways and will reduce the risk of geo-political and soci-economic issues.

4.2.Ansoff’s Matrix

Ansoff’s grid is a strategic tool with the help of which market growth strategy can be evaluated and it helps in evaluating the products (Ansoff, 1957). There are four quadrants in this strategy, namely market penetration (existing products – existing markets), market development (existing products – new markets), product development (new products – existing markets) and diversification (new products – new markets) (Porter, 1996). This model has been used to review the strategy of British Airways from all the aspects because it has been mentioned in this report that the company is not popular in the market.

Considering the market penetration, market share can be gained by British Airways through modernization and innovation in the business approaches as well as brand image. The environmental stance can be improved by conserving energy and by increasing the measures through which market share can be drived. The segment focus strategies must be used which is totally ignored by British Airways. Much of the profit margins can be obtained from business class passengers, but the company is neglecting them. British Airways should focus on providing services to business passengers as these cannot be replicated or copied by competitors.  Therefore, for market penetration it should focus on its existing products and should enhance them.

In the market development, British Airways must focus on existing products, but these should be offered in new markets. It should focus on Asian countries. In the product development, British Airways should focus on developing new products such as it can enter into new business such as cruise. It can offer additional services to the passengers. In the current era, where there are many Airline, British Airways can compete in the market by further innovating its existing business. This is very easy and it can be done with the help of customer feedback and by improving services. Moreover, keeping prices low, but with efficient service can create a positive image of the company.

Moreover, the company is not focusing on technological advancement. It has been mentioned before that all the steps taken for innovation have failed. The company should involve technological advancement in the product development phase. This should be done in product development. Diversification can be done in any market as a company is already having large fleet. Likewise, British Airways have partnered under one world name, company can partner with Asian Airlines through which it can enter in these markets with less restrictions.

4.3.Suggesting Strategies

Some of the strategies which should be included in strategic business planning for British Airways are mentioned in the following points.

  • Additional Services: The company should introduce complementary services such as car rental, concierge services, hotel booking, mapping of routes for foreign tourists and appointment scheduling. These are the value added services and these can help in gaining more customer base to the company.
  • Internet services: Internet access during flight should be given to the passengers. It is also included in value added services.
  • Diversification / Market Development: Diversification must be done in substitute services such as cruise and ferries. In addition to this, flight scheduling to large Asian countries must be done.
  • Cost Leadership: As it has been mentioned previously, that British Airways is not following cost leadership. Therefore, there is a need to focus on cost because this can help companies in gaining market leadership and through this it can set the market price. Consumers today are cost sensitive. Hence, this should be included in business level strategy of British Airways.

4.4.SAF Model and Strategy Implementation

4.4.1.Strategy 1 – Diversification in Large Asian Countries or adding more routes

  • Suitability
    • Economic Sense: Economically company can afford entering into Asian countries because it can increase its routes to India and China. In addition to this, total revenue increased to 2.9 % which shows that company economic condition is good.
    • Economies of scale: In the Airline industry of Asia, there is not much scope and most of the people are using international airplanes. Therefore, BA can increase its routes.
    • Suitability from environmental and capability perspective: BA is following environmental sustainable practices with the help of which it is preserving environment. For Asian countries, it can do so and it also has the capability.
  • Feasibility
    • Funding: The funding of BA can be done from revenue generated by the company. In 2014, total revenue generated was £975 million.
    • Human Capital: The company has its own training school and it can train its staff to deal with passengers on Asian countries.
    • Time:  Since, company fleet is enough, therefore it can allot time to this side of the business.
    • Information: Information must be gathered through surveying the market. This can be done through giving contracts to research related companies.
  • Acceptability
    • Return: Return will be high because most of the Asians have settled in western countries.
    • Risk: Risk is high because Asian market is unstable.
    • Stakeholder reactions: Asian market can increase profitability. Therefore, stakeholders must welcome this strategy.
  • Implementing this strategy
    • This strategy can be implemented by first having a survey done. This will identify the  market opportunity and consumer profile will be highlighted. After this company can make plan as how to enter.
    • It is suggested to enter through partnership, joint alliance.

4.4.2.Strategy 2 – Cost Leadership Strategy

  • Suitability
    • Economic Sense: Company is in good position to offer low price fares to consumers
    • Economies of scale: Through setting low prices, a company can actually gain hold of the market price and it can get economies of scale.
    • Suitability from environmental and capability perspective: BA is following environmental sustainable practices. It has the capability and competence to use cost leadership as a strategy.
  • Feasibility
    • Funding: As mentioned before, the company is generating good revenues. Therefore, funding must be used out of its own revenues.
    • Human Capital: For cost leadership, top management and finance department should sit and develop ways through which this can be implemented.
    • Time: Company has time.
    • Information: Market information must first be gathered and competitor’s pricing should be kept in consideration while making decision.
  • Acceptability
    • Return: Customer base can be increased which can give a lot of return to the company.
    • Risk: There is no risk in this strategy.
    • Stakeholder reactions: Stakeholders must appreciate this strategy.
  • Implementation of cost leadership strategy
    • This strategy can be developed by calling a meeting of board of directors who should sit and decide on how to implement this strategy.

Conclusion

In this report, the macro and micro environmental analysis of British Airways has been conducted and after that issue have been unveiled. Some business level strategies have also been discussed mentioning the weak points of British Airways. In addition to this, implementation of strategies with the help of SAF model was also part of this report. In a nutshell, it has been identified that British Airways is not following cost leadership. It has been suggested that it should focus on cost leadership along with differentiation strategy.

 

 

 

 

 

 

 

 

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Appendix

Porters Five Forces

 

 

 

 


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