British Airway British Airway British Airway British Airway’ ’ ’ ’s s s s Dilemma Dilemma Dilemma Dilemma Eliminate short-haul or not? Eliminate short-haul or not? Eliminate short-haul or not? Eliminate short-haul or not?
British AirwayBritish AirwayBritish AirwayBritish Airway’’’’s s s s Dilemma Dilemma Dilemma Dilemma
Eliminate short-haul or not?Eliminate short-haul or not?Eliminate short-haul or not?Eliminate short-haul or not?
ContentsContentsContentsContents
Part 1Part 1Part 1Part 1 The Main Facts And IssuesThe Main Facts And IssuesThe Main Facts And IssuesThe Main Facts And Issues
The SWOT AnalysisThe SWOT AnalysisThe SWOT AnalysisThe SWOT Analysis OfOfOfOf BA BA BA BA’’’’s External and s External and s External and s External and Internal EnvironmentsInternal EnvironmentsInternal EnvironmentsInternal Environments
The BAThe BAThe BAThe BA’’’’s Stragetic Choices Stragetic Choices Stragetic Choices Stragetic Choice
Part 2Part 2Part 2Part 2
Part 3Part 3Part 3Part 3
The main facts and issuesThe main facts and issuesThe main facts and issuesThe main facts and issues
Here we goHere we goHere we goHere we goHere we goHere we goHere we goHere we go
The deregulation of European airline market
bring in many new entrants in 1997
Facts and issues
Low-cost business models have become the
driving force in the world airline
industy
Competition in the low-cost
carrier market in Europe is brutal
BA was faced with a loss of market share
and a financial failure in short had segament
1. 1. 1. 1. DeregulationDeregulationDeregulationDeregulation 2. 2. 2. 2. TrendTrendTrendTrend 3. 3. 3. 3. CompetitionCompetitionCompetitionCompetition 4. 4. 4. 4. PredicamentPredicamentPredicamentPredicament
SWOT analysisSWOT analysisSWOT analysisSWOT analysis
BA’s external and internal environment
StrengthsStrengthsStrengthsStrengths ThreatsThreatsThreatsThreatsWeaknessWeaknessWeaknessWeakness OpportunitiesOpportunitiesOpportunitiesOpportunities
StrengthsStrengthsStrengthsStrengths
Global Global Global Global brand brand brand brand
&network&network&network&network
High High High High profitablityprofitablityprofitablityprofitablity
Financial Financial Financial Financial superioritysuperioritysuperioritysuperiority
Making BA Making BA Making BA Making BA ““““the worldthe worldthe worldthe world’’’’s favourite airlines favourite airlines favourite airlines favourite airline””””
Creation of BACreation of BACreation of BACreation of BA’’’’s club world business classs club world business classs club world business classs club world business class
Estabishment of an extensive global networkEstabishment of an extensive global networkEstabishment of an extensive global networkEstabishment of an extensive global network
With more than 2000 million With more than 2000 million With more than 2000 million With more than 2000 million £ net assets and over net assets and over net assets and over net assets and over 7500 million 7500 million 7500 million 7500 million £ revenue every yearrevenue every yearrevenue every yearrevenue every year
With a nice asset-liability ratioWith a nice asset-liability ratioWith a nice asset-liability ratioWith a nice asset-liability ratio
ManagemManagemManagemManagement Skillsent Skillsent Skillsent Skills
Experienced in management and operationExperienced in management and operationExperienced in management and operationExperienced in management and operationOutstanding marketing skillsOutstanding marketing skillsOutstanding marketing skillsOutstanding marketing skillsHarmony realtionship with govermentHarmony realtionship with govermentHarmony realtionship with govermentHarmony realtionship with govermentWillie Waslh was highly-skilled in cost-cuttingWillie Waslh was highly-skilled in cost-cuttingWillie Waslh was highly-skilled in cost-cuttingWillie Waslh was highly-skilled in cost-cutting
StrengthsStrengthsStrengthsStrengths
BABABABA’’’’s profits per passenger is the highest s profits per passenger is the highest s profits per passenger is the highest s profits per passenger is the highest ————————————————(FIigure 1)(FIigure 1)(FIigure 1)(FIigure 1)
Figure 1: Profits per PassengerFigure 1: Profits per PassengerFigure 1: Profits per PassengerFigure 1: Profits per Passenger
Ryanair
Southwest
British AirwaysBritish AirwaysBritish AirwaysBritish Airways
Air France
Lufthansa
EasyJet
0000 4 4 4 4 8888 12 12 12 12 16161616 20202020
9999
6666
19191919
13131313
11111111
2222
Profits per Passenger=Revenue per Passenger – Costs per Passenger
Jetblue -1-1-1-1
WeaknessesWeaknessesWeaknessesWeaknesses
The aging The aging The aging The aging of fleetof fleetof fleetof fleet
Poor Poor Poor Poor consumer consumer consumer consumer
ServiceServiceServiceService
Cost Cost Cost Cost disadvantagesdisadvantagesdisadvantagesdisadvantages
The average age of the fleet is 9.5years,so it The average age of the fleet is 9.5years,so it The average age of the fleet is 9.5years,so it The average age of the fleet is 9.5years,so it need to invest in infrastructure.need to invest in infrastructure.need to invest in infrastructure.need to invest in infrastructure.
