Strategic Analysis of British Airways - Case Study Example

STRATEGIC ANALYSIS OF BRITISH AIRWAYS By number and of EXECUTIVE SUMMARY: - The purpose of this report is to devise a strategic plan for British Airways (BA) through which they can be able to tackle the issues arising from both internal and external factors as well as how tackle them by allocating minimum resources and achieving maximum output, which will determine a strategic course to be suggested to BA that will include n in-depth look into the current Strategic position of BA, Critical analysis of both internal and external environment of BA, To appropriate rational strategic alternatives using internal and external analysis and to appraise the most pertinent options for BA. Table of Contents EXECUTIVE SUMMARY: - 2 The purpose of this report is to devise a strategic plan for British Airways (BA) through which they can be able to tackle the issues arising from both internal and external factors as well as how tackle them by allocating minimum resources and achieving maximum output, which will determine a strategic course to be suggested to BA that will include n in-depth look into the current Strategic position of BA, Critical analysis of both internal and external environment of BA, To appropriate rational strategic alternatives using internal and external analysis and to appraise the most pertinent options for BA. 2 2 Table of Contents 3 1. INTRODUCTION: - 5 2. BRITISH AIRWAYS: 5 3. CURRENT STRATEGIES: - 7 4 TWOS ANALYSIS: - 8 5 PESTLE ANALYSIS: - 9 6 PORTER’S FIVE FORCES MODEL: - 11 6.1 Competitive Rivalry: 11 6.2 Power of Suppliers: 11 6.3 Power of Buyers: 11 6.4 Threat of New Entrants: 11 6.5 Threat of Substitutes: 12 7. RECOMMENDED STRATEGIES 13 7.1 Strategic Option 1- To Attain a Strong Environmental Position. 13 7.1.1. Suitability: - 13 7.1.2. Acceptability: - 13 7.1.3. Feasibility: - 13 7.2 Strategic option 2 - Capitalization of New Markets 14 7.2.1. Suitability: - 14 7.2.2. Acceptability: - 14 7.2.3. Feasibility: - 14 8 Conclusion: 16 List of References 17 Appendices 19 1. INTRODUCTION: - Owing to the changing business environment and increasing competition in the industry, it has become important for all businesses to carefully devise and plan important short term and long term strategies. This in turn has raised the importance of effective and efficient strategic management for almost all businesses. In this report an attempt has been made to analyse the current strategic position of British Airways (BA) and to propose future potential strategies in order to facilitate in the process of growth and development. In this regard the report contains strategic analysis of British Airways (BA), which will determine a course of future strategic actions to be suggested to BA. This will include critical analysis of both Internal and External environmental factors affecting BA in order to come up with appropriate rational strategic alternatives using internal and external analysis and a comprehensive study of BA strategic position. 2. BRITISH AIRWAYS: British Airways (BA) operates both domestic and international services and is the largest flag-carrier airline of UK. It has more than 300 scheduled destinations across the globe in collaboration with other flights and franchises particularly after the BA’s merger with another European airline Iberia which has increase the value of both companies to £4.5bn. It generated revenue of £7.994 billion for the year 2011-2012 with personnel strength of 37,595 (Barrows & Neely, 2011). Since BA’s privatization in 1987, its competition has risen considerably with the rise in new markets and new rivals. BA was the first airline in EU to take the initiative of introducing a scheme to reduce greenhouse gas emissions and by giving its customers more liberties such as ability to print their boarding passes online. (Martin & Parker, 1997). BA’s economic future looks bright despite global economic recession, as it announced in 2008, that it’s aspiration is to become ‘world’s most responsible airline’ (British Airways, 2008), it has managed to develop rationally guiding and exceptionally vigilant strategic decision-making principle for the purpose of achieving this goal. 3. CURRENT STRATEGIES: - The report will be designed in consideration of BA’s current strategies (British Airways, 2011): Control cost base. By utilizing environmental performance and partnerships corporate performance can improved. Modernise its fleet through innovation and offers of new services. 