British Airways Assignment

Name - Michael Anderson

Matriculation Number – S0905039

Business Law – BABW3

Strategic Management

(M3N209277)

Word Count – 3587

CONTENTS PAGE

Executive SummaryP3

Section 1 – Introduction to the companyP3

Section 2 – External EnvironmentP5

Section 3 – Financial PerformanceP6

Section 4 – Competitive StrategyP7

Section 5 – Strategic DirectionsP9

Section 6 – Methods of DevelopmentP12

Section 7 – Conclusion and RecommendationsP13

Reference List P14

Executive Summary

The research compiled to create this report enabled a balanced and concise understanding on British Airways as a whole. The findings of each topic give a brief yet thorough analysis on the several sectors set out to review. It is not difficult to see that like most companies British Airways have had their struggles recently mainly through the harsh economic crisis which has affected all business sectors however the actions taken by BA have shown their diversification to survive through these times and are now showing positive signs of improvement.

There are various sectors in the report to show how British Airways manage their company and give an increased understanding on their overall performance. Through the examination of strategic directions and methods of development it is clear to see that British Airways are only moving forwards with their business through examples such as mergers and alliances. What was clear through the findings of this report is that British Airways are a dominant company with a large stake of this sector especially in the UK and should be able to continue with this for the foreseeable future.

Section 1 – Introduction to the company

British Airways was first established in 1974 after the merging of four separate companies, two nationalised companies which were the British Overseas Airways Corporation and British European Airways along with two smaller companies Cambrian Airlines and Northeast Airlines. This was

previously known as the British Airways Board until the merge in 1974 forming British Airways. Since this time the company has gone on to involve a variety of other airlines and is controlled by their parent company The International Airlines Group.

After the formation of the company, British Airways have only gone forward with their business increasing the size and value and today are the largest UK based airline on fleet size, International flights and International destinations. Not only this but British Airways also offer short haul flights to 28 destinations in the UK and Ireland catering for all classes creating a faster, easier form of travel.

British Airways take a strong approach to their Corporate Social Responsibility which can be seen on their website page, this approach has been renamed ‘One Destination’ with their main focus on the environment, workplace, community and marketplace. A brief summary of this topic can be explained as so;

‘Together with our customers and colleagues, we are determined to lead the industry towards finding innovative solutions. We will continually review how we fly, what we fly and what we buy to ensure we are the most efficient and responsible airline in operation.’

(British Airways, 2011)

This overview shows that BA’s approach towards dealing with their 4 factors is based on how they fly, what they fly and what they buy which fits well under all of their chosen areas for CSR.

The first area which may also be classed as one of the most important is the environment as airlines cause a great harm to this planet although they are a revolutionary creation. With British Airways they understand this fact and this is why in 1992 they were the first airline to report their environmental performance in order to compare statistics to help give a better understanding of the damage they were causing and to work out ways in which this can be dealt with. They have a variety of goals in which they plan to achieve such as reducing the average noise per flight by 15% by 2015 and also to achieve a 50% reduction of their net C02 emissions by 2050. With these goals it gives the company something to work towards whilst also helping to protect the environment. (British Airways

In regards to the marketplace of British Airway’s targets their main plan is to involve their suppliers and customers with the ‘One Destination’ scheme with the intentions of companies adapting to this responsibility.

The goal they plan to achieve for 2012 is the auditing of all their suppliers for ethical practises.

For the Community aspect of ‘One Destination’ BA take a lot of pride in the communities in which they operate and in order to give back to the areas they operate support various charities and communities, these are generally seen through the offering of free flights, excess baggage and complimentary cargo. BA also invests a lot of money back into the UK towards education, supporting colleagues and also tourism.

British Airways encourage their workplace to understand and take on board the importance of corporate responsibility not only to educate their employees on this aspect but also to motivate and increase their performance to improve their workforce creating a more sustainable environment to work in.

Although it is easy enough to say that a company has set out these achievements the most important factor is whether their results can match these goals in which this will test the overall corporate social responsibility towards their targets and will then prove the company’s full dedication on making their business a more diverse and target driven corporation.

Section 2 – External Environment

With all sectors, external factors have a massive effect on a company’s performance as there are a variety of scenarios which cannot be avoided and can further put companies into administration if the necessary actions are not taken in time to prevent this. The airline industry alone suffers from numerous setbacks which already have managed to put companies out of business.

One of the most important factors to examine is the economic crisis that the world has suffered over the recent years. This has affected British Airways massively and shall be reviewed in their financial performance however from after 2008 when BA made record sales, the company has been underachieving from this point onwards which has affected BA on a number of aspects from strikes within their business to various cutbacks in order to tackle this problem.

Another great setback that British Airways have incurred is the decline in transatlantic business customers. As the economic crisis has affected almost all business sectors it has reduced the travel in which business customers are taking in order to cut costs for themselves. This factor alone adds support to why BA have been operating at a loss since 2009

Although the economic crisis was a huge problem for British Airways, there are various other factors which have affected them as well. During the year of 2009 in which their losses affected them severely, there was also a huge surge in fuel prices in which BA were given a bill of almost £3 billion for fuel as costs rose 44.5%. To tackle the problem they decided not to increase price fares in an attempt to reduce further damage to the company as the market was still fragile. BA bosses also froze their bonuses in a desperate hope to save the company, it was also suggested that employees take unpaid leave or work part-time during July of that year to prevent further losses. The chief executive Willie Walsh also agreed to work without a salary during this time however a massive upset occurred with staff which led to strikes further down the line. (BBC News, 2009)

http://news.bbc.co.uk/1/hi/8062844.stm#

Natural disasters can also cause problems for the airline industry for example the Icelandic volcano which erupted in May 2011 affected thousands of passengers delaying or cancelling flights throughout the UK. Due to the fact that this was a natural disaster many customers struggled to receive refunds in which affected their further plans such as hotel reservations for holidays or business trips/meetings. Although this was a one off event it affected many customers and caused great upset and anger towards companies including BA in which could later affect their loyal customers or first time flyers.

