Assessment of Operational BA

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Assessment of Operational, Environmental and

competitive positions in the Perspective of

British Airways Plc.

MBA - Strategic Management

Submitted to: Dr.Teddy FosterDate: April 26, 2011

ByMd. Faruk Hossain

Student of MBA Term-2 (BFM Group-2)

College of Technology London

CTL student ID: 094075-86

UWL student ID: 2010020021

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TABLE OF CONTENTS

1. Executive summary..3

2. Introduction..4

3. Company back ground..5

4. Literature review......6

5. Macro Environment..7

6. Pestle analysis...7

7. Opportunity and Merger analysis........10

8. Porter Five Forces...11

9. Micro Environ.....11

10. Resources based View Point...12

11. Generic Option .......1212. Ansof Matrix ......12

13. Michael E porter generic strategies.13

14. Recommendation.15

15. Conclusion...15

17. References....16

18. Appendixes...17

EXECUTIVE SUMMARY

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founded of British Airways this airline industry faced lots of crisis and undulant situation.

Most of the time this Airline manage their business by taking successful strategy and some

cases those decision they had taken by them was not successful. In this report we will mainly

focus on the operational function and the Industry environment of British Airways within

extreme competition. It means how British airways will define their strategy for getting the

competitive advantages while consider its operational business functions and industry

environment.

British Air ways operating national and world wide scheduled air service for the carriage of

passenger and baggage, freight, mail service. There is huge carriage service across the world

which make them leader in the industry. No doubt profitability of a company or industry

relies on customer satisfaction and their demands. So an organization definitely realizes its

peripheral and internal circumstances, markets, and its own capabilities. It also need to be

understand those very changing factors which are uncontrollable and try to adapt this

uncontrollable factors within it business environment. This report will give a demonstration

how British Airways were dealing those issue and still they are dealing by taking strategic

management decision. Various types of strategic management tools and model will be used in

this report for assessing the operational function and business environment which will also

lead us to take the proper management decision in the case of British Airways PLC.

Company Background

Company background of BA is historic. After formation of BA it got numeric historic events

those events are left a vital impact on British Airways. In 1924 four airlines merged together

and formed as Imperial Airline. 1939: 24th November Imperial airways and British airwaysLtd combined under provisions of British Overseas Airways Corporation. 1974: 31st March

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BOAC and BEA disappear and formed as BRITISH AIR WAYS. In 1976 the British

Airways they introduced they one of successful project in the history the supersonic plane

named Concord Under the supervision of Lord King BA started to transform as private

company1996: Robert Ayling appointed as a Chief Executives. In the Robert Ayling

revolutionary changed has occurred. He build strong Brand image and which make the

company profitable and BA become number one airline industry during his era. 1997: 10th

June British Airways introduced its new corporate identity, a newly stylish logo and ethnic

tailfins. 2000: Due to poor company performance of Robert Ayling (CEO), 25th April he was

replaced by Rod Eddington joined as new CEO of British Airways. 2001: November

British Government gave the permission to BA for the construction of terminal 5 at London

Heathrow Airport. In May 2004 British Airways completely banned their high supersonic

aircraft called Concord. In September BA sells its 18.5% stake in the national airline of

Australia Qantas. In the early of millennium airline industry was profitable and Heathrow

Airport becomes World most crowded airport in the world In September 2005 Willie Walas

joined as a CEO after retired of Rod Eddington.1st February 2006, BA renamed fully owned

subsidiary British airways city express to BA connect. BA becomes one of the most over

crowded airport in the world due to this reason providing mass service 27 th march 2008 BA

opened Heathrow Terminal 5. In 8th April BA merges with Iberia to form International Air

line group, the third largest airline in the world by revenue (see Appendix 1 for the timeline

figure)

Literature review:

Success of an organization or a company depends how well the organization performing in

the business world. Similar types of business and in the same business environment one

company is doing better and other its not! Business world is very dynamics and flexible it

has changing overnight. So it is very important to assess the situation of the hole business for

the particular industry and must define the strategy how the will take the opportunity or howthe will overcome the adverse situation and thats the way organization will get the success.