4 TWOS ANALYSIS: - External Opportunities Threats Factors such as Materialization of new markets, Competitors going out of business or decrease in their reliability as well as Skytrax-star system of Quality can be tapped in as opportunities. Low competition, Environmental awareness among customers in to Global Economic Recession and Open skies agreement are challenges or threats faced by BA. Internal Strengths A strong Brand value Strong partnership and profit generating franchises Colossal financial size and potency Exclusive allotment of terminal 5 Broader service offering as well as incorporation of supply chain management the opportunities already available to us can be utilized to maximize our company’s revenue. By diversifying into other markets and renovating our brand image threats can be neutralized to great deal depending rational decision making take place with regards to the implementation. Weaknesses History not favourable to employee relations. Issues regarding reliability and trust are present. Conservation when it comes to innovation and change. With the rise in technologies such as mobile phones and internet people processes have improved which can be beneficial although those factors have already been utilized further innovation among them might produce desirable results. Improved environmental stance by activists and measures such as Kyoto Protocol. 5 PESTLE ANALYSIS: - PESTEL Factor Key Points Implications for BA Political Limits due regulations (AEA, 2009). Essential for BA to continue its services. 9/11 and Heathrow terrorist plot in 2004 lead to an increase in security (Simon, 2007). To enforce consumer confidence and competitive advantage adequate measures shall be taken. Economic 2% growth in world economy in 2009 due to global economic recession (Lorca-Susino, 2011). Euro gains as compared to British Pound. (See Appendix 2) Possible reduction in Business travel due to recession and vulnerability of BA due to lackluster exchange rate. Decline in oil prices since 2007 has increased the value of US dollar against British Pound. (Lorca-Susino, 2011) (See Appendix 3 and 4) BA’s cost base will be adversely affected because of fluctuations in oil prices and exchange rates. Steepest decline in British consumer spending for July to August in 2008. (BBC News, 2008). Increase in the level of competition. Social Rising population of aged people in the country. (See Appendix 1) Impending prospect for growth as elderly generations have more time to travel especially for leisure especially international travel. Increasing redundancy (Kollewe and Sager, 2008). Leverage with regards to bargaining power as an employee is increased. Technological Amore than 34% of consumers’ user online comparison site, according to a recent study. Leverage with regards to bargaining power of the customer is increased. Use of Online booking services and check-in is gaining popularity. Must be two steps ahead of the rival airlines in accepting innovative technological; but not too much depends as it might lead to decrease in market segment of aged people. Environmental/Ethical Noise pollution controls, and energy consumption controls With the enforcement of Climate Change bill in 2008, cost has already risen, but it might further be increased due to any ratification in the bill. Difficulty in expansion because of limited land space at Heathrow and it will also cause adverse result in London’s Green Belt Area. (White & White, 2001) Limited capacity => utilization of capacity. Increasing consumer awareness of the Global Warming and our responsibilities with regards to it. Important to keep maintain the brand and revenue of BA with an increasing number of environmentally conscious customers. Loss of Baggage and excesses flight cancellation (Doherty, 2008). Will have detrimental effects for both the reputation and income of BA if left to uncertainty. Legal Relations with employee unions shall be effectively handled. Good relations with employees shall be made a priority. Open Skies Agreement (Doherty, 2008). Opportunity for BA to freely transport its jets from EU to Us and vice versa. 6 PORTER’S FIVE FORCES MODEL: - 6.1 Competitive Rivalry: Since BA operates a service of both long haul and short haul flights; there is strong competition when it comes to short-haul flights between BA and its competitors but the competition in the long-haul service is particularly dull since the level of differentiation between BA and its competitors is almost next to nothing. Direct competitive rivalry is fierce for e.g. Virgin is opposing the alliance between American Airways and British Airways by operating a website “www.NoWay-AA/BA.com” (White & White, 2008). Merger of rivals has substantially augmented the level of competition. 6.2 Power of Suppliers: BA does posses’ high bargaining power over suppliers when it comes to aircraft supplies because it does not rely on a single supplier. Although it’s bargaining power over fuel suppliers is limited because there are many suppliers of fuel to the airport. The same goes for bargaining power of employees because of unionization which make the employees having an upper hand over the management. 6.3 Power of Buyers: Suppliers have limited bargaining power because of less concentration of buyers. With the rise in the use of internet, the consciousness and interactions between the customers has increased. 