The lowest The lowest The lowest The lowest ““““% on time% on time% on time% on time””””-----74%-----74%-----74%-----74%
Poor performance in cost-controlPoor performance in cost-controlPoor performance in cost-controlPoor performance in cost-control
Half-heartedHalf-heartedHalf-heartedHalf-hearted
StrategiesStrategiesStrategiesStrategiesNO contunity of strategies in short-haul bussinessNO contunity of strategies in short-haul bussinessNO contunity of strategies in short-haul bussinessNO contunity of strategies in short-haul bussiness
WeaknessesWeaknessesWeaknessesWeaknesses
The lowest The lowest The lowest The lowest ““““% completions% completions% completions% completions””””-----98.5%-----98.5%-----98.5%-----98.5%
The highest The highest The highest The highest ““““Lost bags per 1000 PAXLost bags per 1000 PAXLost bags per 1000 PAXLost bags per 1000 PAX””””-----17.7-----17.7-----17.7-----17.7
OpportunitiesOpportunitiesOpportunitiesOpportunities
The integration of Europe market
Price wars among low-cost airlines
OpportunitiesOpportunitiesOpportunitiesOpportunities Airway became more and more popular
ThreatsThreatsThreatsThreats
The influx of new entrants which were fast growing (Figure 2)
The privilege in UK began to lose
The competition in the airline market grew intense day by day
ThreatsThreatsThreatsThreats
00002001200120012001 2002200220022002 2003200320032003 2004200420042004 2005200520052005 2001200120012001 2002200220022002 2003200320032003 2004200420042004 2005200520052005
MillionsMillionsMillionsMillionsUnit:Unit:Unit:Unit:Millions Millions Millions Millions £ Millions Millions Millions Millions £
RyanairRyanairRyanairRyanair EasyJetEasyJetEasyJetEasyJet
Figure 2:Key Statistics of Ryanair and easyJetFigure 2:Key Statistics of Ryanair and easyJetFigure 2:Key Statistics of Ryanair and easyJetFigure 2:Key Statistics of Ryanair and easyJet
BA was confronted with the heavy pressure fromRyanair and EasyJet’s rapid growth.
-20 -200-20 -200-20 -200-20 -200
-10 -100-10 -100-10 -100-10 -100
0000
10 10010 10010 10010 100
20 20020 20020 20020 200
30 30030 30030 30030 300
40 40040 40040 40040 400
50 50050 50050 50050 500
60 60060 60060 60060 600
70 70070 70070 70070 700
1997199719971997 1999199919991999 2001200120012001 2002200220022002 2003200320032003 2004200420042004 2005200520052005 2005200520052005IFFGIFFGIFFGIFFG
1998199819981998 2000200020002000 2006200620062006IFFGIFFGIFFGIFFG
Profit befor taxProfit befor taxProfit befor taxProfit befor tax
Basic EPS per shareBasic EPS per shareBasic EPS per shareBasic EPS per share
Figure 3:BAFigure 3:BAFigure 3:BAFigure 3:BA’’’’s Profit befor tax and Basic EPS per shares Profit befor tax and Basic EPS per shares Profit befor tax and Basic EPS per shares Profit befor tax and Basic EPS per share
British Airway’s poor financial performance during 1998 to 2002.