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Strategic management is consisting of two parts one is formulation the idea or strategy and

another is implementation of the idea or the strategy. So many scholars have defined the

strategy management from their research and observation.

In terms of future directions, the basic problem of any company (or, for that matter, of any

living thing) is survival. And to survive over the long term, as Lowell Steele of General

Electric succinctly summarized, a company must have two strategic capabilities: the ability to

prosper and the ability to change (Steele 1989, pp. 22-23).

There is a keen interest among serious observers of business to understand the reason for

profitability and market success. However, observers of business often uncritically leap to the

conclusion that the keys to success can be identified by watching and imitating the

behaviours of successful firms. (And this is often called benchmarking or best practices.)

However, uncritically using currently successful firms as a standard for action assumes that

the successful outcomes are associated with identifiable key success factors, and by imitating

these factors, other firms can achieve similar successful results Besanko et al., 2000, p. 4.

Strategy, planning, budgeting, and knowledge are the four forward-looking activities of

management, and it is important that they be clearly distinguished. Budgeting is the

allocation of resources for the future operations of an organization. Budgeting is neither

planning nor strategy. All organizations budget, but they do not necessarily plan nor

strategize. Organizations annually budget in order to allocate the resources for continuing

operations. Thus the managers of all organizations do formulate budgets; but not all managers

plan or formulate strategy fredrick Betz, 2003, p. 9.

Macro Environment:In the general senses macro environment of the company refers

its external economic factor that plays an important role for the organizations. In the business

environment three are some factor which are responsible to affects the business. Slide change

of these factors which mat leads a massive change in the business. Once there is any change

in the external factor, then manger should define right strategy to cope up the change of this

external factor. So organization always keep examine the external environment so that they

can take the opportunity

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External Analysis: There are various types tools for analysing the external

environment of a company such as PEST analysis. PEST analysis is very effective, simple

and widely used technique that will give the clear view of some external forces which are

directly or in directly affect the business and subsequently making the strategic decision.

How British Airways surrounded by those external forces which are push the company taking

strategic decision and making their vision for the future.

Political Factors

Change of government has a great influence on the organization. Similarly a British airway

has getting same problem. During Labor government era they have given the permission to

British Airways for making third runway in the Heathrow airport. Heathrow airport is one of

the busiest international passengers airport of the world and BA wanted to have this 3 rd

runway cause it will bring for them more profit. After the election new coalition government

has came and they banned the previous government plan. Dismissal of the third runway plan

at Heathrow it will make an impact their aircraft hanger capacity because of after merge with

Liberia ultimately they need new runway because of their capacity already packed. BA spokeman said, Government has already conscious about the making of third runway at Heathrow

air port that they could get the more economic benefits but they cancel the plan and he also

include that As Britains only international carrier, BA are promise to giving the supreme

international air links to help the countrys economy After merging with Iberia airline they

are concerting at Madrid airport, which has excess capacity. (More Information Available in

the appendix: 1.2)

Economic Factors

Economic factors also affect the airline industry. When recession has started after that British airway

has gradually loosing their revenue. Still this recession is going on and its got the shape W

According to BA financial reports comparatively this year BA is going to losing their revenue

more. This recession has a great impact for all kinds of industry. BA is the best frill airline

service with premium class seat and expensive and its greatly affected by the recession. And

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the other had no frill airline industry getting the benefit of recession. After recession hit on

BA the policy they had taken to cut down their cost. They are trying to reduce their staff and

also administrative function. (See Appendix 1.3)

Social Factors

Social or cultural factors has a great impact of any kind of business because corporate

industry or business covered by the culture. The social and cultural image defer from country

to country. On the other way British Airways is a multinational company they were operating

worldwide flight service around the world so they have to consider this issue very care fully.

