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During the 1980s, BA under government pressure was being prepared for its privatisation, due to this they had to review their processes and services, thus they had a lot of changes such as re-connecting with customers, cultural mentality, different orientation from staff, dynamism, customer-focused and service driven culture. Furthermore, those training and re-education programmes had as the main objective to change management style and organisational structure to become a more flexible organisation.
After this period of changes, BA has become one of the few national airline companies to record profits and good reputation with customer. BA successful was so high that some companies start to copy BA's focus on customer service. Because of that, in order to differentiate itself from its competitors, BA decided to adopt a focus differentiation strategy, focusing on particular market segments such as business, first class and long haul flights operation. (case study,XXX)
Nowadays BA is one of the world's leading scheduling premium international airlines. During FY2009, because of the crisis, BA revenues reduced 11% from 2008 to £8 billion. Passengers represent 87% of the revenue, 7% Cargo and 6% form other activities (annual report BA, 09). Currently, the company has one of the best fleet services with 245 aircraft. BA serves more than 300 destinations worldwide. The company carried more than 33 million passengers and 777,000 tonnes of cargos destinations throughout the fiscal year 2009. The other activities include cargo handling at airports, airframe maintenance, computer and communication services and consultancy services. (datamonitor, 2009).
Appendix 01 -Timeline British Airways
Macro environment Analysis
According to Lancaster (2008) companies are inserted in a macro environment composed by different factors or forces which have an impact on their operations. Some of these factors have a wider prospect, such as legal, cultural, economic, so on, but can also impact companies' results.
Almost every aspect of running an airline is governed or influenced by tight regulatory controls. This varies from the routes companies can fly, the business partners they can cooperate with, the airport slots they can use, the fares they set and the infrastructure costs they pay. One example of how these regulations can affect BA is the fact that recently UK government has decided to double the duty for airlines ticket.
Moreover, strict rules also govern safety and security and the management of their environmental impact. Another example are the terrorist attacks which occurred in the U.S in 2001, which reduced the demand for flights and also demanded from companies more investments on security measurements and policies to rebuild consumers confidence.
Airline companies were directly impacted by economic recession in 2008. This can be considered as one of the worst experiences that American and European airline companies have already faced.
One of the impacts was the reduction on demand of both passengers and business people. Many companies were trying to reduce costs with travels, thus they started using more communication technologies such as teleconferencing. Moreover, in the case of BA, the recession also aggravated its pension deficit.
Another economic issue which affected airline companies was the oil price has fallen from 2008 were the oil price was $147 a barrel. (Key data)
Appendix 2 - UK residents' visits overseas by air by Country visited (000)
In addition, BA has a lot of its costs paid on euro. Due to the crisis, the pound became weaker, therefore impacted the company's profit. (XXX)
Ageing fastest increase in the "oldest old"
Population by age, UK, 1984, 2009 and 2034
The graphic above describe how UK trend populations are moving. Over the last 25 years, the people aged 65 has increased from 15% in 1984 to 16% in 2009, an increase of 1.7% million people. In other words, UK population is ageing. On the same period the young population has decreased from 21% to 19%.
One possible reason for the increase on old population is the fact that people have increasingly focused on their careers therefore they have less or no children. BA can take advantage of this situation because people over 65 may want to enjoy their life travelling, visiting some friends and so on. This type of customers can also be willing to pay for better services therefore BA can try to attract them based on its business class differentiator services.
Appendix 3 - Unemployment rate
The technology has created benefits for both consumers and companies. In the case of airline industry, consumers can use comparison websites, which contributes for their bargaining power; and they can also do online booking. On this case, companies also have benefits due to the fact that they do not need to pay agencies anymore (intermediaries). Furthermore, BA can also reduce the number of employees because it is possible to use more machines than people. With technology, BA has also improved its efficiency, as an example the company has installed one clocking-in system to control employees' hours. (xxxx)
Moreover BA has focused on offering online services to preserve old customers and to attract new ones. With e-services, customers can book hotels and cars on the website. BA has also introduced a new tool that is capable of upgrading their booking at any time from buying a ticket to checking on-line. Beside the fact that third of all company's booking are sold by ba.com, BA has reduced costs and increased revenues with these facilities. In addition, the company has offered services through mobiles, consumers now can receive information on real time about arrival and departures (Datamonitor, 2009).