10101010
20202020
30303030
40404040
50505050
60606060
70707070
80808080
90909090
100100100100
0000
-10-10-10-101997199719971997 1998199819981998 1999199919991999 2000200020002000 2001200120012001 2002200220022002 2003200320032003 2004200420042004 2005200520052005 2005200520052005
IFFGIFFGIFFGIFFG2006200620062006IFFGIFFGIFFGIFFG
Passenger load factorPassenger load factorPassenger load factorPassenger load factor
Operating marginOperating marginOperating marginOperating margin
Cost efficiencyCost efficiencyCost efficiencyCost efficiency
Unit: %: %: %: %
Figure 4:BAFigure 4:BAFigure 4:BAFigure 4:BA’’’’s Cost efficiencys Cost efficiencys Cost efficiencys Cost efficiency、Operating margins and Passenger load factorOperating margins and Passenger load factorOperating margins and Passenger load factorOperating margins and Passenger load factor
Figure 5:Boston matrixFigure 5:Boston matrixFigure 5:Boston matrixFigure 5:Boston matrix
Long-Long-Long-Long-haulhaulhaulhaul
CargoCargoCargoCargo
ShortShortShortShort-haul-haul-haul-haul
GOGOGOGO
StarsStarsStarsStars Qestions marksQestions marksQestions marksQestions marks
Cash cowsCash cowsCash cowsCash cows DogsDogsDogsDogs
lowlowlowlowhighhighhighhigh
highhighhighhigh
lowlowlowlow
Prelative market short
Inud
stry
gro
wth
rate
Focus on “stars”-------Long-haul business
From the boston matrix and the three figures above(Figure 2 Figure 3 Figure 4),we can clearly draw a conclusion that “Go” was in the unprofitable route,and the facts further proved it was a failure. So we consider that BA had no competitive advantage in low-cost business.
Figure 6:BowmanFigure 6:BowmanFigure 6:BowmanFigure 6:Bowman’’’’s Strategy Clocks Strategy Clocks Strategy Clocks Strategy Clock
3,Hybird3,Hybird3,Hybird3,Hybird————————BABABABA’’’’s two class operations two class operations two class operations two class operation
5,Focused differentiation5,Focused differentiation5,Focused differentiation5,Focused differentiation————————Long-haulLong-haulLong-haulLong-haul
1,Low price/ low added value1,Low price/ low added value1,Low price/ low added value1,Low price/ low added value————————Low-costLow-costLow-costLow-cost
1,Low price/low 1,Low price/low 1,Low price/low 1,Low price/low added valueadded valueadded valueadded value
2,Low 2,Low 2,Low 2,Low pricepricepriceprice
3,Hybrid3,Hybrid3,Hybrid3,Hybrid 4,Differentiation4,Differentiation4,Differentiation4,Differentiation
Low cost base and Low cost base and Low cost base and Low cost base and reinvestment inreinvestment inreinvestment inreinvestment inlow price and low price and low price and low price and differentiationdifferentiationdifferentiationdifferentiation
Likely to be Likely to be Likely to be Likely to be segment specificsegment specificsegment specificsegment specific
Risk of price war Risk of price war Risk of price war Risk of price war and lowand lowand lowand lowmargins/need to margins/need to margins/need to margins/need to be cost leaderbe cost leaderbe cost leaderbe cost leader
a)a)a)a) Without price Without price Without price Without price premiumpremiumpremiumpremium
b)b)b)b) With price With price With price With price premiumpremiumpremiumpremium
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The Strategy Clock: BowmanThe Strategy Clock: BowmanThe Strategy Clock: BowmanThe Strategy Clock: Bowman’’’’s Competitive Strategy Optionss Competitive Strategy Optionss Competitive Strategy Optionss Competitive Strategy Options
5,Focused 5,Focused 5,Focused 5,Focused differentiationdifferentiationdifferentiationdifferentiation
6,Increased 6,Increased 6,Increased 6,Increased price/standardprice/standardprice/standardprice/standard
7, Increased 7, Increased 7, Increased 7, Increased price/low valueprice/low valueprice/low valueprice/low value
8, Low 8, Low 8, Low 8, Low value/standard pricevalue/standard pricevalue/standard pricevalue/standard price
Only feasible in Only feasible in Only feasible in Only feasible in monopoly situationmonopoly situationmonopoly situationmonopoly situation
