1- Introduction )
British Airways was expected to takeover British Midland Airlines (BMI) in 2007
The main reason for the expected takeover was that BMI owns 11 percent of take-off and landing slots at Heathrow Airport.
BA currently holds about 40% of slots at Heathrow, after the merger it would own more than half of them. BA has also been losing approximately £1 Million a day, so it needs the cash aswell.
By merging with BMI, BA would be able to secure its future in terms of competition. Therefore it will minimise any future threats of fierce competitors.
The airline industry is very competitive, so BA has to keep an eye on its competitors
British Airways is UK's leading airline and amongst the world biggest airlines. It is based at Heathrow and Gatwick, London..
BA flies to more than 200 destinations in 94 countries and has owns parts in other airlines, including Quantas and Iberia. BA provides a range of services, including cargo, business flights and engineering. (British Airways Company Profile)
BMI currently operates a fleet of approx 54 aircraft (BMI Fleet), it currently flies to 121 destinations around the world. BMI is a member of the Star Alliance group, which 21 other airlines and provides more than 17000 daily flights to more than 900 destinations in 160 countries. (Star Alliance)
BA operates in a wide range of businesses, its primary business is the airline business. It also offers air cargo, freights and mail services. It operates in engineering, British Airways Engineering, which provides engineering services to BA and many other airlines.
BA operates corporate entertainment, affiliate programmes and sponsorships across the world.
BMI's main business is in airlines, although it provides air cargo services, BMI Cargo which offers a range of cargo services.
Airlines compete in terms of services offered, price and quality and variety of services provided.
BA mainly competes in the airlines industry, its main competitors are Air France- KLM, Lufthansa and UAL. (BA Competitors)
BA also competes in the transportation and cargo industries.
BMI also competes in the airline industry its main competitors are British Airways, easyJet and Ryanair. BMI also competes in air cargo services. (BMI Competitors)
2- Stakeholder Analysis
Stakeholders can be internal and external, the main stakeholders in any business are shareholders, employees, customers, suppliers, creditors and the government.
All these stakeholders will be interested in British Airways.
Shareholders want BA to do well because they own the company and want their investments to increase in value, they are also one of the key players. They will look to get high profits and dividends, a positive corporate image and a say in the business. They must also be informed of the risks of new strategies, when to expect returns and how much they will get in returns on their investments.
BA Employees would be interested in BA as it provides them with job security good working conditions, training opportunities and a competitive salary. They are the key players of British Airways, they are the Image of BA therefore they have a great influence on customers. Their power is also increased because the workforce of BA is mostly unionized.
Customers would be interested in the company because they get good quality flights and customer service, as well as a choice of services. Business customers fly with BA on a regular basis, so they want BA to do well so they can keep using their services. Even though customers provide all the sales, they have very little interest in how BA is managed, but they do have a strong impact because British Airways goal is to attract more customers.
Suppliers of BA make money from supplying BA with goods and services. BA buys in everything from food to fuel to entertainment for customers. Suppliers would be interested in BA so that they can keep a long term relationship, and when BA business expands suppliers will automatically expand if they keep a healthy relationship with them. The two airline suppliers, Boeing and Airbus have a high interest in BA because it provides a big source of income for them and BA relies on them.
Creditors of British Airways will show interest in BA, because they want their credit repaid on time and want to issue further credit in order to make more profit. They will be interested in the financial side of BA, for example cash flow, profit and loss accounts and balance sheets of British Airways. BA would have to keep them informed because their creditors have high interest and low power according to the diagram of Interest and Power for BA given below.
The government will want BA to comply with laws and regulations, pay its taxes, keep its employment healthy, contribute to the national economy and use resources efficiently.
According to the diagram of Interest and Power the government has low interest in BA but has high power and influences BA heavily.
I have placed the stakeholders of BA on the diagram of Interest and Power below, the diagram is based on stakeholder analysis and a BA Strategic Report 2009.
(Based on: BA Strategic Report 2009)
BMI has similar stakeholders as British Airways, and their impact and influence upon BMI is also quite similar.
The shareholders will want high profits and a long term growth, which will ensure that their investments are secure and provide a healthy return, so they will show a great interest in BMI.
Employees of BMI will be interested in the business as it provides them with sufficient income, offers them fringe benefits and promotion prospects.
BMI customers show interest in the company as it provides them with low price services and offers high quality services and a range of them. Customers want to keep using BMI service and will show interest in it.
BMI suppliers make money by supplying it, they are interested in BMI as they want to keep a healthy relationship with it and look forward to large and high value contracts.
Creditors of BMI will want and outstanding debt cleared off and prompt payments from BMI, in return they will offer better financial products in the future.
The government will be interested in BMI, as it pays taxes, provides employment and contributes to the national economy. (Stakeholders)
3- External Analysis
For external analysis of BA I will do the PEST analysis followed by Porters Five Force Analysis.
