British Airways Strategic Analysis

Introduction

            The airline industry has grown immensely in both scope and magnitude in the 21st century. Besides recording a tremendous rise in the number of passengers, airlines are now offering more differentiated services and investing in new product segments. This has resulted in increased competition, which has further compelled older enterprises to modify their strategies in order to retain their market share. In particular, the British airways has managed to maintain its market position in both American and European markets while sustaining a workforce of more than 41,000 employees. The airline currently serves just over 32 million passengers annually and provides cargo services to over 300 destinations across the world. Its 240-aircraft-fleet includes Airbus 319/320s, and Boeing 737s, 767/777s, 747/757s (GmbH, GRIN, and Amritpal Hayre).

Through the years, the company’s performance has remained relatively steady despite the rapidly- changing business environment, and this has all stemmed from its ability to respond quickly to the business environment. In this essay, the author analyses the airline’s strategic position as regards the external and internal business environments in a bid to comprehend its strategic position in the industry. The External analysis features a PESTEL, Porter’s Five Forces, and the GE Matrix analyses which are specifically aimed at evaluating how the airline manages its links with the external business environment. On the other hand, the internal analysis utilizes the SWOT and Value Chain analyses to question the airline’s competency, cost position, and competitive viability in the market. The last section presents a general evaluation of the strategy in light of the identified issues and future outlooks.

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External Analysis

PESTEL Analysis

            The PESTEL analysis is an important strategic tool for weighing an organization’s product development, planning operations and sales, as well as executing strategies. The tool specifically estimates whether a firm’s strategy falls in line with the external impact of changes using the following dynamics of the external environment: political, economic, social, technological, environmental, and legal factors.

Political

             Airlines operate in an active political environment of heavy regulation and increased security. In the course of the past decade, the British Airways has particularly experienced various regulations concerning security due to potential terror attacks across the globe. It has been noted that even minor terror attacks can cause political instability and low customer confidence in flying . Past cases of attacks have more often led to the implementation of new strict safety laws in American and European markets, thus causing consequential effects on airline operations. The British airlines has at one point or another been compelled to stop flights to certain destinations, such as those in Middle East, for fear of attacks or as a result of regulation, and this has led to a situation where the airline’s product seems to be subject to political forces.

Socio-Cultural

            A generally ageing UK and European population has coerced airlines to develop new strategies of serving specific target groups according to age. A specific group of flyers may prefer extra services because of their age while another may prefer to travel affordably without the need of using seemingly highly-priced services. Additionally, the use of brand appeal and changing lifestyles have forced airlines to concentrate on their brand image as a strategy of maintaining market share.

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Ecological

            In the current era of global warming, it has become critical for organizations to use resources in an environmental-friendly manner. Airlines are especially affected by the ecological environmental factors because they rely on large amounts of jet fuel to run operations. In order to reduce fuel consumption as well as cut back on emissions, they are pushed to execute costly changes in engine technology and aerodynamics. The British Airways has principally observed the current need to care for the environment by implementing technological changes in its aircrafts as well as reporting emission-related outcomes to the public.

Economical

            The economic environment in which the British Airways operates has faced various variabilities in the recent past and can be described as challenging. A case in point of a major variability that transpired in last decade is when the global economy experienced a sharp downturn in 2008. The ensuing effects led to a huge drop in profitability for airlines as a result of decreased demand and inability to pay for high tier services. Another major economical variability that has affected airline operations is the upsurge of oil prices in the global arena. Other invariabilities include declines in consumer spending in select countries and varying currency exchange rates.

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Technological

            As the use of technology in virtually every industry intensifies, airlines are constrained to invest in R&D measures and technological assets. Currently, the focus lies on security, alternative energy, online booking services, and information processing. In its part, the British Airways has implemented technological innovations in engineering and service delivery to increase the quality of its services as well as to create a competitive edge. Furthermore, recent surveys indicate that online consumers have resorted to the use of price-comparison sites and online-booking services which require airlines to respond by applying technological measures. Further, since the field of technology changes rapidly with time, airlines find it essential to regularly assess the principal dimensions of the technical environment.

