Pestel Analysis Of British Airways Management Essay
The government has control where airlines can fly, and aspects of their product, planning and pricing policies. Even though the regulations are heavy, compliance is essential if British Airlines wants to continue operations
Increased security due to past terrorist threats, airline companies have to pay more for security check and insurance, which lead to the costs of airline companies’ increase. Sufficient security measures should be in place to ensure consumer confidence and competitive advantage is maintained.
National and international government affect airline industry by regulation and policies. British Airways flying both nationally and internationally airplanes have to abide by certain regulations. British Airlines has to follow legislations and regulations, which include protection of the environment, pollution, H & S regulations, and security legislation.
The increase of VAT at 20% in January 2011 will affect British Airlines and its shareholders.
Politically, airlines have to work within some are operating restrictions. The benefits of the join alliance industry that will be approach an unapproachable route. This has a monopoly that each national carrier ties in with slots, in their home cities. The airline industry gets two sided agreements this is another political benefit for industry, which all member can utilize. Political environment concerns about the role of government and its effects on the company.
British Airlines has reacted to the actual economic situation by introducing low cost flying to fill empty seats.
British Airlines is affected by the recession as the number of travellers is in trend of decreasing.
The cost of fuel is a risk for British Airlines because when the cost of oil raises this will be replicated to tickets and if the price raises less people use planes.
Terrorist threat during the past few years makes people reconsider travelling by plane.
Global economic crisis: World growth is projected to just over 2 percent in 2009. Pound weakens especially against the Euro. Possible reduction in the amount of business travel as companies are cutting costs and using alternative means of communication such as teleconferencing. British Airlines is vulnerable as a UK operating airline to a poor exchange rate.
Oil prices declined by more than 50 % since their peak retreating to 2007 levels. Decline in fuel price also means strengthening of the dollar. Fluctuations in oil prices and exchange rates will directly affect British Airlines’s cost base. UK consumer spending saw its sharpest decline for 13 years between July and September 2008.
The UK has an aging population. Potential opportunities for growth as older generations have more time to spend on leisure activities such as international travel.
Increasing unemployment in UK thus also increases bargaining power as an employer.
The social and cultural influences on business vary from country to country. British Airlines serves a wide range of global destinations, carrying passengers from many nationality, religion, language, etc. If it has no clear idea of cultural issues of destination countries, this could affect badly the business. Example, no meal that has pork can be served in fight to Muslim countries.
Increase in airline crashes might result in people being reluctant to casually travel by place due to fear of death.
Restriction on mergers will have an impact on British Airlines’s proposed alliance with American Airlines.
Open Skies Agreement provides opportunity for British Airlines and its competitors to freely transport aircraft between the EU and US.
The major legal factor affecting British Airlines is the power of unions. British Airlines has severely suffered many industrial actions especially in the past years and is aware of the implications that the trade unions can cause. Take for example Cabin Crew strikes. Good employee relations are essential if British Airlines wants to avoid industrial action and interrupted operations.
The events of terrorist attacks have caused the introduction of new security regulations from the Europe and US that came into effect in summer 2006 and fall in customer travelling confidence.
Legal regulations on employee rights and customer rights have also to be followed. British Airlines has to follow new regulations from the Europe and US to provide details on passenger such as the location they are going to stay on the first night of their visit. British Airlines has reacted to it by collecting required information on the ‘manage my booking’ section of its website.
ENVIRONMENTAL / ETHICAL
In response to environmental issues, British Airlines current strategy is to minimise the environmental impacts of their operation. This includes consideration of climate change, air quality, noise level, waste and recycling. The company has set challenging goals for further reductions in their carbon emissions, reducing and recycling waste, improve local air quality and noise pollution. Tighter environmental regulation may increase operational costs each year. 191 aircraft engines were modified on our Boeing 747 and Boeing 777 aircraft to reduce NOx and improve fuel efficiency. British Airlines has reduced 10.9% in CO2 emission across UK.
British Airlines new aircrafts such as 12 Airbus A380 and 24 Boeing 787 aircraft are considerably quieter than the aircraft they replaced to reduce noise pollution.
In response to climate change which is the key issue facing British Airlines, the company is determine in playing a full part reducing global greenhouse gas emission through the adoption of new technologies and low-carbon fuels. British Airlines has also recycled 35% of waste across Heathrow and Gatwick.
