Key Strategic Issues in the British Airways Environment - Case Study Example

BRITISH AIRWAYS PLC Name: Institution affiliated: Date of submission: Tutor: Introduction British Airways PLC (BA) is the largest airline base in the world according to its fleet size, international destination and international flights. The company was founded in January 1972It is viewed as the flag carrier of the United Kingdom since its logo is the national flag of the United Kingdom. British Airways PLC has its headquarters in waterside, Harmondsworth in England. The company had a total fleet size of 290 and served 183 different destinations excluding the destinations that are served by its subsidiaries. Among the subsidiaries of British Airways PLC is British Airways Limited, open skies, British Airways World Cargo and BA City Flyer. British Airways PLC is however the second largest company when measured using the number of passengers carried, the first being Easyjet. Since 2010, the company has been recording an increase in revenues collected and has also been recording profits from the same year. The company had however recorded losses in 2009 and the first three months of 2010. It was so due to the acquisitions made during both years and the expansions made by the company. The revenue turnover after 2010 has constantly been increasing. There is high competition faced by the company from other competitors such as the Virgin Atlantic. Other competitors include the competition faced according to alliances that include airlines such as Star Alliance, SkyTeam and Oneworld. Similarly, there are other airlines that compete with British Airways PLC according to the quality of services provided and such include Nippon Airways, Cathay Pacific, Singapore Airlines, Malaysia Airlines, Asiana Airlines, Garuda Indonesia, Hainan Airlines and Qatar Airways [Bri101]. To manage their market share and try to expand it, the companies engage in three major types of competition namely passenger management and destination and number of flights for each destination and the quality of service provided. British Airways PLC thus focuses on providing the best quality services to its passengers to ensure that they achieve customer loyalty to the existing customers and attracting more customers to the company. Similarly, British Airways PLC focuses on increasing the number of destinations that it serves and increasing the number of flights made to each destination to increase convenience to the consumers of their services [Nig12]. PESTEL analysis The PESTEL analysis is a strategy that companies need to adopt in order to analyze both the internal and external factors affecting business. The components of PESTEL analysis are subdivided into the internal and external business processes. PESTEL analysis encompasses the political, economical, Socio- cultural, technological, and environmental and the legal environment of the company. The political factors are those that determine the degree to which the government interferes in the economy. The government provides political stability to enhance trade by providing laws and restrictions such as tariffs and barriers. The economic factors have a major impact on how the business operates and how decisions are made. Such factors include interest rates, inflation rates and the exchange rates that determine the economic growth of the country. The social factors are mostly the demographic factors that affect those living around the business premises, and such factors include population growth rate, health consciousness, age distribution, safety and the career attitudes of the people. The technological factors are determined by the level of technological advancement and automation as a form of technological incentives. The rate of technological advancement is usually triggered by the research and development (R&D). The technological factors determine the entry barriers for the different countries and the efficiency of production. The technological advancements determine the quality of products, costs and innovation in the type of products and services that they provide. The environmental factors are the factors that include both the ecological and the environmental aspects of a business such as the weather patterns, climate and its changes that may have effects to the business and in most cases have drawbacks to the business. Finally, the legal factors are the laws set to protect both the consumers and the suppliers or the producers. The legal factors affect how a company is run and determines its operations by determining the costs that it sets for its products and the demand that is there for the same products. Such factors range from discrimination law, antitrust law, consumer law, health and safety laws and the employment laws. Porter five forces analysis The porter’s five forces analysis was a framework that was developed by Michael E. Porter, a professor of the Harvard University. The framework was developed to analyze the various levels of competition within the business strategy development. It portrays the industrial organization (IO) economics to obtain the forces that are important in understanding the intensity of competition that the organization faces in the market. The Porter five forces analysis is used for strategic management [Mic082]. Porter developed the five forces analysis for the purposes of complementing the SWOT analysis that had become famous in business analysis. The Porter five forces analysis was to identify all the threats that the business faces. Porter divided the analysis into vertical and horizontal threats. According to porter, competition is the greatest threat that businesses face and thus the vertical competition for businesses are the bargaining power of customers and the bargaining power of the suppliers. The horizontal competition is divided into three parts namely; the threat of new entrants into the market, the threat of established and already existing rivals and the threat of close substitutes for products and services provided for by the business. Strength of the force Force or threat High Competitive rivalry The British airways PLC face fierce competitive rivalry from the Virgin Atlantic airlines. Mergers and acquisitions by the competitors continue to increase the competitive threat that British airways PLC faces. There is little difference between the prices charged by the British airways PLC and its competitors and in most cases, the competitors continue to charge less that British airways PLC. Medium Bargaining power of suppliers Currently, British Airways PLC purchases its fleet of aeroplanes from the Boeing and the Airbus