Investigation Of British Airways PLC Strategy

Investigation Of British b be behaviors PLC StrategyFlying an extensive route entanglement of to a greater extent than 300 assorted destinations in more than 70 countries, with nearly 250 denudecrafts in service, British line of reasoning ways is today the largest trajectory path in the UK and the run awayer in terms of transatlantic flights pla winaryly. They argon a mathematical group mainly based in Heathrow Airport, London Gatwick and Manchester, where they operate external domestic help plan ambiance services for carriage of passengers, freight mail.In addition, British Airways is carve up of the o cuttingorld alliance that unitedly comprises 700 destinations. Founded in 1999, Ameri mint Airlines, Cathay Pacific, Finnair, Iberia, lacquer Airlines, Lan Airlines, Malv, Qantas and Royal Jordanian are in addition members of this association. The readyment of this genial of business voicenership benefits customers expanding their access to a much wider net clear of destinations.In terms of shareholding, for instance, the group has participation of 13.5% in the Spanish air duct Iberia and 15% in Flybe. According to come upon Note (2009), early(a) British Airways ventures embarrass a 10% stake in Eurostar (UK) Ltd as part of the InterCapital and regional Rail alliance. BA too operates a government cut down of subsidiaries and franchises organisations, for example, British Airways cosmos Cargo, BA Cityflyer and OpenSkies.BAs financial overview defined by come upon Note (2009) says that in the course ending in 31st March 2008, British Airways PLC change magnitude its turnover to 8.76bn from 8.49bn in 2007. Pre-tax profit annex to 922m in 2008 from 611m in 2007. In the year ending 31st March 2009, turnover was up to 8.99bn and in that respect was pre-tax loss of 401m. The fellowships annual narration of 2009 describes in more details that 87.1% of this revenue enhancement is from passenger traffic, 7.5 % from cargo and 5.4 the Great Compromiser from some other activities. The great financial provides in the year that anticipated the credit crisis, a record of profitability in BAs history, left the bon ton in a good position to a much harder period that should arrive in 2008/09.The airway industry linchpin Note (2009) considers Aviation an Coperni nates sector of the economy, enabling people to cut down countries it contributes to the development of other sectors and to warm the economy in general. It is a hawkish field which has been recently touched by the low- approach companies, specially the schedule flights market, where price pressure has being on emphasis figure outd by short-run bug outs as, for instance, the economic recession, oil price fluctuation, government taxation and inter subject area environsal and health concerns.In symmetry to Key Note, the number of companies on the air traveling market significantly emergenced since 2004, the main reason to apologise the expansion was the increase operation of non-scheduled flights, which represented 48.7% of the overall total on that year and 63.9% in 2008. Even though the rising supplicate stop in 2008, this period was a continuous growth for airline enterprises, companies were becalm able to operate revenues of 18.25bn that year, which means an increase of 6% on 2007 figures.In summary, all the positive results are certainly a consequence of globalisation, the airline industry has an important role in this process as it stimulates tourism, global trade, foreign investments and in that respectfore despite the recent economic recession it remains a large and growing industry.environmental InfluencesPolitical and Legal at that fleck have been some(prenominal) major(ip)(ip) political issues since the start of the millennium, which have happen up id the airline industry and British Airways in particular. One specific fount was the September 11th 2001 terrorist attack to the world trade centre in New Yor k and the London attack on July 7th 2005, which have resulted in introducing immature regulation and security procedures in atomic number 63an countries and the United States. The new regulations have come into effect in 2006 to try to combat the nemesis of terrorism and il level-headed immigration which have indirectly presumeed the buyers locomotion confidence (BAs annual Report).In addition, the 2003 war in Iraq and, the political spatial relation in the uniform nation have contributed to drive oil prices gamey and therefore, naughtyer cost of fuel for airline companies were experienced.In recent years, comforting deregulations uniform open skies agreement 2008, has given more opportunity to airlines and in handle manner had a great impact on the ache-term business strategies in British Airways. In addition, there are some legal factors impact BA which are as the results of trade unions power in the UK. British Airways has put forwarded significantly from the strik es over the experience decades which are believed to be taken moorage under the implication of trade unions. The strikes are mainly concerned with the employee rights, environmental and ecological issues (Clarke, 2007).According to Key Note, from November 2009 the new Air Passenger employment (APD) give be implemented change magnitude charges applied for e genuinely passenger flying from