If we follow United Kingdom demography we will observe that United Kingdom is

becoming an aging people dominating country. These old people expanding the Grey

Market who are past their leisure time by traveling. So this is considerably a great

opportunity for the airline industry to expand their business if they focus about the particular

aged group of customers. (see Appendix 1.4)

Technological Factors

Technology is one of vital issue of any organization and the modern world is truly dependent

on technology. Now in days technology is one of the vital weapons proper use of this issue

company can get the best performance and they can also reduce their cost as well. And the

perfect example reflected on BA Chief Information officer Paul said Airline industry using

the technology to drive the streamlining business processes which are also help to minimize

cost and removing complexity he also added

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We successfully reduce our 40% cost by running our IT operation over past four years. And

we are doing it more efficiently and effectively very simple and keeping its standard IT

operation playing a key role for British Airways they made 20% profit to 620 million in the

face of gradually increasing of fuel price and rapidly growing competition with no-frill

airlines. Bill Goodwin. May 2006. BA developed their online ticket selling which also cut

down their cost and also minimized their huge direct customer service over phone or direct

meting. BA focusing on how they can give the latest technology to their customer it will also

create their high value service.

Another problem is gradually increasing of oil price so BA trying to Innovate new technology

like renewable energy they made a partnership with Solena group and Installing a sustainable

jet-fuel plant. BA has vision they will start to use biofuel instead of oil from 2014.

Environmental issue

Environment is one of the Potential factors for British Airways it has great impact on

business. Like emission carbon dioxide which is cause of burning fuel these types of problem

create public awareness and also part of corporate social responsibility . BA is trying toreduce their emission of carbon-dioxide by using the bio-fuel and renewable energy. These

types of research also increase the production cost.

Legal factors

On March 2008 BA agree with the open sky policy. Open sky policy explains EU airline can

fly to US from any airport from EU and also they can use the any particular air route under

open sky policy. This policy crated more completion in the airline industry. Considerably

Heathrow and us airport route is most profitable route in the air line business. (Guardian

31/03/08), it was projected due to this policy BA is going to loss their profit by 2.3 million.

BA has taken some policy to reduce their losses like they recruit lower cost of crew and they

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will arrange this staff outside of UK. And they have reduce 25% cost by recruiting lower cost

staff and also make one root flight like Paris to New York. At issue is the fact that BA wont

allow the two pilot groups to be as one. This leads us to believe that the BA management has

a different objective. That objective is to divide the pilot workforce and push further new

jobs generated by deregulation through this cheaper cost base www.baplane-bapilot.org,

See appendix 1.6

Opportunity Analysis and Merger with Liberia:Merging with the Spanish Airline

Industry considerably it is the best opportunity for BA. Two large companies will be able to

create the great value composition. In the modern world technology will be one of the best

opportunities for them. Now in days E-business becomes more popular and reliable and cost

driven policy. This is also a great media of getting the customer need. Through the

technology BA is going to make the renewable energy like bio-fuel that will keep the

environment safe as well as it will decrease the oil price. Value adding and innovating flight

service will be great opportunity for BA. Like making new sophisticating air craft new seat,

network and produces new attractive service will be great opportunity for British air ways.

( more information are available in appendix 1.7)

Porter five forces:

Today world is very much competitive in every sphere. No doubt analyzing of competitive

character of airline industry is very crucial and tactical for generating strategic decision for

the BA. Potential competitive forces define the profitability of an industry and

simultaneously its plying great role in order to define the strategy of a company Michael E

Porter March-April 1998, p.21-25. See appendix 1.8

Threat of new entrants: Three is no vital chance of new entrants.

Competitive rivalry: Yes there is competitive rivalry

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Bargaining power of supplier: Supplier is stronger.

Bargaining power of customer: There is not any potential threat from customer. Because

BA maintaining premium customer serving with offering great safety.

Threat of substitutions: Yes for the short haul distance there is big threat for substitutions.

Micro Environment

British Airways Plc is one ofthe largest international regular airline and carriage service in

the United Kingdom and in the world. After formation of British airways and still now so

many historic events and strategic management decisions has taken place in order to make

this company as a profitable business. It is also notable that British air ways has change its

Chief Executive officers for several time due getting the perfect person who are able to take

better strategic management decisions. So it is very important subject to understand the

business environment of British Airways for getting perfect result in the terms of taking

proper management strategy.(More Information in the appendix 1.9)

RESOURCED-BASED VIEWPOINT: Collis and Montgomery says that Corporate

strategy is such a way company created value by assessment their recourses and coordination

of its dynamics activities its based on their recourses, business and structure system of the

company. Collis and Montgomery so it is very much potential to understand about resources

of and its multi using approaches how a service has produced by using its external and interrecourses David J. Collis and C.A Montgomey, 1998, p. 117 (See Appendix 1.10)

Strength

Merger with Spanish Iberia it could be strength for BA. British Airways is a well-established

brand name that has gained loyalty and trust from customers. Innovative culture enables BA

to take full advantage of technological developments for example, online sales, and drive thru

check in. BA has a global geographic coverage with excellent communication with strong

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international alliances. BA has strong Brand image. BA is the Premium service airline which

is the great strength of British airways.