companies. The fact that British Airways PLC has such choices from which to purchase their planes results to a high bargaining power. Similarly, there is only one sole supplier of fuel for the company that leaves the company at the mercies of the suppliers for the prices of the fuel. Low Bargaining power of consumers The usage of internet has increased the awareness of the buyers and the interaction of the consumers. This has resulted to a force that makes the company have no option, but to set lower prices according to the demands of the consumer. Low Threat of new entrants There are great entrant barriers into the industry as the capital weights required are very high, and there is high competition thus reducing the risk that new companies can come into the market. Low Threat of substitutes There are few known substitutes for the flights offered by British Airways except for the short haul flights that are also available from Eurostar airlines. Connecting the PESTEL model and 5-forces analyses The analysis is a form of strategic management that is used for the analysis of the macroeconomic components of the business. The components of the business PESTEL analysis provides the business with an overview of the opportunities that the business can take and the problems that they need to solve in order to improve the performance of the business. The PESTEL analysis is based on providing the means to improve the performance of the organization strategically. Both PESTLE and SWOT analysis are used together to provide business with the best options available to provide for the success of the business. Threats in business analysis are mainly the negative issues that face the company from outside the business premises and they encompass the political, economical, Socio- cultural, technological, and environmental and the legal environment of the company. Both the PESTEL analysis and the porter’s five forces analysis thus work conveniently together to help the management identify the different types of threats that a company uses and how they can be best solved. All the aspects of the PESTEL analysis have their effect on the threats provided for by the 5-forces business analysis. Each of the aspects is a determinant of the amount of competition that businesses face. Both the political and legal aspects in the PESTEL analysis provide for laws that control all the stakeholders of the company to protect the suppliers, buyers and the business entity. The bargaining power of the suppliers and the buyers are limited to a given level to ensure that no one suffers negatively from the actions of the others. The technological advancement of business allows them to stay ahead of the rest and reduce the competition that they face from rivalries. The economic and environmental conditions help to provide the business with the means to cab threat faced by close substitutes and those of new entrants by understanding the demographics of those living around the business promises, the wants and their capabilities. Key strategic issue facing the British Airways PLC Current computing technology is the main drivers of the current strategies for British airways. The company focuses on expanding its operations by increasing their passenger size to help recuperate from the depression they faced in 2009. Service delivery is a key strategic issue that is facing the British Airways PLC. Customers are a very important part of the business. Without the customers, the business would make no sales for the goods and services they provide and thus there would be no revenue collected by the business. Service delivery can thus be worked on by upgrading the customer experience by introduction of mobile application services as an online platform for the business class customers. The company also aims to modernize the current available fleet of aeroplane and offer new services by purchasing new aeroplanes to serve their proposed new routes. Key changes in the organisation’s environment The British airways has undertaken to try and improve the customer relationship with the employees and the management and maximise the revenues collected with regards to the type of information that is collected and delivered from the objectives of the business. The airline industry is very competitive and has a strong demand for travelling routes that are currently not available due to the few travellers for such route. They aim to try and achieve maximum performance by providing services to as many destinations and as many times as currently possible. The European market has new entrants that offer cheaper services for their flights than British Airways PLC currently offers. The British Airways PLC has, therefore, embarked on reinforcing the strategic operations using business intelligence that offers solutions using the objectives of the business. The objectives provide the business with targets and goals which the business uses to compare with its actual performance. The key changes in the British Airways PLC environment are thus the use of the internet business intelligence to offer solutions to the operations of the British Airways PLC and improve on its decision-making process. The technological advancement has also force British Airways PLC to adopt changes in the business that is pushed by the need to advance technologically. The company has been forced to purchase new technology that offers better and efficient services to the consumers. British Airways PLC has also had to provide an online platform for consumers to use for online booking and thus have services provided to them without having to go to the offices of the company [Bob09]. All the environmental changes are initiated in the company to help bring the services that are offered by the company to the consumers to help increase the consumer loyalty. The impact of environmental changes has been the main reason that has led to the adoption of such changes in the business. There are two key drivers of the environmental changes that have been adopted by British Airways PLC namely technological advances and the changes in consumer tastes and preferences. Change in inevitable, and when it comes to technology and consumer preferences, companies must adopt changes as and when they occur to ensure satisfaction of the consumers. The environmental changes in the case of British Airways PLC are permanent and thus only few improvements need to adopt often to ensure that the consumers are satisfied with the services offered and that the technology in use is not rendered obsolete. Having identified the consumers as key players in the running of the business, the British