6.4 Threat of New Entrants: With a competitive environment, high regularity requirements, high capital cost requirements \ and barriers to an easy exit deter new entrants. Very recently entrepreneurs have been discouraged from entering the airline market with the fiascos of XL and Zoom. (Times Online, 2008) 6.5 Threat of Substitutes: There are few direct substitutes: Short haul flights: the Eurostar or a ferry. Long haul flights: no notable substitutes. Threats substitutes’ substantial when it comes to Short-haul flights with customers also utilizing Ferry and Eurostar but no substitutes when it comes to long haul flights. 7. RECOMMENDED STRATEGIES 7.1 Strategic Option 1- To Attain a Strong Environmental Position. 7.1.1. Suitability: - BA benefits from a sound brand image (RBV) and strong competitor in the global arena with the rising changes in socio-economic behavior; Consumers are becoming increasingly becoming environmentally friendly and this strategy would make sure that BA’s reputation and income is not compromised if rivals move in a similar PESTLE direction. 7.1.2. Acceptability: - Changes in customer attitude with regards to environment have made the strategy a low risk combined with low degree of uncertainty. There is a probability that customer demands with respect to environment would evolve overtime, it would be beneficial to continue its pro-environmentally friendly policy. 7.1.3. Feasibility: - Resources shall be prioritized to be invested somewhere else because investment in environmentally friendly policies will increase the revenues. BA must be convinced that its strategy with respect to environment will be viable as even a slight fiasco would bring negative attention followed public scrutiny which would damage its strong brand value. 7.2 Strategic option 2 - Capitalization of New Markets 7.2.1. Suitability: - BA very recently has started services to in Middle East after a decade of tumultuous political environment (Morrell, 2008). There still are some risks present with regards to security issues which BA shall not necessarily take but weaker pound in comparison with Euro, the economic benefit of travelling to other countries is found in addition to an increasing demand by customers to reach domestic and internal airlines directly combines with strong service portfolio in the core long haul flights, BA by utilizing their core capabilities can fulfill their demands. The merger with Iberia is also worth noting here which has opened new markets i.e. Spain also. 7.2.2. Acceptability: - The benefits far outweigh the costs, although the difference in benefit to the current strategy may be doubtful in relation to other strategic options even though extending markets and their opportunities allows BA to capitalize on low competition as the first mover advantage is gained. 7.2.3. Feasibility: - The current strategy can be easily implemented despite BA less than expected revenue partly due to BA’s strong brand value which helps it in accommodating in an environment increasingly influenced by globalization and increasing likelihood of being accepted by new countries but it shall be realized that BA’s brand value is not strong enough to achieve demands needed in the local competition.. 8 Conclusion: Keeping in mind the competition that BA is facing, it is essential for BA to focus on stabilizing its current market position and improving its quality of service based on the finding of the strategic analysis. Even though BA has suffered losses in revenue last year, it shall take steps such as incorporating technological innovations and people processes, without considerable financial assistance without which the implementation of strategy would be of no use. List of References Barrows, B. and Neely, A. 2011, Managing Performance in Turbulent Times: Analytics and Insight. John Wiley & Sons Inc. New Jersey BBC News 2008, Consumer spending in sharp decline. [Online] Available at: http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/3524838/Consumer-spending-in-sharp-decline.html [Accessed: 21-February-2012]. Lorca-Susino, M. 2011, The euro in the 21st century: economic crisis and financial uproar. Ashgate Publishing Ltd. Surrey Martin, S. and Parker, D. 1997, The impact of privatization: ownership and corporate performance in the UK. Routledge: Taylor and Francis Group Ltd. London Simon, J. 2007, The terrorist trap: Americas experience with Terrorism. Indiana University Press. Bloomington Bamber, G. 2012, Up in the air: how airlines can improve performance by engaging their employees. Cornell University Press. Ithaca Doherty, S. 2008, Heathrows Terminal 5: History in the Making. John Wiley & Sons Inc. New Jersey Upham, P. and Gössling, S. 2009, Climate change and aviation: issues, challenges and solutions. MPG Books Ltd. London White, J. and White, J. 2001, London in the twentieth century: a city and its people. Viking Publishers Ltd. London Morrell, P. 2012, Airline finance. Ashgate Publishing Ltd. London BBC News, 2010 BA Iberia merger gets approval from shareholders. [online] Available at: http://www.bbc.co.uk/news/business-11862956 [Accessed: 23-feb-2012]. Appendices Appendix 1 (Source: National Statistics Online, 2009) Appendix 2 (World Bank Group and OECD, 2009) Appendix 3 (Thomson Reuters – 2010) Appendix 4 – (Thomson Reuters, 2010) Read More