Strategic Management of British Airways - Essay Example

Strategic Case Analysis; British Airways 2007 – Your of Introduction British Airways used to be Britain’s national airline until it was diversified in the 1990s. British Airways is currently a leading international airline brand and it has had to position itself strategically in an increasingly competitive global business environment. This paper examines the strategic environment and the relevant strategic factors that relates to British Airways. It will focus on features and factors of the aviation industry and how it affects British Airways. From there, the paper critically evaluates the strategic choices that were made by British Airways and the results that were attained from the strategic choices made by the airline. Background of British Airways British Airways is part of the International Airline Group (IAG) which is incorporated in Spain and has in its portfolio Iberian Airlines (Gray and Gray, 2011). British Airways however remains an entity that the British government has significant investments in and a strong influence within (Gray and Gray, 2011). The slogans of British Airways include “To Fly, To Serve” and “The World’s Favorite Airline; Upgrade to British Airways” (Gray and Gray, 2011). British Airways is positioned as a premium airline that targets the upper middle and the middle class members of societies (Barrett, 2010). They therefore offer premium services that targets young and old professionals, business executives and managers. These are operation are launched and conducted in richer and upmarket sections of societies around the world. The airline also seeks to target passengers who prefer comfort and reliable services (Barrett, 2010). They have corporate customers and seek to acquire premium service seekers who want a flying experience that includes a high degree of comfort and convenience. British Airways is therefore seen as a premium and executive airline brand. Internal Analysis British Airways, being a premium entity has some strengths. This includes the fact that they have the backing of the British government. They have a strong brand and a major presence in different parts of the world. The link of the airline to Britain and the United Kingdom gives BA a strong history that is tied to the old British Empire (Vaughan, 2012). Due to this, the airline continues to flourish and gain roots around the world (Vaughan, 2012). With British Airways’ position in Heathrow Terminal 5 as an entrenched and inalienable possession, the airline has the capability of expanding and reaching different parts of the world. It also has the competency to go into the growing markets of the Asian Pacific region (Barrett, 2010). On the downside, British Airways needs to be responsive to the high degree of competition that is being waged by different airlines and other entities around the world. This includes the major airlines from the Persian Gulf region that are funded by powerful oil-rich states in these nations. This comes with the inevitable falls in market shares and high costs of operations. Being linked to the British nation, BA has a tendency to fall into periods of disruptions due to trade disputes and major costs of operations. Other threats that affect British Airways include the rising fuel costs and high fuel costs. There are also issues with the increasing costs of operations and higher costs of tickets that causes low-cost carriers to get benefits by moving poorer and less endowed travelers from destination to destination. STRENGTHS WEAKNESSES Strong British government backing Strong presence in landing Major brand and a high global reach Over 260 airlines in fleet Over 150 destinations Presence in 6 continents Serious competition from Middle Eastern airlines Falling market share High cost of management Labour disputes Declining profits OPPORTUNITIES THREATS Can expand its operations from its current Heathrow hub to different parts of the world Possibility of stratifying services to cater for cheaper segments of the markets Entering and controlling the emerging markets of the Asia Pacific region. Rising fuel costs High labour costs Increasing capital costs and competition Figure 1: SWOT Analysis of British Airways Competitor Analysis Porter’s five force analysis is a major theory and concept for analyzing and ascertaining the competitive environment within which a firm operates. Normally, firms operate in business environments where different stakeholders and different players pose various degrees of threat to the organization. Hence, there is the need for the organization to come up with an appropriate way and approach to analyse these threats and deal with them. The five forces that determine the competitive environment of an industry include the following: 1. Bargaining power of buyers 2. Bargaining power of suppliers 3. Threat of new entrants 4. Threat of substitutes 5. Competitive rivalry (Porter, 2008). Bargaining Power of Buyers This refers to the possibility of buyers modifying or changing demand patterns and effecting the production system and production cycle of an industry. The bargaining power of buyers is high at the regional level. This is because more and more airline users are looking at the possibility of flying low cost or budget airlines instead of expensive airlines like British Airways (Thompson, 2009). Hence, the industry is not so guaranteed and an entity like British Airways has a major challenge in surviving. It will therefore need to consider modifying its operations since the bargaining power of consumers and other flyers and cargo service users is strong, especially at the regional level (Thompson, 2009). Bargaining Power of Suppliers British Airways has only 25 suppliers in its core operations and activities (Waters, 2012). This implies that some of the leading suppliers will be dominant and have the possibility of influencing the processes and procedures of the airline. The increases in prices and presentation of options can potentially threaten British Airways’ continuous existence and growth as an organization or entity. At the same time, British Airways relies heavily on its workers who have a strong bargaining power because they are unionized (Waters, 2012). Thus, the union serves as a monopolistic supplier of labour and as such, can dictate trends and patterns that can affect operations and stand in the way of the British Airways’ quest to attain its