an UK aerodrome. This measure is going to be based on outdistance and result pass water long flights significantly more expensive, which then aptitude prune over seas travellers demand. Moreover, increasing government taxation world power affect competitiveness against other transports in the domestic market, as can be observed in the economic effects below.EconomicWith the economic downturn in 2008 the demand for air travel declined, this is due to the lower demand by business travellers as a cost reduction schema of their makeups. Key Note defines the effects of the on-going reces sion as hotshot of the worst experiences passed by the air travel trading market, specially occurred be originator of the additive rising of oil price in the recent past years. Companies were under fire(predicate) to surges in oil price, what could easily affect their trading and profitability. Even though it has fallen since the peak of nearly $150 a barrel during 2008, numerous companies were locked with fuel bills acquired through hedging into highschooler prices. Lastly, the financial impact campaignd by the global recession might persist until 2010/11.Apart from the economic downturn, harmonize to features presented by the Consumer Price Index (CPI), in comparison to other forms of transport, the air travel industry had its prices increased by more than a 3rd (34.3%) in 2008, against for instance, annual increases of 4.3% and 6.8% of road rail and sea, respectively (Key Note, 2009).SocialAs BA is a global organization operating in contrary countries it needs to consid er contrary social and cultural factors. These factors are important as they can affect customer needs and the size of potential market. Nowadays, for example, the changes in demographics has changed the customers needs with new life styles, tastes and fashions, customers seek opportunities to go for long-haul destinations fire in new holidays places.Since 2001, after the terrorists attacks in the US, Great Britain did not suffer such decline in the percentage of adults travelling by air. In the year ending in March 2008 this percentage fell to a 3-year low of 47.3%, making it the origin annual fall in 8 years (Key Note, 2009). Despite the fact that the domestic demand suffered a grand decline, air travel is very popular among UK costumers and often the only way of transport to international destinations. International scheduled flights are menti wizd by Key Note as the growth sector of the airline industry. In 2008, more than 83 million passengers represented 5.1% increase in demand for international travels, a considerable part of that can be attributed to the large raft of tourists visiting the UK even in a duration of economic crisis. following(a) the same idea, although the industry expected a decline on the number of passengers uplifted until the end of 2009, this situation will be surely cured from 2010. The UK is a leading tourist and business destination and a hitch up is forecast on 2012 when the London Olympics should provide a significant increasing on air travel, therefore the number of passengers uplifted is expected to throttle from 123.5 million in 2009 to 134 million in 2013, according to Key Note.Finally, an issue that was recently observed in a global perspective was the overspread of diseases such as the Swine Flu such phenomenon might reduce travel and tourism, consequently affecting the airline performance.TechnologicalBA is not different from any connection of the 21st century. The aura sector has grown together with the fas t advances in high engineering arrangement of ru slight, and nowadays it is considerably unfree on its IT structure. At the same epoch IT is a defining means in BAs strategical position contributing to various facilities that comprise customers high expectations and satisfaction on the other hand BA is exposed to a great assay whether this system comes to a failure. Hence, it is extremely necessary that the organization prepares itself through prevention and recovery plans in range to minimize disposition impacts among customers in case of disruption.For example, different strategies ( operable, commercial and social) mentioned in this continue could not be possibly implemented if the technology was not available really this tool is essential for the company to follow the rise in customer needs as well as their competitors presentations.In the aviation industry, technology plays a significant role. Premium airlines want to serve the passenger a convenience journey, start ing from the booking to the entertainment onboard, what can only be realistic through incremental advances in IT solutions. In addition, efficient engines can consume less fuel and gives more mileage. It can reduce the cost and fulfil spirit. BA is trying to minimize the average noise per flight it operates by 15% by 2015 with the use of new technology. Lastly, all the investments in technology helps air travel to remain as one of the safest modes of transport.EnvironmentalRegarding environmental concerns, Key Note (2009) states that the EU is planning to include aviation as part of its emissions trading scheme, this can be considered a chemical reaction to react critics haved for the reluctance of airlines in taking climate-change initiative. Cooperation between BA and Virgin proposes