WeaknessBA has some weakness after Iraq war and manuscript of 9/11 they are recovered little bit but

thy have suffering for liquidation problem negative in net income and high cost of debt is the

main weakness for the BA. Recent cabin crew strike for several reasons it means employee

relationship is not good in the BA.

Generic Option: When business reach to its maturity stage after that end of the maturitystage or keep the maturity or growth rate the market has to define their strategy in order to get

the profit from the business. Now in a days Airline industry is much and more competitive

then it was before. Selection of a strategy is complicated. In order to find the suitable strategy

we have to focus on four key points which will help us to find out the best option which will

fit with BA. As they are 1.How much cost will required. 2. Assesment of the risk associated

with the options. 3. What types of commitment (investment and resources) they have for the

particular busies. 4. Retaliation from the business after implantation of the strategies.

Ansoff Matrix: Ansoff matrix is one kind of tools in order generating strategic option. Brief

description of Ansoff Matrix is described below in the perspective of British Airways.

Market Penetration: According to the Ansoff matrix market penetration is the option for

the B.A. Market penetration means penetrate the product to the all types of customer. Yes BA

can follow the idea but it is not easy to establish this idea. They can offer new service it may

increase their production cost.

Market Development:

Alternate way they can consider about the market development especially in the overseas.

Again they can penetrate their service in the overseas which may obstructed by the other

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domestic airline and their government. more money as I motioned in the BA suffering serious

debt funding so it may not viable for BA to select this option.

Product development: Ba can consider about the product development idea. And they have

already considered this step. Does BA have the skill and knowledge is necessary to do it,

How BA will face the to entry barrier. All the product existing in the market they will

compete with the new product? In addition we have to consider the investment and resources.

For an example Virgin Airways they developed their service like giving extra service like

home to airport and airport to hotel by their personal transportation system.

BA has to find out a solution how they can developed their product through innovation and

research, then their product will begin to take care it self and also the can able differentiate

from the other products that are existing in the market. They modified their service more

automation and quicker because service of the BA has slower than other operator.

Diversification of product: Diversification approaches will help BA to sustain their

business. They can do through innovation, merger. But diversification approaches come when

a company or firm fully maturated it in business life cycle. They can go for related

diversification like they are maintaining now Cargo service. This processes can be accelerate

through foreign direct investment, alliance, merger and acquisitions.

Michael Porter Generics strategies:

Michael porter generic strategy mainly focuses few main option for the company if they wish

to select that open its possible to get the sustainable competitive advantage. This generic

strategy based on overall cost leadership and differentiation of product.

Cost Leadership: Its associated with the low cost strategy. It means company defines their

strategy they provide the lowest cost in the market in order to getting the competitive

advantages. If they wish to get lower cost strategy they must have gain the economy of scale

for their particular product. It means it will add the low value of the product. This strategy

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mainly associated with technology and frequent uses of their resources or maximum they can

use their resources. This strategy also reduces the resources as much as possible. Low cost

focuses gives the less profit and try to capture the mass market. In the case of BA they are

following low cost option. This strategy fit with low cost Ryanair. So in the case of BA cost

leadership approaches is absent.

Differentiation: Differentiation strategy associated with higher risk. This option differ the

product from the market existing product. More value addition is required for the

differentiation. BA follows the differentiation option. That is why their service got more

special, and costly, the use their large number of recourses. They have good customer service,

highly skilled employee, BA supreme air service which very much famous in the world that

BA service is more luxurious, safer than other which help then to get strong Brand image in

the airline industry. (See Appendix 1.12 )

Recommendation

British Airways setup their goal to become a global premium air in the world and they will

compete 2012. BA focusing their all concentrations on customer they will use their all types

of resource in order to getting the customer satisfaction. They will deliver the out standing

customer care, differentiating of product or all classes of customer service. They will full feel

their objective so customer can get taste of global premium airline where customer can travel

anywhere in world according to their demand.

