Executive Summary
This report was produced for the purpose of providing British Airways Plc (British
Airways) with a strategic plan to implement over the next three years. British
Airways is the UK market leader in airline operations, however has faced increasing
competition over the last decade resulting in erosion in their market share.
The report begins by analysing the current internal and external environment of BA.
Through strategic evaluation we have recommended that BA focus on their
fundamental service delivery to restore their competitive advantage within the
industry. This will require implementing a combination of two strategies; a people
processes strategy and a strategy focused on technological advancement.
The people processes strategy was derived from a number of industry sources
outlining BA’s decline in customer satisfaction. The technological advancement
strategy coincides with the renewal of BA’s aircraft fleet and will further improve the
overall customer experience.
2
Table of Contents
Table of
Contents..................................................................................................................... .
. . . . . . . . . . . . . . . . . . . . . 3 1.1 Report
Objectives.....................................................................................................................
.... . . . . . . . . . . . . 4 1.2 Company
Overview......................................................................................................................
.......... . . 4 1.3 Current
Strategies.....................................................................................................................
.... . . . . . . . . . . . . 4 Figure 1 - Business Map (T-O
£8.32bn)........................................................................................................ 5
.....................................................................................................................................
...................................6
2.0 External
Analysis........................................................................................................................
............. 7
2.1 PESTEL
Analysis........................................................................................................................
... . . . . . 7
2.2 Porter’s Five Forces................................................................................................
............................9
2.3 GE
Matrix...........................................................................................................................
.......... . . . . . 10
3.0 Customer
Analysis........................................................................................................................
......... 11
4.0 Competitor
Analysis........................................................................................................................
. . . . . . 12
4.1 Strategic
Groups..........................................................................................................................
....... 12
4.2 Airline Quality Review
(AQR).......................................................................................................... 13
5.0 Internal
Analysis........................................................................................................................
............ 14
5.1 Value Chain Analysis
(VCA)............................................................................................................. 14
5.2 Resource Based View
(RBV)............................................................................................................. 16
5.3 Financial Analysis (Source: British Airways,
2008).......................................................................... 17
6.0
Summary......................................................................................................................
. . . . . . . . . . . . . . . . . . . . . . . . . 18
6.1 SWOT
Analysis........................................................................................................................
....... . . 19
6.2 Key Strategic
Issues.................................................................................................... . . . . . . . . . . .
. . . . . . . . . . . 19
.....................................................................................................................................
.................................21
7.0 Strategy
Formulation..................................................................................................................
... . . . . . . . . 22
7.1 TOWs Matrix...........................................................................................................
. . . . . . . . . . . . . . . . . . . . . . . . . 22
Figure 11 - Preliminary Comparison of
Strategies................................................................................. . . 23
8.0 Analysis of Strategic
Options................................................................................................................. 24
8.1 Strategic Option 1 - Improvement to People
Processes..................................................................... 24
8.2 Strategic Option 2 - Improved Environmental
Stance. ..................................................................... 25
8.3 Strategic Option 3 - Improved Technological
Stance. ...................................................................... 26
8.4 Strategic Option 4 - Segment
Focus................................................................................................... 27
8.5 Strategic Option 5 - Broader Service
Offering................................................................................... 28
.....................................................................................................................................
.................................30
9.0
Implementation............................................................................................................
......................... . . 31
9.1 Company
Structure.......................................................................................................................
...... 32
9.2 Service Quality Gaps
Model.............................................................................................................. 34
9.3 Managing the
Change.........................................................................................................................
35
9.4 Gantt
Chart.............................................................................................................................
............ 37
9.5 Stakeholder
Map...............................................................................................................................
. 38
9.6 Control
Systems........................................................................................................................
......... 39
9.7 Balance
Scorecard.....................................................................................................................
......... 40
10.0
Critique.........................................................................................................................
........................ 41
3
1.1 Report Objectives
The objectives and structure of this report will consist of four main sections which
will enable a
strategic direction to be recommended to BA:
1To research in to the current strategic position of British Airways.
2To critically analyse British Airways’ internal and external environment.
3To design a selection of strategic options utilising the internal and external
analysis.
4To evaluate the most appropriate option for British Airways and discuss
implementation.
1.2 Company Overview
British Airways Plc (BA) is the UK’s largest international scheduled airline. Alongside
scheduled services, BA is engaged in the operation of international and domestic
carriage of freight and mail, and the ancillary services (Datamonitor, 2008). In
association with codeshare and franchise partners, BA fly to more than 300
destinations, and carried more than 33 million passengers, earning over £8.7 billion
in revenue in 2007/08 (British Airways, 2008). Employee headcount in March 2008
stood at 42,377 people (Datamonitor, 2008).