Limited land and for growing airports which makes expansion difficult at Heathrow as it would result in a loss in the London’s Green belt area.
Consumers are becoming increasingly ‘green’ and more aware of the environmental impact of their actions. Failure to adopt an integrated environmental strategy could lead to a detrimental effect on the British Airline’s reputation and income.
Cancellations of flights and reported loss of baggage by customers would bring up ethical issues that could have an unfavourable effect on reputation if left unresolved.
A recent survey revealed that 34% of online consumers plan to use price comparison sites more in 2009 thus increases consumer awareness and therefore bargaining power.
Online booking services and check-in is becoming increasingly used by the airline industry. British Airlines must ensure that they remain up to date with these technological advances whilst avoiding becoming overly reliant, as this may isolate certain consumer markets such as the elderly who don’t feel comfortable using such technology
Technology is vital for competitive advantage and the key issue will be the extent to which technological advancements can offset upward pressures on price and costs. British Airlines has invested a huge amount of money in improving it technology. With the in-flight internet service, British Airlines has put in place internet ticket booking system in order to reduce costs and become more competitive. Online sales are regarded highly important by British Airlines. It has placed considerable faith in its website presence to boost online-sales which have reduced customer traffic vial British Airlines’s call centres.
E-Tickets have become the standard ticket format used by British Airlines, making flight more straightforward, flexible and secure.
There are also security check technologies. British Airlines is focused on improving its customer service in line with modern technology and offer wireless LAN systems and communicates through modern SMS texting but a significant long-term threat is the effect of video-conferencing on the demand for air transport and they may have to accept telecommunications companies as big competitors for their business.
Terminal 5 has transformed their operational performance and customer service. In their 2008/2009 report, it is starts that British Airlines has exceeded punctuality and baggage targets across the network which has achieve customer satisfaction scores.
In this fast moving industry technology is important and very expensive. The technology which is use in aircrafts is made by very few companies for example (Rolls Royce) makes the engines and other accessories for aircrafts. For purchase new technologies it will require funding and possibly employees has to be trained before the equipment used by them.
FIVE FORCES ANALYSIS
Five forces are the tools that M. Porter has been drawn to analyse and understand the environment that influences the organisation directly and how it can consider them to reshape and make profit. In the present case, five forces will allow an analysis of amount of power British Airlines has in its environment; find out where trends lay because without this analysis, it will not be possible to identify and evaluate strategic choices that British Airlines could pursue and make appropriate recommendations.
Threat of New Entrants
• Low entry due to least profitability
• Customer or supply loyalty
• Access to supply or distribution channels
• Expected retaliation
British Airlines constitutes barriers to entry to new entrants in a sense that: British Airlines has a dominant position which means that it will be difficult for a new entrant to compete with them on a global level from the start since British Airways has got more terminals than other airlines due to the priority given to historic rights of existing users. However as barriers of entry are becoming non-existent, new entrants are appearing in the short-haul and these low-cost airlines, such as EasyJet have steadily chipped away at British Airlines’s European dominance. However, a lack of take-off and landing slots makes it difficult for new carriers to find suitable airports.
Products within the industry were greatly differentiated, with varying degrees of quality, convenience, customer service, and differences in the atmosphere. New entrance will be low in the international alliance sector. The strongest presence of Lufthansa and American airlines will be the main competitors for the British Airlines. British airways are also a famous airline like others but for new entrants it will take years to be popular in alliance sector. A merger plan opens by British Airways and Iberia Airlines. In their merger agreement the airlines and their brands names are similar to KLM and Air France.
Due to the nature of the industry, make a potential entrant to the industry nearly impossible, as the barriers for entering are high. The difficulty of the barriers for entering, are determined from the capital required, on the economies of scale. The airline industry itself does require a huge amount of investment to get into. But still, setting up a low budget airline and start flying to one or two destinations, is the easiest part. The hardest part is improving and ensuring that the niche you exist in is the one that it exists at all times. Being good airlines even a low budget one requires investments on different areas, such as branding which makes the operation certainly frilled. As the industry is capital intensive, efficiency requires large-scale operation. The required capital for starting up an airline is huge. A potential entrant will have as a result to wait in the long-term to break even in the aggressive airline industry.