Legal

            One of the most influential factors in the legal environment for the British Airways is the authority of trade unions. The airline has faced a considerable number of strike actions in the recent past, forcing the management to be wary of the possibility of more actions in the future. In March 2010, a mass workout by the employees resulted in the cancellation of many flights consisting of 1,100 flights out of the total 1950 flights scheduled to run during the walkout. Prior to the solution of the dispute, the airline incurred humongous costs to hire crew and lease planes in order to fill in the shortfall. Other major issues in the legal environment involve collusion and price fixing wherein restriction mergers threaten the chances of the airline to make alliances with American Airlines and the open skies agreement which provides an opportunity for airlines to operate between the US and the UK without restrictions.

Porter’s Five Forces

            The ‘Porter’s Five Forces’ tool facilitates the analysis of the competitive nature of an industry. By analyzing its competition, the British Airways can make more sound strategic decisions and works towards a competitive advantage.

Threat of New Entrants

            There are significant barriers to entry in the airline industry including the large capital needed to make investments, the huge effort needed to gain and maintain a profitable market share in a business environment with established industry leaders, little product differentiation, large maintenance costs, and the lack of distribution channels. Thus, there is a very low chance of entry in this industry which is why the threat of new entrants bears a very small effect on the strategic management of British Airways.

Threat of Substitutes

            There is a wide range of substitute services available to customers of British Airways among which include train, bus, ship, cars, and other modes of transport. These pose a threat to the airlines operations as the final verdict as to which transport services are fitting is dependent on the customer’s preferences. For example, if a customer’s preference is price economy, then they may choose a cheaper mode of transport. Even so, such customers do not primarily make part of the market for the British airways. Oppositely, customers who prefer convenience and a fast mode of transport are likely to select British Airways as their service provider. Thus, the threat is substitute products is moderately strong.

Bargaining Power of Buyers

            Customers are now more sensitive toward the price of services and are aware of the many choices of airlines in the industry. Additionally, there the switching cost ranges between little to zero, which means that the customer can resort to using another airline unless they are fully satisfied by the quality and price of services offered by British airways. Furthermore, given that a considerable number of air travelers purchase airline tickets via travel agents, they are likely to look at multiple options in search of the best deal. This makes the bargaining power of buyers strong.

Bargaining power of Suppliers

            Suppliers that serve the supply chain of British Airways include companies which supply aircraft and fuel as well as all employees. Aircraft are particularly few given the complicated and demanding nature of aircraft fabrication. Therefore, British Airways has to maintain good links with the few suppliers. The same case applies to suppliers of fuel and other services upon which the airline operations rely. This implies that the bargaining power of suppliers is strong.

Industry Rivalry

            British Airways serves short and long haul flights. However, the long haul category does not exhibit any product differentiation and there is a very small difference between the services offered by various airlines with regard to price and quality. The short haul market also imposes risks in that it is more fragmented due to the presence of small players. In short, British Airways faces fierce rivalry from both local and international airlines.

Competitor Analysis

            Competitor analysis is used to assess the strengths and weaknesses of an organization’s potential competitors and provides an offensive and defensive tactical context in the organization’s strategy with regard to competition.

            According to Routeonline’s latest analysis of the European aviation sector, British Airways was ranked 5th among the top performers in the industry with regard to capacity. The four superior competitors that were ranked higher that the airline were Ryanair, Easyjet, Turkish airlines, and Lufthansa. British airways also faces stiff competition from other contenders in the UK including Virgin and the United Airlines. Although these competitors do not share the same strategic group as British Airways, the advent of low-cost flights to various destinations has brought about competitive rivalry. This competition has further resulted in price wars between British Airways, Emirates, and Virgin Atlantic on select routes, such as the London-Dubai route. Air fares are now 30% less for consumers and competition is at its peak.             Based on strategic grouping, it is safe to say that there exists a gap for a low-cost airline offering a high breadth of services, but the probability of filling this gap is very minimal given the high chance of failure. This can be illustrated by British Airways’ reluctance to fill the gap in the recent decade.

According to the competitive spider index above, the mean rating for British Airways was 4, a score that was shared by major competitors apart from KLM which scored 3 (“British Airways 4-Star Airline Rating – Skytrax).  British Airways and Virgin Atlantic are identical in comparison when considering all the marked categories, but while the former is not a Quality Approved airline, the latter is. It can also be deduced that British Airways needs to improve its performance in interaction in all service classes in order to outperform its competitors. Additionally, it needs to advance its baggage delivery service. Apart from that, general customer reviews have shown that British Airways has poor in-flight entertainment that undergoes regular breakdowns. Thus, the airline needs to improve its services as well as its online amenity according to client preferences. Above all, British airways ought to capitalize on the quality of its customer service delivery at all its departments.  