Airways PLC has thus identified the change in consumer services as the most important change with regards to the objectives of the business [Lau111]. Analysis of the strategic drivers An analysis of the strategic drivers’ entails strategy formulation which is mainly performed by two major types of approaches namely the corporate strategy and the competitive strategy. The corporate strategy involves the adoption of a range of collections that the company should intermingle. The competitive strategy also referred to as a business strategy involves the formulation of a set of structures that are applicable for use for the success of the company. The techniques that are used in both the corporate strategy and the competitive strategy include market research, planning, success stories of other companies, tracking and dedication to resources and resource utilization [Mic082]. Porter’s generic strategies Porter developed the generic strategies to involve three strategic options that businesses should apply in order to increase their competitive advantage over the other companies. The strategies are cost leadership, focus, and differentiation. Cost leadership involves the need that a company has to reduce its prices and make them cheaper while at the same time ensuring that they are not recording losses in the company. The company thus has to provide for services that are cheaper than those of their competitors to help maintain the competitive advantage that the company has over its competitors. Differentiation is done to the products and services to provide a distinction between them and those of the competitors. The strategy is done by the corporation to provide the need to differentiate its products and services to ensure that they are uniquely desirable by the consumers. As a result, the products and services achieve a target market of their own or reduce the demand of the products and services from the competitors. Finally, focus involves the need for businesses to offer products and services that distinctly serve a given market position that would face reduce competition from the competitors. The focus strategy can however be split into two strategies to cover either the cost focus strategy of the differentiation focus strategy each of which could be taken up distinctively by the business depending on the management. Porter’s strategies are vital to the company as they provide a strategic design for companies in the strategic management exercise. It is, however, reasonable for the business in question to only take and focus on one strategy in detail in the generic strategy. When considering the cost strategy, the business should focus fully on cost reduction technique. That is achieving maximum possible profits and revenues from the products and services. When a business sets to focus only on the differentiation strategy for their products and services, they should set to gain a competitive advantage over their competitors. However, in a consumer driven market, unlike the monopolistic type of market, it is impossible for the consumers to focus only on differentiation strategies as it may cost they a lot of finances which would force them to increase the cost of the products and services to recover the funds used for the purposes of differentiation. In such a case, the differentiation strategy is not sufficient thus they should also consider cost leadership as they focus on the differentiation strategy to ensure that the new products and services are affordable to all players in the niche market. The issue of diversification should be developed after a thorough research for the company to bring out a strong financial performance. The decisions on diversification should be mad where the risks posed by the strategies are low and the chances of failure are more or less non-existence [Ric093]. SWOT analysis for assessing British Airways ability to respond to the strategic issue The SWOT analysis provides British Airways with essential strategic options that are further pursued to allow continuous movements of the company in the profitability direction and one that allows them to increase their market share. The analysis allows British Airways to improve on any drawbacks that are that are available for the current set up of the organization. For the assessment of the strategic options for British Airways to be applied using the SWOT analysis, are the threats and opportunities that they are the issues that affect the business externally. The strategy will however use the available strengths of the business to improve the external factors affecting British Airways [Anj09]. Strength-opportunities British Airways boasts of a strong brand image as it is the carrier of the British national flag. Market segmentation focus is an opportunity that the company has and could be achieved understanding the goals and objectives of the company. The opportunities can be turned to impact positively on the activities of British Airways if they are well taken in accordance with the objectives of the business. Service delivery remains a major challenge for British Airways and its competitors and taking that as an opportunity that could be improved. Most competitors of British Airways have not been able to reach the mark of fully reliable services thus British Airways could take up the opportunity and bring improvements on the quality of services that they offer. The emergence of new markets for the British Airways is a good opportunity that can be taken. Such an opportunity could be in line with the service delivery process of the business that needs to be improved. New markets could be achieved if the company purchases new fleets of aeroplanes to serve the new markets and to increase the number of flights per period to the already existing destinations. Strength- threats With the increase in conscious consumers and strict policies and laws on the environment that are aimed towards achieving corporate social responsibility. Corporate social responsibility involves the ethical issues that govern the business. To some people, the issues involved in the corporate social responsibility usually deter companies from achieving their full potential. Corporate social responsibility helps to protect the other sectors of business from being over-exploited by the firm. The ethical issues under corporate social responsibility that govern the welfare of the people around the business premises are regulations, usually set by the governing authority to reduce their exploitation. It is, therefore, important for British Airways to promote a complete rebranding of the company’s image to help it achieve its