One of BA strategies is to protect the environment. In order to this, the company has been developing Corporate Social Responsibility (CSR) policies, which can also help BA to identify risks to health, safety and environment. This strategy can also attract more investors and help to grow the company. According to Convention for Climate Change and the Kyoto protocol, one big issue to solve is the carbon emission which is directly impacted by airlines companies. Thus, in response to this, BA has decided to develop a program of fuel efficiency to reduce its carbon emission in 30% between 1990 from 2010. This represents a saving of 50m tonnes of carbon diode (CO2). (CSR CASE STUDY)
Furthermore, another crucial point to BA is the noise pollution. The company is investing on quieter aircrafts and changing the way that its fly to minimize this problem. Its target is to reduce the average noise per flight around 15% by 2015. People who live near Heathrow airport are the most affected by this problem. But BA has already reduced the noise around 30% between 2008 and 2009 (British Airways, 2009).
Beside all the legislation which reflects the heavy regulatory control governments have over airline industry, companies are also impacted by employment relations laws and recognition of trade unions. In the case of BA this has represented a lot of problems due to the strikes conducted by the employees. Beside the impact on image, the company has incurred significant losses. One example are the strikes which occurred during March 2010. The company had 47% of flights cancelled at Heathrow airport and had £45m on losses (financial Times, 2010).
Other legislation which can impact its strategy is the restrictions on mergers and acquisitions. (XXXXX)
The competition on airline industry is very intense. Generally, the factors on which companies compete are customer services, safety record and reputation, price, routes services, in-flight entertainment systems and frequent flyer programs, flight schedules, capacity, types of aircraft, code-sharing relationship and so on. (datamonitor)
BA has a lot of competitors on short haul market, mainly Easy Jet and Ryanair, and on this type of flights is more difficult to have differentiation. Product and service are easily replicated and it is difficult to achieve consumer loyalty.
Moreover, the long haul competitive landscape has changed due to the OpenSkies. Five new companies have slots in Heathrow to fly to U.S. (XXXXXXXXXX) Explicar mais long haul
In the airline industry, new entrants are low because there are significant barriers to enter. It requires high capital investment, there are also high regulatory requirements, it is a high competitive environment, it offers low profit margins, it takes more time to have the return on investment, and Slot spaces are expansive and the barriers to exit are high. (XXXXXXXXX)
On short haul routes, airlines companies have a great competition with other types of transportation services. Train operations in UK are taking a bigger share of the air, mainly because the improvements on infrastructure and reduction on journey times on some routes such as West Coast mainline. Although Eurostar services are impacted by snow and freezing weather on January, the company is still increasing; in 2009, the company had around 1.2% more passengers. At the same time, the demand for flights between London to Brussels and Paris fell by 14% (British Airways. 2009).
Power of Buyer
Power of Suppliers
Suppliers of airplanes have high bargaining power because there are basically two supply companies: Boeing and Airbus. They are also affected by sole supplier of fuel in the airports.
On the other hand, with other types of stuff and services, for example catering, BA always try to get the best option on price and quality. Therefore, the company uses strategic sourcing process and benchmarking to identify its suppliers. During 2009, the company reviewed all its spending with 500 top suppliers which account for around 94% of total annual external spend. BA re-structured all its commercial deals and the result was a considerable saving over this period (British Airways. 2009).
Barriers to Entry
Barriers to Exit
Micro Environment Analysis
British airways has some important resources and capabilities such as: a fleet of about 245 airplanes and more than 300 routes; It has an international customer database; It has financial resources, according to datamonitor 2009 report, the company has increased its revenues since 2005 and in 2008 the company had 10% of operating profit margin. The company has slots in the main airports; It has also established some important alliances (OneWorld alliances) and it has franchised some routes. These resources and capabilities are valuable and can help the company to react against some threats and capitalize on opportunities. However they cannot be rare and inimitable depending on the competitors' available resources. (XXXX)
British Airways has focused on operational services such as punctuality and costumer services. One important action which has contributed to achieve this aim is Terminal 5 at Heathrow. It is allowing BA to provide customer with a completely level of services in a highly efficient way. Furthermore, BA has invested on its fleet and £100 million to develop and modernise its first cabin. As a result, they had increased positive customer feedbacks, because they are looking for more comfortable beds, space, privacy preferential treatment, which compose BA style. (annual report BA, 2009)
British Airways has a high debt obligation in FY 2009, the amount is around £2,382 million, an increase of £1,072 million in comparison to FY 2008. The increase in net debt included £554 million due to the retranslation of foreign debt. High debt make more difficult for a company to pay its obligations and interests. In addition, may reduce the BA ability to use cash flow to fund working capital and other general corporate requirements. Furthermore, high debt can mean difficulty to planning and reaching to change business and industry. (datamonitos, 2009)
Although BA is one of the biggest airline company in the world, 62.5% of its revenues come from European Markets (data monitor, 2009). This high dependence on one market can represent a risk, if something goes wrong, the company can have serious problem.