Political factors affecting British Airways include the Middle East Crisis, since September 11 2001, The government has controlled where airlines fly and part of their pricing policies and product planning. Trade unions have had a significant impact on British Airways, because BA has suffered from strikes throughout its workforce, which lead to flights being cancelled and BA losing a lot of money.
Heavy regulation also impacts on BA as well as any other airline in the world, British Airways has to comply with these regulations if it is to continue its operations. (BA Strategic Report 2009)
Economical factors affecting British Airways include the price of oil which will add to the cost of fuel for BA to function. The state of the global economy also impacts BA, for example the recession hit all countries hard, which means less travel in general but more importantly less business people travelling. (BA Strategic Report 2009)
Social factors that influence BA could be the fact that they travel to different destinations, every country is different in terms of society and culture. These factors affect customer needs and the size of potential markets. (BA Strategic Report 2009)
Technological factors affecting BA may include online booking services, which means that they have to keep up to date with technological advances and enhance their website to ensure that all age groups can easily use the website, especially the elderly, who may not feel comfortable using such technology. More people are using price comparison sites, which increases consumer awareness and bargaining power. This would mean if BA was to stay competitive it would have to keep an eye on its competitors prices and make sure it's on top of the price comparison website. (BA Strategic Report 2009)
I will use The Porters Five Force Analysis to analyse the position of BA and the strength of each five forces.
First I will discuss BA's competitive rivalry, the strength of competitive rivalry is high. BA offers both long haul and short haul flights, compared to competitors there is little difference with long haul flights in terms of price and services offered. But the short haul market is more fragmented with many small players.
Power of suppliers is high because BA has two aircraft manufacturers, which means high bargaining power. It is restricted to one supplier of fuel and its employees use collective bargaining through trade unions in order to increase their bargaining power.
Power of buyers is not high or low, it is medium. This is because there is a low concentration of buyers to suppliers, which reflects that they have low bargaining power.
BA is not affected by the threat of new entrants because there are barriers to entry, for example the competitive environment, high start up costs and very high regulations. There are also other deterrents for new entrants, such as barriers to exit and failures of some airlines, namely XL and Zoom.
The threat of substitutes has very little impact on BA, because there are few direct substitutes. Short haul flights has only one substitute, travelling by the Eurostar or any ferry. For long haul flights there are no substitutes.
4- Internal Analysis
BA Resource Analysis
BA's tangible resources include a fleet of 245 aircraft and its unique resource, sole access to London Heathrow Airport's Terminal 5. Its intangible resources include international customer base, partnerships and alliances with one world, franchise partners and its reputable brand image which is recognised globally.
British Airways threshold competencies include training of ground school, flight simulators, its cabin safety training, economies of scale from ongoing suppliers and its ability to fly and manage passengers on various routes.
BA's Core competencies include the fact that it was the first UK airline recognised as a training centre by the City and Guilds qualifying all cabin crew with NVQ level 2 (BA Workplace- invest in people)
Resource Analysis- HPFI- Human, Physical, Financial, Information Technology
Has BA got resources to buy BMI:
Physical- warehouses, supply chain
Financial- profit or loss, loans, investors
Value Chain Analysis
BA's Value Chain Analysis is discussed following the diagram showing BA Value Chain.
Structured hierarchy allows BA to make use of a multitude of specialist knowledge in order to gain competitive advantage over downsized firms.
HUMAN RESOURCE MANAGEMENT
Invested in the development of customer service training in 2007 attracting the best employees. ‘Speak Up' opinion survey encourages employees to provide feedback.
BA has added value in this category over smaller companies due to slack resources that can be employed to innovate the service (e.g. individual LCD screens)
Due to the size and historical business relationships and alliances, BA is able to leverage suppliers and through economies of scale make efficiencies where competitors may fail.
BA Competitors, http://www.hoovers.com/company/British_Airways_Plc/crkjri-1-1njea3.html, accessed on 10/12/2009
BA Strategic Report 2009, copy of strategic report attached
BA Workplace- invest in people, http://www.britishairways.com/travel/csr-responsible-sourcing/public/en_gb, accessed on 29/12/2009
British Airways Company Profile, http://uk.finance.yahoo.com/q/pr?s=BAY.L, accesses on 13/12/2009
BMI Competitors, http://www.hoovers.com/company/British_Midland_Airways/rfryfki-1-1njea3.html, accessed on 10/12/2009.
BMI Fleet, http://www.flybmi.com/bmi/en-gb/about-us/the-fleet.aspx, accessed on 13/12/2009
Stakeholders, http://www.tutor2u.net/business/strategy/stakeholders-introduction.html, accessed on 13/12/2009
Star Alliance, http://www.flybmi.com/bmi/en-gb/flight-and-airport-info/where-we-fly/star-alliance-member-airlines.aspx, accessed on 13/12/2009
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