Customers: BA will assign the customer demand. What types of service they expect from

the industry they will full fill this demand especially in long haul service? And they willprovide different service for their customer. So it will improve their revenue stream.

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Deliver the differentiated service for the all customer key touch point

Colleagues: BA will reassess their staff through training, reward motivation and proper

human resources management which will give best customer services.

Performance: The will increase their infrastructure and modified their technology in order

extensive service for the customer. They will be keeping counting to grow and make shire

their self-become one of the dominated airline in the London.

Partner: Through merger and acquisition will build mutual trust and it will help BA to

become a global premium Airline.

Excellence: Service that will provide by it will get appeal from the customer globally. BA

wants fly with their customer anywhere in the world. BA will confirm the supreme and

unique service for all types of customers according to their needs. They will do the proper

marketing then customer will come to know if they have to pay little bit extra but that service

thy will get it will be excellence. See apindix.

Conclusion: British air ways is one of the prestigious airlines in the world. But after the

economic recession this industries has struggling to stay in the market. So strategy

formulation is the very important for this industry that will help this organization to

regains its past pride. Economic world is moving very first so rapid change in

business environment also another reason which always motivate the organizationdefine right strategy which business really need for the particular time being.

References:

Besanko, David and David Dranove and Mark Shanley, 2000. Economics of Strategy (2nd

ed.), New York: John Wiley & Sons.

British-airways-history., [online], available from URL:

http://www.ehow.com/facts_5526082_british-airways-history.html#ixzz18VFL2MyG ,

[retrieved 1 December 2010]

David J. Collis and C.A. Montgomery , Corporate Strategy: A Resourced-based Approach

McGraw Hill, 1998

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Fredrick Betz, 2003, Executive Strategy, Strategic Management and Information Technology,

JOHN WILEY & SONS, INC. USA, p. 9.

(Guardian 31/03/08), www.guardian.co.uk, online version.

Hausmann, Ricardo, Emilio Lozoya Austin, Irene Mia (2009), The Mexico Competitiveness

Report, British Airways, p 494

Johnson. Gerry, Kevan Scholes, Richard Whittington, et al (2008), Exploring Corporate

Strategy PESTEL p56.

Michael E Porter March-April 1998, ed 10th , On Competition, Library of Congress

Cataloging in publication data, USA, p.21-25.

Stegmann. Juan Pablo (2009) Strategic Value Management: Stock Value Creation and the

Management of the Firm "internal analysis", p109.

Steele, Lowell W., 1989. Managing Technology, New York: McGraw-Hill.

www.baplane-bapilot.org,

Appendix:

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Appendix 1.1(Time Line)

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Appendix 1.2

Political Factor:

At the beginning of the year 2001 Airline industry they started to face difficulties due to terrorist

attacked and this incident also recognized as 9/11 strategy this had a direct relation for the British

airways revenue. BA earning their most of the profit from London to New York business class

passenger. After the 9/11 most of the passenger canceled their travel during this time its cost them

heavy financial losses. When customer were losing their faith due insufficient security for bringing theirtrust BA implement high measure of security. Government also announced for all the airline industry

they have must keep details of all the customers 72 hours before the journey when they journey starts.

In July 2005 United stated started war with Iraq this war hit in the oil prices and no doubt this leads to

unstable political issue.

When British airways supersonic jet concord air plane introduced in the airline industry at that time it

was revolutionary steps. This Concord air plane had great triumph, time consuming premium air service

and so on. But the problem was that this plane used to produce huge sound pollution and this service

was very much familiar to the business class specially those passenger they were traveling from London

to New York. America deals this types situation politically. The tried to not to give any chance to

British airways so that they cant enter their market. Then BA authority deals this matter politically and

negotiated with the America that, they were not going to operate their flight any time. BA were allowed

to operate their flight in a particular period of time and fixed airport. And BA was agreed with their

agreement ultimately they made profit through concord air service.

