British airways

1

Flying into a Storm : British Airways

Ankush SharmaKamleshPeterKapilArvindOm Baroth

2

British Airways- Overview

• Full service global airline, offering year-round low fares. Flag

carrier airline of the United Kingdom. Founded in 1924 as

Imperial Airways, and operated under that name until 1935 1939,

the airline was nationalized to form the British Overseas Airways

Corporation (BOAC) 1972, BOAC and BEA were combined under

the British Airways Board .

• Mission “The World’s Favourite Airline” provide the full service

experience and achieve the target in both, in-flight and on the

ground.

3

Flying into a Storm : British Airways

• BA in 1981 was a Very Troubled Airline. Severe Losses (145 m.

Pounds), Overstaffed, Poor Quality. Close to bankruptcy. Voted

airline to be avoided at all costs. Was most unpunctual Airline in

Europe out of its own home base.

• John King Appointed as Chairman in 1981. Initiates Survival Plan.

Radical Steps Include Reducing Staff From 52,000 to 43,000 in 9

months. Next to 35,000. Largely Voluntary.

• Between 1981 and 1990, Total Transformation From ‘Bloody

Awful to Bloody Marvelous’. Record Profits (245 m. Pounds) in

1990.

4

• British Airways directed its change efforts by focusing on customer

service; King and Marshall found an airline that was in the ‘transportation

business’ and was not customer oriented; responded by changing the

culture of the organization; training program, Putting People First, for all

staff with customer contact.

• Intensive management training for those supervising front-line

employees.

• Each employee went through “Putting people First” training between

1983- 86

• All managers went through “Managing People First” trainings.

• They overhauled the human resource systems so that policies for hiring,

compensating, appraising and promoting people were aligned with the

new strategy and the training received.

5

Riding High with Alying

Marshall appointed as Chairman and Alying was made CEO

in 1996.

Ayling’s Objectives for building an BA’s existing success:o To sustain BA as “the world’s favorite airline”.

o To continue to improve customer services in a more demanding

environment.

o To extend BA’s reach through alliances and marketing

agreements.

o To improve further our management; to be the best managed

company in the UK by the year 2000.

6

Riding High with Alying

• Record profit of 585 pounds with Highest bonus payout in

1996.

• Alliance with American Airlines. This would give two carriers

joint control over 60% flights between US and UK.

• In Sept 06, it was planned that 5000 volunteers will be asked to

leave BA in coming 18 months.

• Higher management focused on pay freezes, pay restructuring,

early retirement and introduction of practices promoting

greater efficiency.

• Introduction of BEP – Business Efficiency Plan based on

projections of deregulated competition.

7

. Experiencing Turbulence

• Economic crisis hit Asia in 1997 which hit the airline

industry resulting in capacity glut which resulted in drop

in revenues.

• Customer dissatisfaction.

• Ayling started focusing on profits rather than people.

• In June 1997, about 300 staff officially went on strike and

1500 called in sick, disrupting BA’s schedule for days.

• Employee morale was all time low.

• No investor revolt because of fragmented Share holders

8

Experiencing Turbulence

• Ayling pledged to the staff that he would be more “caring”

and declared that people were back at the top of BA’s

agenda.

• Task force was setup called “ The way forward”

• BA announced plans to build a 28 million hotel at

Heathrow just for staff.

• Launch of Good people management framework with

underlying message being “manage as you would like to be

managed”.

9

Losing Altitude • In May 1999, BA announced lowest annual profits in 6 years.

• New strategy involved phasing out half of big Boeing 747s and

replacing them with smaller 777s.

• Paring down unprofitable routes.

• In August 1999, BA announced second plan to trim overhead.

• Tradition of innovation started with a concept of “Lounges in the

Sky”

• Investment in e-commerce to lift online sales.

• In early Feb 2000, the results of third quarter was mixed.

Turnover was up by 3.2% but there was an operating loss of

2million pounds.

• Share prices went below 261p and now Ayling himself was gone.

10

What went wrong

View 1:

• Ayling suffered bad luck with the Asian crisis in 1998 and a strong pound

throughout 1999 and early 2000.

• View 2:o Under him, the Airline has tried to fight on too many fronts.

o Management has been distracted from real job of keeping passengers on seats.

o He failed to take his staff with him.

• He irritated the British flying public by removing the U.K. flag from most

BA tail fins.

• As CEO Marshall had created a culture of employee and customer care

that was widely admired even beyond the airline sector. That culture

seemed to go away fairly quickly as service levels dropped and employees

felt no longer cared for.

11

What should have done differently?

• Setting the priority (not opening too many fronts).

• Be more sensitive to Human aspect and job cuts.

• During the tenure of Bob Ayling, BA had been too much outward

focused and neglecting the inward focused aspect.

• It became operations oriented, with low emphasis laid on employees

moral.

• Bob should have involved people in the process change

accomplished through people is far more effective than change

forced upon them.

• Ayling should have focused on the following questions:

• 1. Have the people helped to create the new product? 2. Are they

constructively involved in deciding how to sell the product better?

12

What should he have done differently?

• Creating a Vision for the future.

•

13

What should he have done differently?

• Start with where you want to end up Select which expectation

to change, which to honor, and which to defend New CEO face

the daunting challenges of multiple expectations Recognize

the uncertainties created by the facts of the transition at the

top.

• Focus on Few Themes if everything is a priority ,then nothing

is a priority.

• Focus on few themes and concentrating on them instead of

covering several themes superficially. It must be able to

mobilize large number of peoples Themes may be Quality,

Throughput ,performance oriented.

14

Riding High with Alying contd.

• Record profit of 585 pounds with Highest bonus payout in

1996.

• Alliance with American Airlines. This would give two carriers

joint control over 60% flights between US and UK.

• In Sept 06, it was planned that 5000 volunteers will be asked to

leave BA in coming 18 months.

• Higher management focused on pay freezes, pay restructuring,

early retirement and introduction of practices promoting

greater efficiency.

• Introduction of BEP – Business Efficiency Plan based on

projections of deregulated competition.

15

Riding High with Alying contd.

• Record profit of 585 pounds with Highest bonus payout in

1996.

• Alliance with American Airlines. This would give two carriers

joint control over 60% flights between US and UK.

• In Sept 06, it was planned that 5000 volunteers will be asked to

leave BA in coming 18 months.

• Higher management focused on pay freezes, pay restructuring,

early retirement and introduction of practices promoting

greater efficiency.

• Introduction of BEP – Business Efficiency Plan based on

projections of deregulated competition.

16

Was he wrong person for right startegy

• Companies need leaders with strengths and talents that

are different from those of their previous CEO’s. This is not

the case with Ayling. His strategies were right but the

execution was wrong.