Internal Analysis

            Internal analysis refers to the assessment of an organization’s strengths and weaknesses that focuses on factors within its domain. An internal analysis provides an organization with a good sense of basic competencies that it has as well as desirable improvements that it can execute to exploit its potential.

SWOT Analysis

Strengths

            British airways stands out as one of the best airlines in the UK with a good brand identity, and this stems from customer loyalty and trust amassed over the years. The solid identity has brought about the advantage of economies of scale, giving the airline an opportunity to launch new products, such as Open Skies, a service that serves business class passengers between the US and Europe (British Airways). Besides, the airline boasts a huge capacity when it comes to aircraft as its main operating base is located at Heathrow Airport (Dudovskiy). The proposed amalgam with Iberia is as well a major strength given that the success of the merger may render the company the second-largest airline firm in Europe after Air France. It is important to note that British Airways provides various loyalty programs to its customers in order to encourage return-customers.

Weaknesses

            The launch of Terminal 5 in Heathrow Airport brought about a various drawbacks resulting from shortage of staff, cancellation of flights, and missing luggage. Another main weakness for the airline is the rising cost of fuel. This has primarily led to a significant increase in costs and hiking of air fares. To make the matters worse, the slowdown of European and American economies have subjected the aviation company to financial instability. Soon after the global recession of 2008, bank bankruptcies led to an extensive decline of passengers for British Airways, and subsequent drops in profitability especially given that the airline relies more on the Heathrow-New York route as a source of revenue. The final outcome resulting from the regression of premium class tickets along with costs resulting from non-fuel costs was waning revenues.

Opportunities

            British Airways plans to expand its market share through the acquisition of Iberia airlines and has already managed to acquire 13%. If the acquisition process proves successful, the airline could become one of the largest airlines globally with a combined stock market capital of EUR 5.5 billion. It also has an opportunity to venture in other markets like India, China, and the Middle East. Further, the airline has the opportunity to improve the operating conditions of Terminal at Heathrow airport (Dudovskiy). Other opportunities include a focus on low-priced and high-quality services, minimization of environmental damage, and development of routes to new destinations.

Threats

            The biggest threat that British airways has to face stems from economic slowdown, high fuel prices, and a weaker Pound. The latest global recession initiated an era of diminished profitability in the aviation industry. Additionally, the plan to move towards greener practices by the travel and tourism industry compels aviation companies to adopt their carbon emissions. This calls for investments of large sums of capital in new technology. What is more, security measures are have been intensified in light on account of past terrorist attacks. These efforts have put a huge strain on passenger comfort and autonomy. There is also stiff competition in the markets in which British Airways operates as well as from other modes of transport like rail and cruise. As more carriers capitalize on low-cost services and forge new routes, the British Airways risks losing its market share. Another threat relates to the British airline’s position as a union of power. The union has caused a series of strike actions in the past and nothing guarantees that the same will not happen in future.

Value Chain Analysis

            Chain analysis embroils the espousal of a systematic approach in the evolution of competitive advantage.  In general, the framework creates a distinction between the main services and support business services by identifying specific sources of competitive advantage for each.

Firm Infrastructure
British Airways utilizes a structured hierarchy that enables the airline to approve a multiplicity of specialist knowledge to gain a competitive edge over other firms.
Human Resource Management
The airline has invested in the improvement of customer service since 2007 by attracting skilled employees.
Technology Development
The airline has added value as far as technology is concerned and is far better than smaller companies that lack adequate resources.
Procurement
Due to historical alliances and the size of former business relationships, British Airways is capable of exercising some form of leverage over its suppliers. It also takes advantage of economies of scale to make efficiencies in certain industry segments.

Inbound Logistics

            British Airways’ inbound logistics are multifaceted and comprise timely delivery of fleet aircraft, catering services and products, as well as a variety of on-board services. The perishable nature of foods and some drinks further complicates the inbound logistics primary activities. To achieve competitive advantage in inbound logistics, the airline has established relationships with various suppliers and a sophisticated system of controlling stocks, and professional training accredited by recognized bodies.

Operations

            British airways serves over 400 destinations and thus includes a large scope of service. As Britain’s largest international scheduled airline, the firm also enjoys many competitive advantages in the operations department. Examples include the provision of quick check-in services, online booking services, and increased security for luggage. Likewise, extensive utilization of technologies along with high level of customization of service provision represent additional value to the airline’s operations.