objective of being a premier environmental friendly airline. Similarly, the lowering of costs by the company should be taken by British Airways to their advantage and used against its competitors to reduce their market share. Finally, the usage of resources is also a major threat facing British Airways. The company enjoys a vast size of resources that are underutilized. Such resources should be used towards the diversification of market while still maintain the costs on an all time low. Culture perspective The culture perspective for British Airways is best analysed using the Ansoff product market matrix since the company’s activities only revolves around service delivery to the different markets that it serves. There are four main methods that Starbucks Corporation can use to increase their competitive advantage over other companies. The first product/ market matrix is market penetration. Market penetration entails selling the same product into the same market. The most effective means of market penetration are through non-price activities like advertising and after sale services. Product development is a form of product design whereby new products and services are introduced into the same market [Mar03]. Market development is where the same products of the company are sold in a different market. Diversification entails entering a new market or change of the company’s products. Ansoff growth matrix on British Airways culture Market penetration would mean that British Airways focuses on providing existing services into existing markets. The company could achieve it by increasing the market share through strategic promotional activities and increase the customer base through loyalty scheme. The product development for British Airways will involve the technological advancements. The introduction of internet access on flights will improve on the type of services offered by the company. Market development will be possible when British Airways accepts to introduce new flight channels to new markets that are in totally new geographical setting. Such a move would help the company achieve the ability to attract and maintain more customers. Finally, diversification would allow British Airways to introduce its services in regions that have not had to enjoy the services of flights. It is, however, the strategy that poses the greatest risk of an all in the matrix. Undertaking the strategy should put into consideration the risk of possible failure [Mar09]. Competitive perspective For a business to be competitive enough, it should include both the growth that it has recorded over the years and the market share that it has. The BCG growth –share matrix is a strategic guide to the allocation of the company’s resources for maintains a competitive advantage. The BCG matrix allows products to be split into four platforms that are the stars, cash cows, dogs and question marks. The stars are characterized by huge amounts of returns on cash, high market share and are in most cases considered to be the leaders in the business and market. The cash cows are of lower performance than the stars. The company records profits and cash generation is equally high. This stage is usually the foundation of the company. The dogs are a stage where the company records lows growth rate and low market share. In such an instance, it is better for the company to be liquidated, and such products that are dogs in a company should be avoided. The question marks stage means that there is high growth rate of the product due to high demand only that there is a low market share for the product. BCG matrix on the Implementation on British Airways competitive perspective The BCG matrix is an important tool for British Airways to use in the strategic management and the restructuring of the company. British Airways has successfully segmented its services to provide services for the business class passenger and the budget passengers. The business class passengers could be viewed as cash cows as they bring in large amounts of profits for the business despite the facts that it has been recording slower growth rate. They should thus consider bringing in more value to the services of business passengers and take advantage of the fact that it could growth to be a star for the company [Car12]. The budget passengers, however, comprise the majority of travellers. The growth for such a market is achievable, but it is, however, on a competitive basis. The budget passengers provide huge market returns and thus the company should take advantage of the issue and provide better services to these customers and increase their advantage making them a preferred choice by the customers to their competitor companies. Conclusion In conclusion, British Airlines should strategically apply their strengths on the opportunities and threats that they face to ensure that they face. The management of the company should ensure that they turns their stars into cash cows with time as a reduction in the investments made would mean that there would be more returns and as a result an increase in profits. The extra funds realized from the turning of the star into cash cows would be used to improve on the products that are considered to be either on dogs or question marks. Similarly, the environmental issues in the PESTEL analysis have become matters of great concern for most businesses. An action strategy should therefore be implemented by British Airways to safeguard the environment and ensure that the services they render to their consumers are of the least harm to the environment. REFERENCES Bri101: , (British Airways, 2010, p. 68), Nig12: , (Nigel, et al., 2012, p. 17), Mic082: , (Michael, 2008), Bob09: , (Bob & Douglas, 2009), Lau111: , (Laurie, 2011), Ric093: , (Richard, William, & Peter, 2009, p. 55), Anj09: , (Anja, 2009, p. 3), Mar03: , (Marc, 2003, p. 37), Mar09: , (Marc, 2009), Car12: , (Carl & Michael, 2012), BRITISH AIRWAYS – CORPORATE PROFILE Mission – British Airways’ mission statement is to strive to become the “World’s Favourite Airline” while providing the full service experience and achieving the target both, in-flight and on the ground Vision – The vision of British Airways is to gain accreditation for Carbon Offsetting Scheme and to fulfil the industry united position on climate change by reducing the climate change emission in aviation with a cap on net emissions by 2020 and 50% cut by 2050. Corporate Responsibility Values - British Airways corporate responsibility vision is to become the world’s most responsible airline and they have developed guiding principles that describe what they are doing to achieve this goal. Read More