Economical Factor: Appendix 1.3

Taxis ion issue also another concerning for BA each year tax has rising which affects its pricing model. This

year tax has increasing 3.5% which will effect on the ticket price. Government has also adding per flight tax

and environmental tax which will decrease the profit margin from per ticket. Now BA keep trying to reduce

price at best as possible which will help them to grab more customer.

During the war between USA and Iraq Fuel price has raised at highest rate and it cost them 100 extra. Again

during the recession this oil priced has decline that also affected the exchange rate as well and dollar got the

more strength than pound rate. Which also causing low price of ticket. And this time low cost airline took the

complete advantages. Main activity of BA is transporting passenger all over the world when price decrease or

increase or the international economy slow down passenger always looking for the better option based on the

particular economic condition. So BA took some step to reassessment their product to reduce their cost or

modified their ticket price.


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Appendix: 1.4

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Social factor: Appendix 1.4

BA is a multinational organization and they have to consider about different group of people bases on

culture, social and religious issues. BA operating their long haul flight in Middle East and Asia. Most of

the customer from that region they demand Halal Food which is issue of social factors. Because of

Muslim people they eat HALA food. On of the catering service supplier of BA is Gate Gourmet they

said The company some of the major airlines has decided that majority of their food will be Halal

meals for all types of long haul British Airways from Heathrow which will create the standard

production and cost will be go down or getting the boost profit CHRIS BROOKE 14th September

2010.
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Appendix: 1.5

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Environmental factor Appendix 1.5

BA trying to modernize their all fleet keeping the standard operating to make sure

air quality will be good. They will reduce the noise pollution 15% by 2050.BA

focusing on the recycling of waste through improvement of their infrastructures.

BA has some bad image about the losing of baggage and canceling of flight which

is a esthetical issue. This issue has a very bad impact of their brand and reputation.


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Legal factors: Appendix 1.6

Another legal factor BA is suffering that is trade unions. BA suffered many strikes when

they approached for any changed.

A significant legal factor affecting BA is the power of trade Unions. BA has suffered many

strike actions (August 2004 and August 2005) and is aware of the implications that the

trade unions can cause. Legal regulations on employee rights, customer rights and an

upsurge in environmental and ecological issues are more factors that BA must consider

(BBC News online 09/02/06).

Appendix: 1.7BA has revolutionary supervision to managing their employee and providing them excellent training, salary and

reward for buildup highest quality work force truly it will very good opportunity for them. Skytrax group is an

airlines quality certifier they usually do the research on airline passenger, airline alliance, and airport, weakness and

transport related issue and they published an annual report consist of best airport, best airline. So it would be a bestopportunity for British Airways for build up their strong brand image by make up their weakness.

Threat Analysis

When recession has started after that world economy has collapsed and the same it has a very strong impact on

airline industry. BA is still suffering with the economic recession and trying to come out from this circle. It means

this recession is still a great threat for BA. On May 2008 BA has joined with open sky alliance after this company

has facing economic loses each year. Though company has taken some step to mitigate this issue. Recently BA has

facing serious debt funding problem which is a threat for the industry. If revenue increases at an alarming rate then it

is very hard to manage the working capital and recently exactly same thing happened for BA. Each year BA losing

their profit and now they are in huge losses. It may lead the acquisition issues. Gradually rising of oil price is one of

the threat which are already been discussed. Low cost airline they are already taking full advantage still in strong

growth rate, awareness about the environmental issue, international politics, terrorist considerably threat for BritishAirways. Change of government and change of policy also creating threat for BA. BA desperately needs another air

terminal in BA but government refuses the plan.

Competitor Analysis

Competitor analysis is a potential segment for the generating strategic decision. Some experts think that it is the best

way to taking any decision for the business by keeping the idea about competitors. That will give an idea about

competitive advantage and disadvantage; it will give better understanding about market, better forecasting about the

future market and help to find out the best strategy for the business.