Appendix 5 - GDP Nominal
Appendix 6 - klj
BA has been trying to improve its revenues based on business agreements with other airlines companies. BA, American Airlines and Iberia have signed a joint business agreement in 2008 on flights between North America and Europe and part of the plan is to expand its global cooperation. As a result, this partnership has created benefits for customers due to the increase on flight schedules with more option to travel around the world (annual reports BA, 1009)
Another opportunity to business is the Open Skies between EU and US. BA can significantly increase its number of destination choices for its customers. Moreover, airlines are applying for EU-US anti-Trust Immunity, to increase their possibilities of flying from places that still some companies have immunity. Once companies work together and establish alliances, they can offer more routes for customers. This strategy can increase BA opportunities of providing better services for its customer and improve its business as well (datamonitor, 2009).
As mentioned before, the global recession had high impact over airline industry. One figure which illustrates this is the fact that the GDP growth rate declined from 5.1% in 2007 to 3.1% in 2008. Due to the crises, many airline companies had financial losses, with premium passengers as the most affected because companies decided to cut business travel to save money. According to a recent survey, 47% of companies will have less business travels in 2010. This represents a threat for BA considering its focus on business class (datamonitor, 2009)
Over the latest years, airline industry has been affected by global recession and consequent drop on air travels. Due to this, companies' are adopting as strategy mergers and joint ventures. As explained before, this can affect BA business because these companies become stronger and with more options of routes and flights schedules.
Recent examples are Delta and Northwest Airlines merger in October 2008; America West Airlines and US Airways in September 2005; American Airlines acquired majority of Trans World Airlines' assets in 2001. The European market also had some consolidations, such as Vueling and Clickair in Spain; Alitalia and Air one in Italy; Lufthansa acquired Brussels Airlines, British Airline BMI and Austrian Airlines (Data Monitor 2009)
Although EU-US Open Skies Agreement offers new opportunities, it also represents some threats with high impact on long haul flights. During the first phase of Open Skies at Heathrow, the competition has changed on transatlantic routes. US Carriers Delta, Continental and US Airways started offering more than 100 services per week from Heathrow. Other important markets are also being liberalised such as Canada and Australia, New Zealand and Brazil will be the next to suffer the Open Skies. Reinforcing, these open skies represent opportunities and threats, therefore companies need to monitor this constantly, trying to explore the opportunities and minimize the threats. (annual Report BA, 2009).
The company is focusing on reduce costs and maximizing profits to deliver the results expected by the shareholders. However, on the other hand, this strategy is impacting the employees. They are reducing the pensions, they demand more performance, they don't want to give pay raised, they want to reduce the number of employees, and thus this will impact the quality of the service. Therefore this does not support the strategy.
Evaluation of Strategy:
Primary evaluation index is performance if it has grown and if it has been profitable;
However Rumelt indicates three questions to evaluate depth the strategy, to appraise more fundamental factors and trends which will guide the company for success:
Are the objectives appropriate?
Are the major policies and procedures appropriate?
Do the results obtained confirm or refute critical assumptions on which the strategy rests?
The strategy needs to be consistent (goals and policies); consonant (it needs to represent an adaptive response to the external environment and critical changes); it needs to create competitive advantage and it needs to be feasible according to resources.
We have set our sights on being the world's leading global premium airline. We have five key goals. They are to:
â€¢ Be the airline of choice for longhaul premium customers;
â€¢ Deliver an outstanding service for customers at every touch point;
â€¢ Grow our presence in key global cities;
â€¢ Build on our leading position in London; and
â€¢ Meet our customers' needs and improve margins through new revenue streams.