a coke trading agreement they are among other companies who volunteer to initiate a process to develop the emissions trading system to the airline industry.Because of the global warming, protecti on of environment has become a upstanding issue for the organizations to consider. Today many of the airlines are trying to reduce carbon dioxide emission and BA is one of them. BAs long term goal is to reduce the Carbon Dioxide by 50% by the year 2050. BA also aims at zero waste to the landfill by the end of 2010 in the UK and utilise or recycling of all the waste.To the airline industry, severe changes in brave conditions represent lost of revenue, things such as heavy snow might disrupt air schedule and lead to trading operations disruption.Industry building and AttractivenessPorters five forces model facilitates an abstract on the competitive environment as well as identifying the forces that affect the level of opposition in the airline industry.Existing Competitive Rivalry in the IndustryAir travel industry is a large industry with high urge of growth which results in creating more opportunity for competition. According to the annual report, BA faces fierce competitio n in or so of its markets whereby different routs have different levels of competition. The high Competition in short-haul market comes from the free market for knowledgeable flights, where European airlines are allowed to choose any route inwardly Europe and set its own fares. Additionally, the emergence of no frills companies like EasyJet and Ryan Air contributes come on to the intense rivalry in the short-haul market. The longhaul market is significantly influenced by deregulation. collectible to the EU-US Open Skies liberalisations, which allow any EU or US airline to operate flights to US from Heathrow, the competitive environment on transatlantic routes increased dramatically. However, there are a couple of(prenominal) international routs with competition restricted to national airlines.Threat of EntryMost new comers to the airline industry would get under ones skin it difficult to enter the market as it needs high investments to give a competitive structure, for examp le, an aircraft fleet covering the airlines route network. Over the tolerate decade, however, there were a number of newcomers within the low-cost niche EasyJet and Ryan Air in the European market have dominated the segment.Established airlines, go dominating the market, would not allow new companies to easily compete with them. They would incessantly defend themselves strategically through price reductions, special offers and most of the generation a better service. Lastly, these days, it is even more costly to adopt new requirements regarding legal concerning over health and safety regulations that are in demo in this industry worldwide.The power of BuyerDue to the high competition and an increase in the number of airlines in todays market the buyer has got a large number of airlines to choose from and therefore, has got high power.Therefore, the quality of service the customers receive has become even more important these days. The switching cost for the vacuous travellers is very low and so they can easily switch from one airline to the other. As a result, airlines like British Airways would focus on keeping loyalty of business travellers who tend to travel more frequently by introducing incentives such as air miles, hotel reservations or car hire. personnel of SupplierBargaining supplier power will be high with the dominance of Boeing and Airbus as the suppliers of aircraft and there is not much of competition amongst suppliers, therefore, there is a low possibility of vertical integration.Threat of SubstitutesAs the carrefour and services in the airline industry are similar in nature, therefore, the threat of substitute is considerably high. This can be presumably high for the local airlines for example for UK or French local airlines. Euro star as train service operating between London and Paris can be considered a threat. However, for the international airlines operating in long distances, trains and sea craft cannot be considered as substitut ion.Travelling with airplane is no longish a luxury therefore, some people prefer to travel with speciouser airlines which are sometimes even cheaper than travelling by car or train. These cheap airlines have made the threat of substitutes lower than before. However, there is still higher(prenominal)(prenominal) expectation from airlines, therefore, better service and higher frequency of flights would help let down the threat of substitute.Capabilities and Core CompetencesStrengthsBritish Airways PLC is the largest UK airline with 8.75bn sales in the year ending 31st March 2008, it is nearly four times the second-largest carrier, easyJet with 2.35bn. This residual can become even greater as according to Key Note, British Airways is allowed by the Government to merge with Iberia and maybe become a Spanish company.What makes BA successful is the companys capability to effectively deploy its re seeded players through its activities and processes. Although financially the company go es through very difficult times, operationally however, BA is achieving levels of excellence never experienced before. BA has made remarkable operational progress during the last year. In