Outbound Logistics

            Although outbound logistics are common in manufacturing industries, they are also applicable in service industries, including airlines. By flying to over 80 countries worldwide, the British Airways obtains value via efficient handling of luggage both at the point of departure and destination. The company also makes use of advanced information systems.

Marketing & Sales

            The marketing strategy adopted by British airways aims at transmitting marketing messages to customers of target segments. The marketing message is designed to associate the airline with safety. Reliability, efficiency, and convenience. The transmission process further utilizes a range of solutions derived from a wide communication mix comprising media advertising, events, experiences, sales promotions, direct marketing, and public relations.

Post-Sale Service

            As an airline, British Airways takes consideration of post-sale services as a strategy of achieving competitive advantage in the market. It runs such initiatives as loyalty programs and constant communication in line with customers’ needs via a range of channels.

General Analysis of the Current Strategy

            British airways recognizes the need to align its strategic management with the current environmental conditions and to prepare the business for better economic times. The airline’s key goals include exploiting opportunities in the long-haul premium customer segment, delivery of outstanding services to customers at ever price point, growth of the airline’s presence in main global cities, capitalization of the airline’s leading position in London, and the satisfaction of customer needs as well as improvement of margins through fresh revenue streams (Janed). One particular stratagem for the company has been the augmentation of Terminal 5 with regard to customer service and operational performance (Dudovskiy). Indeed, the airline has exceeded its baggage and functionality targets across its network to achieve remarkable customer satisfaction scores. The gallery lounges at Terminal 5 and Terminal 3 have acutely exhibited success and the concept is now being adopted in other airports in Johannesburg, Milan, and Vancouver.

            Secondly, the airline has augmented its premium customer segment with a new Club World product which features improvements to sleep priorities, food, on-board Wi-Fi and a fresh seat design. Terminal 5 has also contributed immensely in the reduction of costs arising from operations and fuel consumption. Despite past downturns, the airline has continued to grow economically as such strives to meet the needs of its customers to achieve success. In the past decade, the firm launched OpenSkies, a new product intended to serve customers flying between continental Europe and North America (British Airways). There has also been new investments with regard to technology and the acquisition of efficient and flexible aircraft. In order to continue attracting more customers, British Airways plans to continue with the introduction of more products to complement the existing services (Janed). In this context, the aviation firm should capitalize on new opportunities as identified in the SWOT analysis, including venturing into the Asian market.

            With regard to the adoption of technology, British airlines seeks continue training its workforce in world-class hospitality and customer service via technological innovations in networking and computing as well as in-light entertainment systems (Dudovskiy). With regard to this, the airline explore upcoming technologies so as to pioneer major technological adoptions in the industry. The firm’s strategic plan also remarks on the growth of global connectivity for customers. In addition to this, it should capitalize on long haul intercontinental flights to new destinations by targeting clientele in both developed and developing nations.

            Since Heathrow remains a critical world-class hub, British airways should look toward building its position in London primarily because it is one of the biggest aviation markets in Europe. Heathrow airport is especially a vital hub for international flights and assessing the possibility of investing or expanding towards new opportunities could increase the airline’s profitability (Dudovskiy). Above all, the airline should prioritize the satisfaction of customer needs by providing profitable ancillary services based on value. Currently, it prioritizes the growth of its mileage business and revenues accrued from third-party engineering, retail websites, and in-flight sales (Janed). These should be complemented by product differentiation as the current product segments are similar with those of its competitors.

Conclusion

The airline industry exhibits fierce competition between industry leaders like British airways. Therefore, it is imperative for airlines to assess their strategic position in order to recognize their position and work towards improving their tactics. After conducting internal and external analysis for British airways, this essay found critical findings. First, the airline lacks control over its buyers and suppliers, and thus, records mixed performance altogether. The company’s revenue increase with corresponding increase in the number of passengers. Unfortunately, the number of passengers has significantly decreased in the recent years, causing a decrease in revenues. Secondly, British Airways faces aggressive rivalry from such airlines as Easy Jet dues to the fact that they offer better prices for passengers. Indeed, Easy Jest has recorded drastic improvement with regard to its financial health and hence can be characterized as one of the most considerable threats. It is key for the British Airways to, thus, put in place strategies to cope with the current threats as well as capitalize on the opportunities in order to maintain and diversify its market share. A central opportunity is the gap that exists in the Asian market which has a big potential for growth in the near future. Lastly, the longstanding aviation firm should continue to empower its operations via economies of scale.

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