British Airways main strategic is become the world's leading global premium airline. And to achieve goals its focus on make the cost base more efficient but making customer service an important part of this long-term vision. These are import factor to create a sustainable and profitable future for business, benefiting our customer, colleagues and shareholders. (annual report BA, 2009)
Global, offer destiny a across the world making individuals and business travellers want to choose British airways to travel for wherever their wants. (annual report BA, 2009)
Premium, certify that all its customer take pleasure in use unique premium service, and that their costumer make out the service and can pay more for it. (annual report BA, 2009)
Airline, Always develop new products and services to be always serving well its costumer. (annual report BA, 2009)
British Airways has objective to be the Airline of choice for Long Haul Premium customer, Long Haul flight market is the key to its profitability but always with a strong presence in economy and short haul segment and always focus on bring an excellent service and the best global connectivity for its customer, British Airways has a strategic to build presence in all top global cities through expanding and airlines partnership. (annual repost BA, 2009)
Another value to BA is deliver an excellent service for customer at every touch point, to achieve this aim all the cabin staff have been receiving training such as service style to all passenger receive a premium service on all routes and classes. (annual repost BA, 2009)
BA has an important objective to grow its presence in all key global cities in the world to offer the best global connectivity for its customers. The company want to be present in the top cities and also to expanding networking through partnerships. (annual repost BA, 2009)
London is the world's biggest competitive international air marketing in the world, Build on its leading position in London Airline continuous to been the core for its business to achieve this objective British Airways has the government helps, however, the company going to enhance this by building profitable ancillary services that offer customers great value and re-enforce its brand. (annual repost BA, 2009)
BA has essential to know what its customer needs and improve that through new revenue streams based on its core of business, although, BA building profitable auxiliary services that offer customer great value and re-enforce its brand. However, the company want to develop new products and services which exploit its assets and capabilities. (annual repost BA, 2009)
British airways have many objectives such as, improve employee and customer Satisfaction, increase revenue, Maintain competitive strength in the industry, improve fuel efficiency and develop especial equipments for disable people. HERE I NEED IMFORMATION ABOUT HOW MANY PEOPLE ARE FLYING PER YEAR)
Another British airways objective is maintain customer loyalties and sustain their dominance in the airline industry. (executive report, mar binns, 2007)
According to Annual report 2010, the merger with Iberia is a good deal both for long-term sustainability of the business and for customer, because they can together increase their networks, one is strongest on the North Atlantic and Asia and other is strongest in Latin America. Together they believe can realise around £400 million in synergies from the fifth year. BA strong believe in the synergies can realise its resources on this highly competitive route will be good for customers, shareholders and the industry.
British Airways Business Plan
British Airways business plan is build around the world a Global Premium airline for long haul flight, and to achieve its objectives British Airways has a structure in five factors: Colleagues, Customer, Performance, Excellence and Partnership. (annual report BA, 2009)
FOCUSED ON OUTSTANDING CUSTOMER SERVICE
What can British Airways to do improve its business and how can they work together to achieve that, and how the company can develop its people to achieve their performance. (annual report BA, 2009)
What British Airways can do to outstanding experience for its entire customer, they will monitor carefully all the opportunities and try to adjust capacity as economic condition allow, another strategic is reduce flying outside the peak periods to reduce costs and maintain the quality and services for its entire consumers, the company intend to develop more flying during the holidays businesses to give the customer more opportunities to fly. In addition, the new Boeing 777-300ERs will arrive soon to improve its fuel efficiency and environmental performance. (annual report BA, 2009)
What British Airways can do to improve its financial performance and deliver for its shareholders, the company will build on record-breaking levels of operation performance through continuous improvement of the way its plan and control the operation. The company will extend the successful Terminal 5 at Heathrow to more of its services through developing of the second satellite Terminal 5C that going to open in 2011. (annual report BA, 2009)
What British Airways can do to maintain and improve its operation performance and the quality of its processes. One of the strategies is implement joint business agreement with American Airlines and Iberia. Doing this can the company offer for its customer better services such as improve flight schedules, deliver enhanced and disruption management. Partnerships going to be developing such as those who were announced this year with India's Kingfisher Airlines and the Russian carrier S7, to improve its position in the global cities in whole world. (annual report BA, 2009)
What British Airways can do to work with other Airlines companies business, with its principal suppliers and the communication that is based on economic environment and challenging industrial relations, for the next years British Airways will work to make better to engage across the company rallying our colleagues with drive towards ever greater customer services. The company will continuous to invest in make targets to improve its way to manage its talents with focus on develop new front-line leaders. (annual report 09
Datamonitor (Database), British Airways PL: Company Profile, October 2009.
British Airways 2009 Annual Report, [Online], Available from: URL httpXXXXXXXXXXXXXXXXXXXXXXXXXXX,[Accessed 15 November, 2010].
Financial Times, [Online], Available from: URL http://www.ft.com/cms/s/0/0462dc6a-4266-11df-8c60-00144feabdc0,s01=1.html#ixzz15dvqykbl. [Accessed 02 November, 2010].
Appendix 2 - UK residents' visits overseas by air by Country visited (000)
UK residents' visits Overseas by Air by Country Visited (000)
% Change 2007-2008
Replica of Ireland
United Arab Emirates
Source: Business Monitor MQ6 - Overseas Travel and Tourism, National Statistics © Crown copyright material is reproduced with the permission of the controller of HMSO (and the Queen's Printer for Scotland)
Appendix 3 - Unemployment rate
According to the graphic above, the UK Unemployment rate despite is getting a small better still sot so high, and this factor impact direct on British Airways, because whist people have no job it is difficult to this people travel by plane. On the other hand, people aged 16 to 54 had has been a significant increase since 2009, and may can bring more customer to British Airways. (http://www.statistics.gov.uk/cci/nugget.asp?id=12)