accordance to its annual report last year, improvement of 20% in punctuality is achieved and, nearly 82.5% of the flights at Heathrow, entrepot 5 have delay less than 15 minutes of their scheduled time. In addition, 72% less mislaid or misdirected bags during the year compared with the previous(prenominal) one (British Airways yearbook report 2009).Furthermore, according to the companys investor relations website, British Airways launched a 32-seat flight from London City airport to New York that for the first time ever will provide internet services on a transatlantic flight, an exclusive service to attend the business demand. This can be certainly an example that any strategic change that will be taken by BA is going to happen gradually, without leaving behind the nature and history that mak es the company a synonym of high quality services.In addition, a unique resource that underpins BAs competitive advantage and represents their major strength is the companys long- naturalised brand, which is synonym of high quality services and represents BA as a high-performing, customer orientated, and global premium airline. During 2008 the satisfaction level crossways BAs network has risen to 72 per cent. Furthermore, the opening of end 5 at Heathrow and the way BA organises its operations and services at the new store delivered a steady rise in customers satisfaction reaching 76 per cent at the end of 2008. During its first year of operation Terminal 5 has served 21 million passengers (British Airways Annual report 2009).Moreover, BAs participation in oneworld alliance builds unique relationships with other airlines and allows the company to offer its customers much wider network of destinations. This business relationship, along with the ability to argue effectively its re sources represents a affectionateness competence, which helps BA to build its competitive advantage over other airlines. BAs plastered fleet base allows the company to serve its robust rout network. At the end of 2008 the company possess 245 aircrafts. Although BA experiences difficult financial times, the company continuously invests in new aircraft, its lounges, a new in-flight entertainment system, cabin upgrades across their longhaul fleet and premium service genteelness in put up to further increase the customers satisfaction and sustain competitive advantage (British Airways Annual report 2009).WeaknessesBrand erosionThe merge with Iberia and the joint ATI application could cause brand erosion, which will adversely impact relationship with customers and will result in decrease of revenues (British Air ways Annual report 2009).. disruption in the bargaining process (unionised workforce)BA planes to cut cost wherever it is possible in order to survive the difficult financia l times. In this respect, the airline plans to cut 1,700 jobs and to freeze pay for current staff, in accordance to BBC News. This will increase the risk of workers strike actions, which will interrupt operations and adversely affect business performance (British Air ways Annual report 2009).Failure of a key supplierBAs sole source of in-flight meals at Heathrow was Gate Gourmet. In 2005 Gate Gourmet failed to supply BA with the necessary in-flight meals due to internal argument with its staff over working conditions, which led to a strike supported by BAs own workers. This caused major operational disruption in BA, which resulted in huge additional be of 40 million (Waters, 2007). This is one example for how a failure of a key supplier may cause disruption to the operations of the airline and adversely affect business performance. Another such example is BAs dependence on fuel supply. Any occupation as contamination or breakdown in the infrastructure that provides jet fuel to He athrow will cause a huge operational impact.Failure to prevent or respond to a major safety or security incidentA major security failure could consequently damage the personality of BA as a high secure airline (British Airways Annual report 2009).Failure to adopt an integrated environmental strategyBA markets itself as being a responsible airline. BA has set industry-leading targets for reducing its carbon emissions from 110 to 83 grammes per passenger kilometre between 2005 and 2025 and to halve its net CO2 emissions till 2005. Failure to implement this strategy could damage the reputation of BA as a responsible company (British Airways Annual report 2009).Substantial debt burdenBAs net debt in 2009 is 2,382 million, which represents an increase of 1,072 million in comparison to the previous year. Accordingly, the companys net debt to total capital ratio is 27.6% higher than the previous year. The substantial increase in debt obligations means that considerable part of BAs opera tional cash flow will be spent on interest, principal and lease payments. This not only lowers the ability of the company to finance working capital and other general unified requirements, but also limits its flexibility in planning and reacting to environmental changes (British Airways Annual report 2009).Overdependence on the European marketAccording to Datamonitor 62.5% of BAs profit is made from serving the European Market. Taking into consideration the current unfavourable economic situation in European, the overdependence on this weak market will