Since privatisation in 1987, BA has continued to grow as competition in the market
has risen worldwide. In recent times, BA has successfully been labelled the world’s
first airline to take part in a scheme to reduce greenhouse gas emissions (2002) and
to allow passengers to print online boarding passes (2004) (British Airways, 2008).
In 2005, the company saw Willie Walsh become Chief Executive of BA (Flight Global,
2008), who to date has driven the company through the completion of Terminal 5 at
Heathrow, amongst other new initiatives.
Despite reported and imminent industry hits due to the global economic downturn,
BA’s future looks promising. As BA announces its aim of becoming the ‘world’s most
responsible airline’ in the latest annual report (British Airways, 2008), great
importance lies in developing guiding principles and careful strategic direction to
allow the achievement of this goal.
1.3 Current Strategies
The report will be designed in consideration of BA’s current strategies (British
Airways, 2008):
1Upgrade customer experience via the introduction of text and mobile services for
business class
customers.
2Modernise aircraft fleet and offer new services.
3Manage cost base.
4Increase corporate responsibility through environmental performance and
partnerships.
Although BA does operate in a number of areas such as cargo, we are choosing to
focus our report
on the scheduled passenger market due to the size and opportunities that BA has in
this market
(Figure 1: BA Operations).
4
5
Figure 1 - Business Map (T-O £8.32bn)
BA Service Portfolio
Component Suppliers
Support Provider Subsidaries
BA Avionic Engineering, BA Interior Engineering, BA Maintenance Cardiff
BA Leasing, BA Capital, BA Holdings, BA Cash Management, Speedbird Cash
Management, Speedbird Insurance Company, Air Miles Travel Promotions
Scheduled
BA Cityflyer, Openskies
Customers
International Travellers: (by sales)
Continental Europe = £1,219 ml
The Americas = £1,697 ml
Africa, Middle East & Indian subcontinent = £821 ml
Far East and Australisia = £659 ml
Domestic
Travellers: (by sales)
UK = £4,357 ml
Intermediaries
Travel Agents
Online websites
Adapted from: British Airways (2008) (* percent of operations)
Direct Sales
BA.com
Mail +freight
diplomatic bags
Aircraft Suppliers:
Boeing and Airbus SAS
Airports:
Heathrow and Gatwick...
Other Suppliers:
Food Suppliers…
Industry Regulators
And Influencers
UK Government
BAA, CAA, DFT
Member of:AEA
Research and Interest
Groups
Independent Customer
Review: Skytrax rates
BA as a 4* airline.
Non-scheduled services
BA Holidays
Cargo=7.0%
Passenger = 86.2%*
Investments (equity owned)
Associates: Iberia S.A. 13.15%
Avaliable for sale: Flybe Group Ltd 15%, Comair Ltd 10.9%
Other Airline Operators:
Ryanair, Easyjet, Virgin
Atlantic, Lufthansa,
Air France KLM, Aer
Lingus…
Alliances:
Quantas, AA,
Iberia, Continental
Cargo Handling, Airframe Maintenance, Computer and
Communication Services and Consulting Services
Other= 6. 8%
6
2.0 External Analysis
For success within the airline industry, an awareness of the external environment is
essential. This section aims to highlight the position of the industry, in particular
looking at competitors and assessing BA’s capability to meet current and future
challenges.
2.1 PESTEL Analysis
(Source: Johnson et al., 2008, p56)
An analysis of the macro-environment has been carried out using PESTEL (Figure 2).
Figure 2 – PESTEL Analysis
PESTEL Factor
Key Points
Implications for BA
Political
Heavy regulation (AEA, 2009).
Compliance is essential if BA wants to continue
operations.
Increased security due to past terrorist
threats (DFT, 2008).
Sufficient security measures should be in place to
ensure consumer confidence and competitive
advantage is maintained.
Economic
Global economic crisis: World growth is projected to just over 2 percent in 2009
(IMF, 2008). 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. BA is vulnerable as a UK
operating airline to a poor exchange rate.
Oil prices: declined by >50 % since their
peak retreating to 2007 levels. Decline in
fuel price = strengthening of the dollar
(IMF, 2008)
Fluctuations in oil prices and exchange rates will
directly affect BA’s cost base.