results and expectations. Thus, the threat of suppliers is moderate and logical. Threat of New Entrants This refers to the possibility of new airlines entering the aviation industry and posing a further threat to British Airways. Considering the level of operations that British Airways has attained and the reputation it has, British Airways is an entity that is over and above the standard status and the standard expectations of other airlines. Thus, entry-level airlines are typically going to pose little threats. However, the real threat of new entrants coming up relates to the possibility of other airlines merging and coming out as major airlines that have the same reputation and status as British Airways and other large airlines that operate in similar environments and at a similar scope. This threat exists but it is somewhat low. Threat of Substitutes The threat of substitutes relates to the possibility of consumers using other methods of meeting their traveling and logistical transportation requirements through means other than the use of premium airlines like British Airways. The obvious threat that comes up is the possibility of business travelers using other methods of meeting their business travel needs. This include the use of teleconferencing, and the conduct of regional level transactions in order to avoid the need tot ravel to the large global cities that British Airways targets in its operations and affairs. This threat is quite credible but it is low because it operates on a very small and individualistic level. And the collective impact is quite huge and large. Competitive Rivalry In Porter’s Five Force analysis, competitive rivalry refers to the entities that operate in the same market and at the same scope with the entity under review. In the case of British Airways, the main yardstick and basis of operation involve the premium airline industry and the large scale national-carrier level of operation. There are various airlines in the industry that competes with British Airways. This includes Lufthansa and Air France (Oswald and Flouris, 2012). These are national carriers that have grown and expanded to the scope of operations and volume of trade as British Airways. In terms of business strategy, British Airways’ main competitor is Emirates Airlines which is seeking to be a global airliner that has international reach and seeks upmarket consumers (Mangan et al, 2011). However, on the local UK markets, Virgin Airlines and the British Midland Airlines are the main threats to British Airways. External Environmental Analysis External analysis or environmental scanning is done by conducting a PESTEL analysis which reviews and evaluations the circumstances on the external environment relating to the Political, Economic, Sociological, Technological, Environmental and Legal matters (David, 2009). Political The political environment of the aviation industry changed significantly with the laws that sought to deregulate and liberalise the industry (Waters, 2012). This includes the laws that were made in nations around the world including the developing world that led to the privatization of the aviation industry. This culminated in the entrance of different airlines from different parts of the world that compete in an industry where British Airways and other leading airlines like KLM controlled almost oligopolistically. Also, there have been laws relating to safety and security that occurred after the September 11th terrorist attacks that hit the Twin Towers of New York. Thus, an airline like British Airways has had to make significant changes that could have an impact on the punctuality of their airlines. Economic The recession that culminated in the global financial crisis had an impact on the markets that British Airways operates within. This affected some of the years under review and as such, it was a significant aspect of the strategic planning process for the period. The UK government also introduced an air passenger duty in the period under review in UK airport (House of Commons, 2013). Since British Airways was home to the Heathrow Airport, it was affected. Finally, the price hikes in fuel that were due to the troubles in the Middle East which include the 2006 Lebanon war and other wars that were fought in the period, prices of fuel has increased significantly in the period (Evans et al,2013). Socio-Cultural There is a general decline in Europe’s population which is ageing and becoming less productive. This has had a major impact on some of the key routes of British Airways which include European markets and European destinations. On the other hand, the Asian-Pacific region seems to be the part of the world where population growth is at its peak. Thus, there is the need for airlines like British Airways to concentrate on that region and try to consolidate their interest there. Meanwhile, the decline in economies in Europe has had an impact on the level of employments on the continent. There is a higher percentage of unemployment in Europe and this has affected the trend towards personal and private travels. Technological The growth in the usage of the Internet has led to a general trend within which people can use the Internet for various forms of comparisons. This includes the comparison of prices in order to ascertain the cost of products and services. Thus, consumers can define what they really want and choose the best flights and the least expensive services. Secondly, the growth in the Internet has led to a spate of online bookings which involve the process by which people can book their seats directly through the net. This makes it easier and more convenient for travelers to arrange their journeys. Environmental There is a growing consciousness in carbon emissions and the level of carbon pollution in different parts of the world. The British airports, notably Heathrow have high emission standards, thus, airlines like BA has to ensure that they maintain the highest and best standards. Also, airlines have noise pollution targets which has been reduced and tightened, thereby requiring British Airways to run more modern airlines that have minimal noise emissions. Legal There are various health and safety legislations that have been made concerning the aviation industry. There are requirements for the operation of airlines and the protection of passengers on board of airlines. There are also restrictions and other antitrust rules that prevent airlines