prevent the company from increasing its future acquire.Organizational Structure and ProcessesThere are major factors that influence an organizations strategic position, for instance, it might be its overall strategic purpose and corporate governance policy, expectations of stakeholders, social responsibility and ethics are also part of this list.The recent annual report 2008-2009 shows that BA places high immensity on corporate gov ernance. The Board is responsible for the leading of the organization to the shareholders. Accordingly, The Board directs the Companys risk assessment, resource management, strategic planning and financial and operational management to insure that obligations to shareholders and other stakeholders are understood and met (Annual report 2008-2009, p. 56). The principal-agent conflict might trick out owing to the leadership of the business by managers, whereas they might put their interests first instead of meeting shareholders interests ladder (Johnson et al., 2009). The New Companies Act from 2006 aims to overcome this problem though.Authority and control responsibilities are determined by the comport organizational structure of BA. The companys personnel is highly qualified which is assured through the complete recruitment process, the internal performance judgement system and the appropriate training requirements. The performance of employees is evaluated according to action plans and targets established by the performance appraisal system to ensure that employees have all the skills necessary to complete their responsibilities. nominate and specific objectives are established for the staff in order to make their contribution to the overall performance of the company more transparent. This increases the motivation and the responsibilities consciousness of the staff. Also the staff is trained to behave in a way that will create a warm and friendly atmosphere in the work place and that they are happy to work for BA.In order to measure its performance and to make its managers accountable for delivery of the set targets BA uses a comprehensive management accounting system. This system provides financial and operational performance measurement indicators which allow the company to regulate its expenses more accurately and make financial decisions more precisely. Customer recommendation carried out by an independent research company assessed the number of satisfied customers and is supposed to be a one of the most significant indicators due to the potential to affect the profitability in the future. Companys operations are evaluated via a broad orbital cavity of methods across a variety of levels however, the most important is departure functionality. It consequently shows that the other processes are performed in a high stock and at long last effects customer satisfaction. (British Airways Annual Report 2009).British Airways Current and prox Strategy PerspectiveBased on Porters generic strategies, British Airways strategic analysis is built under the importance of employing a plan through one of the three strategies, Differentiation, Overall Cost Leadership and Focus. Those three strategies are relevant factors on the process of outperforming competitors in the industry. Even though it is possible to pursue more than one strategy, this is rarely seen because of their own different characteristics as will be evident on this topic .After the initial analysis of British Airways current situation in the air travel industry, it is clear that during all its modern history as a passenger carrier, the company stayed committed to its principles and invested on what could enforce its plans to continue being very successful. As a leading airline company its brand was always associated with the opera hat service and treat available to customers in the market. In this point of view, the company service eminence strategies and development of new services appear to be the considerable competitive advantage to outperform its competitors.There are some authors that argue in favour that specialization and overall cost leadership are not always mutually exclusive although it is very abstruse to match both strategies in most industries. However, the market is showing a rising positive trend to companies with an overall cost leadership strategy and they are growing their market share considerably. It becomes obvious that BA could not ignore low-cost rivals if the company wants to sustain its market position. Therefore, BA established a low-cost company called Go, created in response to falling profits after 1998 due to the emerging no-frills companies. Go was later sell to easyJet in 2002 it was a proof that an opposite price-based strategy is difficult to be applied even creating a new company under the same governance. The cost leadership strategic failure pushed the company to focus on differentiating its services even more. Nevertheless, in some price sensitive segments the differentiation strategy might not be sufficient to compete successfully. Therefore, BA concentrates on long-haul flights where there are not no frills companies. Furthermore, the company operates slots on popular and convenient airports such as Heathrow, what further gains some short-haul customers (Kumar, 2006).Additionally, BA has successfully segmented its markets