Governments and the regulations they have the power to impose can act very effectively to make the operation of airlines hard or even impossible by sometimes blocking potential players entering the market. These activities can be grouped to governmental and quasi-governmental, and these will include more specifically changes in the laws or policies of any country in which the company operates. As a result, profits can be squeezed of an airline in a particular country. This is not usually the case within the European Union, since the European Act sets out a framework for operation but it may not be the case on a global basis, where a particular country may impose greater tariffs to foreign airlines.
Threat of substitutes
The threat is very high due to the economic situation as customers are very price sensitive.
Customers are switching to alternatives such as train, cars and shipping. For example, there is Iceland train from London to Germany via the Netherlands, Eurostar to Paris and Brussels, coaches, ferry and other low-cost carriers for short-haul.
The company faces stiff competition from the low-cost carriers (LCC), which offer strong discounting. In particular, cash-rich rival Ryanair, for example, and its growing market share may force British Airlines out of the short-haul leisure market.
Open Skies, is the new airline started and flies from Paris and Amsterdam to New York is the subsidiary of British airways British Airways World Cargo, is also subsidiary of the British Airlines ant it is the world's twelfth-largest cargo airline based on total freight ton-kilometers flown. British Airlines City Flyer is a subsidiary with Avro RJ aircraft in Edinburgh, but they operating mainly from London City Airport.
As a result of the high levels of competition, the existence of many substitutes, forces airlines traditionally being perceived as, world class-high price, to charge low prices for their services. It follows that profit margins are lowered, within the industry.
This can be derived from the average of the last 5 years average of net profit margin just -0.722, apparently implying that the profits are heavy lowered because of the substitution effect in Europe.
However, this may also be the result of the liberalization of the scheduled airline transport industry within the 17 states of the European Economic Area that was completed in 1 April 1997 aiming for fair competition in the airline industry and ensure that the travellers are getting right treatment from airlines.
Bargaining power of suppliers
British Airlines has two suppliers of aircrafts and suppliers in fuel and in-flight services.
British Airlines is in the business for long and has created good relationship with suppliers.
British Airlines is currently examining a supplier diversity strategy to meet the future needs of the business. With diversity of suppliers, British Airlines will stop suppliers’ power in controlling the prices. Fuel companies have high supplier power. As started in PESTEL analysis British Airlines’s price depend on fluctuations in oil prices. Without aviation fuel, British Airlines will not make profit
Before the Heathrow airport British Airways buy accessories and equipment slots from other airlines companies including United Airlines, Brussels Airlines, GB Airways and Swiss International Air Lines, and now they have their owns about 40% of slots at Heathrow.
Bargaining power of buyers
British Airways offers perfect services for passengers travelling in the premium cabins and passengers with status. Alliance industry has a lot of competition in the airline sector, so the price of the tickets changes day by day to attract the more customers. The customers of the airlines are mostly business or tourists. British Airlines aim is countered by foreign carriers such as Emirates, who fly direct from UK provincial airports to Dubai, Abu Dhabi is being successful.
Intensity of Rivalry
In the airline industry the oversupply of flights, makes it hard to compete with the rivals. Therefore, because of the oversupply, companies go for massive price cuts in order to cover their costs by the big volume of sales. But the trade-off for airline is the overcapacities that always have to deal with by avoiding occurring. Since, if over capacity occurs companies may suffer to break even, and is usually the case for the airline industry.
British Airways is constantly adjusting its price range of flights, in an attempt to overcome overcapacity issues that have already been proven a barrier for breaking even for the company.
As the study of the industry competition arising from the rivalries among existing firms in the first force. In the global alliance industry British airways provide Boeing and cargo services and they have competitors like Lufthansa airlines, Swiss airways, Virgin Atlanta, Delta, FedEx, and DHL. At same cost British Airlines is providing the more quality services than the other airlines.
British Airlines operates in two different markets and therefore faces competition in both short and long haul. The competition between airline companies is intense as in recent years, airline companies have been suffering from losing customers. The emergence of low cost airlines such Easyjet and Ryanair makes the competition higher in the short-haul travel as their business model is based upon offering low fares through outstanding cost management. They use smaller airports, not allocating seats, making passengers pay for refreshments and not issuing tickets. In long-haul the competition is even higher as it comes from larges airlines that offer if not the same, but similar service or more.
Direct competitive rivalry is fierce for example Virgin has a website opposing the proposed strategic alliance between British Airlines and American Airlines - ‘No Way British Airlines/American Airlines’.
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