In the perspective of British airways what type of organizations we may consider as a competitor? We may define

that similar types of company they are giving the same service in a same time for the particular market. It may be

noted that all types of similar companies are not following the same strategies for their business. One world In the

case of BA main competitors is American Airlines, Delta Airline, and Virgin airline, Qantas Airline, Lufthansa

Airline and Air France KLM etc. World airline business we may define in the 5 categories as they are 1.Specialist

Airlines. 2. Non schedule Airlines. 3. Low Cost or No frill Airlines. 4. Local Airlines. 5. Mass service provider

Airlines. See image. BA facing the competition from the Maas service providers for the long haul service on the

other hand they are facing competition from the low- cost air service in the local market. BA doing their business

based on transatlantic route and Europe to USA. Their main customer is business class people When low cost airline

enter the airline industry total scenario of the Airline industry has change a lot such as Ryanair, Easy Jet, Air Berlin,

Air Asia etc. Dramatically in the recession period this airline industry playing the leading role and they are plying a

vital role on Mass air service provider like BA. . Economic recession has great impact in airline business and

gradually down of oil price creates the extreme competition like with Virgin Airline, Emirates airline and due to this

competition fare has decreased almost 30%. Low cost airlines have taken the cost cut down strategy and mass air

service they ignored that strategy may they failed to reach the target due to this reason rise of low cost airline

improve dramatically and the capitalized the market as well. In the perspective of superior cost managementRyanair, Easy jet, Air Berlinn business paradigm is perfect they were giving very low prices in the different air

schedule. In the future there is a great chance this low cost airline will be the new entrance for the mass service

provider (Telegraph, 2002). If we see financial state of that particular company it will reflect the same


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Porter 5 forces analysis Appendix 1.8

Threat of new entrants: Three is no vital chance of new entrants.

The golden era of airline industry was 1985 to 2005. After that air line industry become more competitive and the time of

economic downturn, terrorism and war makes its more difficult for the new entrants. Hence airline business is a high

capital cost time consuming, too many infrastructure required or this business and high risk associated with this business so

it is very difficult for the new entrant to open an airline industry very quickly. British Airways is one of the largest airlines

in the world and it has strong brand image, if a new company form they could rarely compete with the BA. But there is achance like short haul airline we called Easy jet, Ryan air, they are still in profit and they might be new entrants for the

long haul airline industry. So British Airways has less threat in the perspective of new entrants.

Competitive rivalry: Yes there is competitive rivalryAnalyzing about the competitive rivalry it will give an idea what types of competition is going onamong the particular and similar industries. There are two types market for BA they are asfollows long haul and short haul flight. So they two types of competition from both directions if

consider about the long haul market then BA has to compete with Air France, Qantas, Lufthansa etc.They will compete on flight route, service network, new innovation, aircrafts, and the quality of service. On the other hand

short haul airlines industry they are competing with BA in order giving best lower prices. (Feldman, 2002)

Bargaining power of supplier: Supplier is stronger.BA worker using the trade union in order extend their bargaining power it help them to bring down the price, contract

terms or delivery duration from the supplier. Every year BA spends 5.2 billion for the supplier so supplier issues are very

vital for the BA. They are trying to make better relation with the supplier. it will help them to get more efficiency in their

business (BA annual report 2009/10). BA has numerous buyers but their main buyer is oil supplier then followed by air

fleet and aircraft supplier. They are strongly dependent on oil supplier cause fluctuation of oil price or supply of oil has

changed their business a lot. More or less fuel price dynamic but other supplier cost is fixed. According BA annual report

statement We are monitoring our supplier and our record tells as we got 25 most important suppliers they may creates

difficulties because of operational faults then it may causes the fatal impact in our business. We are trying to mitigate this

problem by updating all the information and maintaining supply risk measure (BA annual report 2009/10).

Bargaining power of customer:

Economic recessionhas a great impact on bargaining power of customer. There is high rate of customer bargaining power

in the case of British Airways. Three is extreme competition exists in the market and customer focusing on the low priceissue again they can vote against the BA if any cases they are not happy. Recent strikes in the BA and focused by media

peoples are getting more awareness. So they are looking for the alternative airlines. There is lots of airline industry in the

world which makes the customer more stronger n the case of British airways industry. In the year 2005 there was a

problem about the cheek in and baggage handlers strikes at Heathrow in the support of Gategourmet employees that has

serious impact on their revenue. Customer power is more effectives in term of short haul distance this market is dominated

by low cost airlines there offering price is cheap from BA through online sale and they have less procedure to get in the

airplane. This low cost swapping sys that customer loyalty is important. Civil aviation act also says about customer right

which also makes them stronger. See appendix.