from merging up with certain airlines. This includes EU and other international trade treaties that hold airlines like British Airways to a high standard of fairness and transparency. Strategy Framework In the year 2007, British Airways announced that it will want to pursue a strategy that was steeped in providing the best services possible. Based on this, the following components of the British Airways strategic framework were proposed in the period. Mission The mission of British Airways is to “provide the full service experience and achieve the best targets in-flight and on the ground” (Thompson, 2009, p32). The mission is to provide a quest for excellence and continuous improvement. Vision The vision of British Airways as of 2007 was to improve their services in existing markets and expand into different markets whilst improving their brand image. Goals The goal is to encourage consumers and suppliers to act responsibly, increase profitability for shareholders. The strategic goals of British Airways included reducing carbon emissions, waste, noise and improving local air quality. They also proposed to support the community and also contribute to various charities to improve the wider community. Business Strategy In 2007, the core strategy that was put together for the operation of British Airways was in a 5-Fold Strategic Objective and they include: 1. Upgrade of Consumer Experience: There was the desire to improve profitability by improving customer service. This was to be done through the promotion of profitability and the enhancement of operations and affairs in order to ensure higher quality operations and enhanced results. 2. Competitive Cost Base: This was to be done through the acquisition of cheaper materials like fuel in order to increase the profit margins and enhance results for the firm. 3. Plan for Growth: This was to be done through the launch of new routes and the launch of Open Skies which sought to promote a partnership between BA and American Airlines to enable consumers to get benefits in the United States of America. 4. Corporate Responsibility: Corporate responsibility involved providing services in a responsible manner and ensuring that every unit and component of the organization was sensitive to the needs and expectations of different stakeholders in the external environment. 5. Consolidation of Successes: This was to be done by building upon the successful and productive units and components of British Airways. Strategic Goals The strategic goals stated in the 2007 plan was to become an airline of choice, achieve an outstanding score, grow presence in strategic and key global cities and also build a leading position in London and meeting customers’ needs. Strategic Implementation and Results From the 2013 Annual Reports and Accounts, the managers of British Airways reported that they were able to acquire the British Midland Limited from Deutsche Lufthansa in April 2012. This showed that they were moving towards the diversification of their operations through the segmentation of their services to target other niches that they normally do not cover. This was to lead to the full integration of mainland services British Airways also managed to maintain a reliable and punctual service that remained popular with business travelers. This enabled BA to maintain its status as a premium airline for the upper middle class in society. Technologically, British Airways managed to expand the scope of its operations and operate through the Internet, social media and mobile telecommunications. It was easy to book flights on iPads and other devices because they were able to improve their offerings and capture the interests and desires of consumers, particularly those who are interested in high-technological affairs and matters. British Airways also continued to grow the brand in important and sensitive aspects of the global economy. In the bid to capture the market share of the Asian Pacific region, British Airways entered a joint agreement with Japan Airlines Company Limited. This involved the attainment of some strategic benefits and also the chance to learn about the market to prepare for a full entrance and a full integration into the Asian markets. In order to capture and control market share, the Annual Report stated that British Airways had entered a partnership and a reward system with Avios. This was to reward consumers who shopped in various allied entities like BP in order to provide them with some kinds and forms of rewards. This led to the growth and the enhancement of market share attributes and production systems and provided a strong and an important system through which British Airways could maintain its position as a market leader. British Airways also sought to attain some degree of competitive cost segmentation in order to capture the less endowed and the less richer segments of the markets around the world. This was in response to the competition posed by the major entities and organizations around the world by low cost carriers in nations around the world. Responsibility and corporate social responsibility was also a means to enhance and institute the British Airways Brand. This was because they were able to project a positive image of the entity and try to fill the gaps that came with the fall in market share by presenting themselves as a partner in the development of nations and communities around the world. This helped them to enhance their services and their offerings in the nations and communities within which they operated. Conclusion The strategic environment within which British Airways operated posed a major challenge to the organization. This includes the credit crunch, competition and other matters that made British Airways look less efficient. In response to this, British Airways set up a system through which they aligned their operations and affairs to segment their operations and respond to the main challenges and the main differences in the external environment. British Airways also concentrated on entering new markets like the Asia Pacific region and also concentrating on the local UK markets by acquiring other aircrafts. References Barrett, R. (2010) Applied Business London: Nelson Thornes British Airways (2009) Annual Report and Accounts: Our Strategy and Objectives London: British Airways David, A. (2009) Strategic Management Oxford: Oxford University Press. 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