UK consumer spending saw its sharpest
decline for 13 years between July and
September 2008 (Channel 4, 2008).
More intense competition
Social
The UK has an aging population (see
appendix 3) (National Statistics Online,
2008).
Potential opportunity for growth as older
generations have more time to spend on leisure
activities such as international travel.
Increasing unemployment (Kollewe and
Sager, 2008).
Increased bargaining power as an employer.
Technological
A recent survey revealed that 34% of
online consumers plan to use price-
comparison sites more in 2009 (NMA,
2009).
Increased consumer awareness and therefore
bargaining power.
Online booking services and check-in is
becoming increasingly used by the airline
industry.
BA must ensure that they remain up to date with
these technological advances whilst avoiding
becoming overly reliant, as this may isolate
certain consumer markets (i.e the elderly) who
don’t feel comfortable using such technology.
Environmental/
Ethical
Noise pollution controls, and energy
consumption controls (DFT, 2008).
New legislation (e.g. Climate Change Bill)
enforcing tighter environmental regulation may
increase operational costs each year.
Limited land and for growing airports – Expansion is difficult at Heathrow as it would
result in a loss in the London’s Green belt area. (BBC News 2006)
Limited capacity=> utilisation of capacity.
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
BA’s reputation and income.
Cancellations of flights and loss of
baggage (Channel 4, 2008).
Such ethical issues could have a detrimental
effect on reputation if left unresolved.
Legal
Collusion and price fixing.
Restriction on mergers will have an impact on
BA’s proposed alliance with American Airlines.
Recognition of trade unions and industrial
action e.g. Cabin Crew strikes.
Good employee relations are essential if BA wants
to avoid industrial action and interrupted
operations.
Open Skies Agreement (AEA, 2009)
Opportunity for BA and its competitors to freely
transport aircraft between the EU and US.
8
2.2 Porter’s Five Forces
(Source: Johnson et al., 2008, p60)
It is important to analyse the competitive nature of the airline industry in order to
assess the position of BA. The ‘Five Forces’ tool will enable BA to make strategic
decisions in order to increase profitability.
Force
Strength
Competitive Rivalry
BA caters for both long haul and short haul flights. Within long haul there is little
differentiation between BA and their competitors, in terms of price and service
offering.
The short haul market is more fragmented with many small players.
Direct competitive rivalry is fierce, e.g. Virgin has a website opposing the proposed
strategic alliance between BA and AA - ‘No Way BA/AA’ (Virgin Atlantic, 2008).
Consolidation of competitors has increased competition.
HIGH
Power of Suppliers
Two aircraft manufacturers = High bargaining power.
BA restricted by sole supplier of fuel to the airport.
Priority of landing slots is given to historic rights of existing users
(IATA, 2008).
•
BA employees use collective bargaining through trade unions in
order to increase their bargaining power
HIGH
Power of Buyers
Low concentration of buyers to suppliers means they have little
bargaining power.
Increased internet usage has amplified awareness and interaction of
customers (Keynote, 2008c).
MEDIUM
Threat of New Entrants
Significant barriers to entry: such as the competitive environment,
high regularity requirements and high capital cost requirements.
Barriers to exit are in place which deters new entrants.
The failure of recent airlines such as XL and Zoom is likely to deter
new entrants (Times Online, 2008).
LOW
Threat of Substitutes
There are few direct substitutes:
o
Short haul flights: the Eurostar or a ferry.
Long haul flights: no notable substitutes.
LOW
9
2.3 GE Matrix
(Source: Johnson et al., 2008, p280.)
The GE Matrix (Figure 5) provides evidence of opportunities for growth through
market development
in new markets and market penetration in existing.
Figure 5 – GE Matrix
Competitive
Strength
Market Attractiveness
High
Medium
Low
High
Medium
Low
From the analysis above, it is evident that if a market development strategy was to
be pursued by BA, Asia Pacific and Eastern Europe would be prime markets for
profitability due to high growth (Appendix 5/6). It may also be a requirement to
build defence strategies in BA’s core market, Western Europe, due to low growth
and intense competition.
10
Asia Pacific
BA=1.1%
Australasia
BA=4.0%
Middle East
and Africa
BA=2.3%
Eastern Europe
BA=2.2%
Latin America
BA=1.9%
North America
BA=1.7%
Western Europe
BA=6.9%
Size of Circle = size of market (British Airwayssed on 2006 data)
Width of Circle = CAGR Forecast Growth (2006 – 2011)
Source: Euromonitor (2008)
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