Threat of substitutions:

BA mainly operating their flight for the long haul and short haul distance. In the term of Short haul distance there is

substitutions like customer can use Coach, Railway etc. This alternate communication is more time consuming and less

cheaper from air fare. So there is a threat for short haul distance. But for the long haul distance there are not any potential

substitutions because of long haul distance mainly associated with the country to country and factors of propercommunication, time, and the service customer want to use that may not same in the all the country. Like rail

communication is very faster in the United kingdoms but it may not truth for the other countries so there are not any real

substitutions.

Appendix 1.8

t is very much potential to understand about the business paradigm of British Airways.

What types services they usually provide or how their business paradigm looks like. And

ow its differing from the others companies.

British Airways Business Paradigm: Compare with Rayn Air Ltd.

Quality Low Quality

Luxury service Very Simple Service

Long Haul Service Short Haul Service

Best Frills No Frills Airline

Reliability Low rate of reliability

Flexibility Flexibility

High Facilities Low facilities

High tech High tech

Better Safety Lower Safety

Higher Cost Lower Cost

Premium Service Economy Service.

Business paradigm also creates the value proposition of the company. In the case of British

ir ways their business paradigm has also changing over time. It means over the time

British Air ways got strategic drift because of wrong management decision. If we look at

he British air was income sources that we will see that their business follows the Pareto

Principle. Also known as 80/20 rule. According to this formula when British air ways

ccupied it 80% seats by the economy class passengers then they get the break event point.

And rest of 20% seats for the business class. It means 80% of the affects comes from 20%

f it causes. So it is very much important for British air ways they must occupied their

conomy class and for the maximization for their profit they must have occupied the

usiness class seat. So its strongly remarkable British air ways always focusing group of

ustomer those people who are financially very much flexible or business class people

ather than normal passenger. In the era of Rod Eddington,(CEO) he has made some

trategic decision which made the company very much unsuccessful. It also noted thatBritish airways deal with business class people across the world wide and most of the

ustomers were traveling from United Kingdom to USA. At that time he had decided to

educe the economy class 75% and increase the business class 25% for maximization of

heir profit. But after incident of 9/11 this strategic decision completely failed because of

heir business class passengers were not traveling at that moment as a result they never

een got break-even point which give them a huge losses in their airline business history.

Merger and Acquisitions (Appendix 1.7)

British Airways Plc and Spanish airline Iberia recently merged in the early of 2010. Companystatement saying due to this merger both company will be benefited from share holders,

employee, and customer perspectives. Iberia is one of the Spanish giant airline there main hub

located in Madrid in the consequence of this merger no doubt British Airways will get the large

market of Europe which will help the company to compete with other company Air France,

Lufthansa. BA forecasting they will save 350m per year. This two new company will

recognized as International Airlines groups. Headquarter of the new International Airline group

will be in London and stake holder of BA thy will retain 55% of the total share. Now BA has

taken the policy consolidation. International airline group got 419 aircraft. And flying to more

than 200 destinations and it is expecting they will carry 62 million of passenger in a year. BA

chief executive is very hopeful and pessimistic about the merger he said This merger will give

huge network for the air passenger that is very positive for the customer they can enjoy thepremium air service (Willie Walsh Chief Executive of BA). This year and following two years

will be very competitive and uncertain for the airline industry this merger will help us cutting

down our cost and we will be successful to get the competitive advantages. Hence this

advantages BA and Iberia waiting for heavy losses This merger help the company to compete

with their rivalry Airlines, like Air Newzland, Emirates, France.

Alliance: In the economics downturn all the global airline is trying to survive and that action

they are talking for come out from the recession economic analyst has a positive thinking

about these types of approaches. The merger creates the massive idea for the customer

and airlines. It will give them space for take part in the business to spread their cost based,

and the have to do some thing for come out from the recession and its the positive

movement. Ashley Steel, global chair for transport and infrastructure at KMPG. This

merger was lying as steeping stone towards transatlantic airlines and American airlines.


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Assessment of Operational BA

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