Perceived added Perceived added Perceived added Perceived added value to a particular value to a particular value to a particular value to a particular segment,warranting segment,warranting segment,warranting segment,warranting price premiumprice premiumprice premiumprice premium
Higher margins if Higher margins if Higher margins if Higher margins if competitors competitors competitors competitors do not value do not value do not value do not value follow/risk of losing follow/risk of losing follow/risk of losing follow/risk of losing market sharemarket sharemarket sharemarket share
Loss of marketLoss of marketLoss of marketLoss of marketshareshareshareshare
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The Strategy Clock: BowmanThe Strategy Clock: BowmanThe Strategy Clock: BowmanThe Strategy Clock: Bowman’’’’s Competitive Strategy Optionss Competitive Strategy Optionss Competitive Strategy Optionss Competitive Strategy Options
Realistic alternatives strategyRealistic alternatives strategyRealistic alternatives strategyRealistic alternatives strategy
Elimate short-haul business throughly and immediately.Elimate short-haul business throughly and immediately.Elimate short-haul business throughly and immediately.Elimate short-haul business throughly and immediately.Retreat to long-haul business.Retreat to long-haul business.Retreat to long-haul business.Retreat to long-haul business.
Compete with EasyJet and Ryanair at all reapect.Compete with EasyJet and Ryanair at all reapect.Compete with EasyJet and Ryanair at all reapect.Compete with EasyJet and Ryanair at all reapect.Set up subsidiary to strethen its short-haul net.Set up subsidiary to strethen its short-haul net.Set up subsidiary to strethen its short-haul net.Set up subsidiary to strethen its short-haul net.
Strategy 1:Downsize short-haul businessStrategy 1:Downsize short-haul businessStrategy 1:Downsize short-haul businessStrategy 1:Downsize short-haul business
Strategy2:Cut off short-haulStrategy2:Cut off short-haulStrategy2:Cut off short-haulStrategy2:Cut off short-haul
Strategy 3:Stay in short-haulStrategy 3:Stay in short-haulStrategy 3:Stay in short-haulStrategy 3:Stay in short-haul
Retreat from low-cost airlines ,focus on long-haul business Retreat from low-cost airlines ,focus on long-haul business Retreat from low-cost airlines ,focus on long-haul business Retreat from low-cost airlines ,focus on long-haul business and downsize short-haul business.and downsize short-haul business.and downsize short-haul business.and downsize short-haul business.
FirstFirstFirstFirst
ThirdThirdThirdThird
SecondSecondSecondSecond
Based on SWOT analysis,the best stragetic for Based on SWOT analysis,the best stragetic for Based on SWOT analysis,the best stragetic for Based on SWOT analysis,the best stragetic for British Airway is to utilize its strengths and avoid British Airway is to utilize its strengths and avoid British Airway is to utilize its strengths and avoid British Airway is to utilize its strengths and avoid the threats as much as possible.The following two the threats as much as possible.The following two the threats as much as possible.The following two the threats as much as possible.The following two models prove that the first stragetic is the most models prove that the first stragetic is the most models prove that the first stragetic is the most models prove that the first stragetic is the most suitable and deliverable choicesuitable and deliverable choicesuitable and deliverable choicesuitable and deliverable choice ————————Retreat from low-cost airlines ,focus on Retreat from low-cost airlines ,focus on Retreat from low-cost airlines ,focus on Retreat from low-cost airlines ,focus on long-haul business and downsize short-haul long-haul business and downsize short-haul long-haul business and downsize short-haul long-haul business and downsize short-haul business.business.business.business.
ConclusionConclusionConclusionConclusion
BABABABA’’’’s final choices final choices final choices final choice