by offering different ticket classes which allows them to attract price sensitive customers from no frills airlines as well as manage to cover costs and increase revenues. The airline also succeeded to reduce costs through the successful implementation and management of an online booking system. BA tries to increase the economies of scale by raising the frequency of flights to popular holiday destinations like Caribbean islands or seasonal increase in the frequency of flights to religious destinations like Mecca and Vatican (Kumar, 2006). All these strategies made BA very successful during the last few years (in 2007 BA achieved the highest profit in its history) and created competitive advantages over companys conventional and low cost competitors.Reducing cost activities are taking place since 2008 over the companys renewal strategies in order to fight against the short-term crisis effects. Job-cutting would increase profitability within the company in short term, but this could lead to decrease in the quality of customer service. Furth ermore, job-cuttings would lead also to confrontations with unions and employee strikes, which will disrupt the companys operations. Hence, this change in the organisational structure could damage BAs image reputation as a premium service airline in the long run. Other problems are the companys 2.7bn pension deficit and its high debt burden.On the other hand, in an innovation sense, after huge investments and improvements on operating activities, a proof of the continually effort to maintain its first quality monetary standard is the new terminal in Heathrow airport, which brings lots of new facilities to customers and improvement of conditions at the working place to all its employees. Despite the impact of the recent recession, in comparison to easyJet, British Airways is focused on pursuing to offer its customers the silk hat possible service that makes its brand a synonym of first class, the innovation appears into new customer needs, environmental forces and trends to reinfor ce its differentiation for which people are willing to pay more.To cope with future environment trends BA has started set its current strategy and differentiating itself from competitors according to new patterns of responsible attitude, especially within big companies. To adapt its structure to a green efficient standard is not an easy process and requires huge investments. The environmental concern is a topic highly discussed worldwide and has become a popular issue BA is certainly paying attention to that and has the objective of becoming cite as the most responsible airline. Sustaining and developing its current strategy BA believes that is the right decision in order to achieve always the best possible satisfaction of its stakeholders.To illustrate British Airways future actions, for instance, Terminal 5 is a set of procedures already working that underpins BAs long-term goal of creating a world-leading global premium airline with a reputation for being the very best at meeti ng its customers needs, according to its website, for instance At T5, most of the rainwater will be collected and re-used for non-potable uses. 85% of T5s heat will be supplied by excess heat produced from the Heathrow heat and power station. 30,000 innate woodland plants and 4,000 trees and shrubs are being planted around T5. Smarter runway and airport design means aircraft engines idle less, reducing emissions. Aircraft will do less taxiing too. T5 offers 96 Check-in Kiosks designed to eliminate queuing. The rapid transit system connection between the two buildings making up T5 means youll drive swiftly and smoothly to where you need to be. The baggage system has been designed to trigger off your baggage efficiently to the aircraft ready for departure and to minimise waiting time when you land.In addition to that, a new internal program highly-developed in parallel with the 2012 Olympic Games spirit has definitely enforced the importance of BAs culture, which has the customer a s its core. Compete 2012 aims to inspire the spirit of team work and competition in all corners of the company, and as a result establish a level of excellence that competitors aspire to. The strategy of being one of the UK sponsors and the official airline for the event matches BAs future vision and reinforce its credibility among its target customers.Above, they are examples of the evolution in British Airways culture that, when added to the companys capabilities and competences and the strengths forward described, its value chain can be clearly understood. The evolution of BAs strategy easily refers to Porters conclusion that competitive advantage frequently comes from perceiving new ways to configure and manage the entire value system.In terms of suitability, BAs current strategy successfully exploits its core competences and unique resources and allows the company to respond fittingly to key environmental trends such as economic downturn, political and legal changes and chan ges in social perceptions. Also their strategy is aligned with their culture. However, the current differentiation strategy could prevent some of BAs weaknesses such as brand erosion. In terms of feasibility of the strategy, BA has the financial resources and competences to invest and differentiate furt