As can be seen here external factors play a huge part in the airline industry including British Airways, there are many aspects that cannot be prevented and will create serious setbacks but the most important thing for British Airways is to analyse the situation and ensure that they are prepared to battle against these factors to ensure they can return to making profits which is what they are back on track for now.

Section 3 – Financial Performance

For any company it is vital to analyse the financial performance in order to give a more increased understanding of the statistics shown to ensure that the business is going in the right direction in terms of profit and even to allow the shareholders to see how a company is doing.

The most significant areas that is first noticed in the graph below of BA’s performance is the huge decrease in the operating profit from 2008 to 2009, it was reported that in 2008 British Airways made record sales with the year on year sales before tax at £883m however this decreased dramatically in 2009 when the sales before tax dropped by more than 50% down to £401m. This created a huge impact on the business and the main reason behind such a significant decrease in sales was due to the economic crisis as previously mentioned in the external factors, there were a variety of reasons for this loss such as the surge in fuel prices, decline in transatlantic business customers and for the general public as a whole due to the majority of people having to make cutbacks. Despite this upset in 2009 it can be seen that BA are slowly increasing their sales as can be seen in 2010 figures and although it has not yet been issued there have been further positive reports on the general financial performance for 2011.

Another section of the financial performance which must be analysed is the current ratio, this can described as so;

“An indication of a company's ability to meet short-term debt obligations; the higher the ratio, the more liquid the company is.” (Investor Words, 2011)

When reviewing this to the chart it can be seen that the highest current ratio was in 2008 during their record sales, this was when the company was most liquid and their ability to meet short term-debt obligations which gives an impressive view towards shareholders, unfortunately they have been able to keep this high ratio but within the airline industry there are a variety of risk factors that also have to be taken into consideration.

(Financial Figures obtained from British Airways annual report 2009/10)

Section 4 – Competitive Strategy

Competitive advantage is an extremely important factor as it allows for a company to highlight their strengths within this sector. There are two basic types of competitive advantage in which a business can possess; the first one is lower cost whilst the other is differentiation.

In accordance with Porters Generic Competitive Strategies Model these two competitive advantages spread out to four areas of competitive scope. It was concluded that British Airways fall under Differentiation aspect for competitive advantage and a definition of differentiation can be seen as;

“

Differentiation involves making your products or services different from and more attractive those of your competitors. How you do this depends on the exact nature of your industry and of the products and services themselves, but will typically involve features, functionality, durability, support and also brand image that your customers value.”(Mind

Tools, 2011)

2007 2008 2009 2010

Revenue £8492m £8753m £8992m £7994m

Year on year sales before tax

£611m £883m £ 401m £ 531m

Operating profit/loss

£602m £875m £ 220m £ 231m

Current ratio 3.14 3.43 2.53 2.58

Liquidity ratio 0.75 0.76 0.41 0.56

Gearing 29% 28% 35% 37%

Solvency 21.18% 29.06% 17.60% 19.79%

(Thompson & Martin, 2010, cited in Halcro, 2009;p.298)

As British Airways prefer to focus on the service they provide rather than offering it at a cheaper cost differentiation in the competitive advantage that they have attained. They have managed to achieve this through their first class service which they have always highlighted through brand image to show that the extra money customers are paying on a BA flight rather than an Easyjet flight is through the level of class that they offer.

In regards to evaluating whether British Airways can sustain this competitive advantage it is not difficult to review. Due to BA’s financial position and strength they are able to expand to more destinations and possibly in the future develop straight long haul flights which don’t need lay overs or connecting flights. On top of this BA are continuing to grow in the UK and Europe as they have recently taken over some of BMI’s flights, which gives them more destinations to travel to and smaller airports as well which makes it easier for people in rural areas to travel via airplane

British Airways also have their merger with Iberia Airline, an Alliance with Airline companies all over the world creating the third largest airline alliance to offer less hassle for customers in terms of transfers whilst also not competing against any of the other airline companies involved in the alliance. They also have their two successful franchises in Africa (Comair) and Scandinavia (Sun air) creating more income for their firm.

BA also have a new multi million pound advertising campaign for the London 2012 Olympics, this will help to draw in new customers from all around the world as the Olympics is shown all around the world and is one of the biggest sporting events.

Section 5 – Strategic Directions

In order to evaluate British Airway’s strategic direction the first thing that must be done is to view Ansoff’s Growth Matrix, this is the model used to enable businesses in deciding their product and also to figure out the market growth strategy.

(Tutor2u, 2011, Ansoff Matrix)

As can be seen through this model the most likely category for British Airways to fall under is Market Penetration due to it focusing on selling an existing product into an existing market. In order for a company to achieve Market Penetration however, there are four main objectives they must adhere to.

The first objective is to maintain or increase the market share of current products through such mechanisms as focusing on competitive pricing strategies, advertising and sales promotion. In terms of pricing strategies BA have introduced a value calculator to their website in which costs can

be compared with both Easyjet and Ryanair. Although this may not be their target competitors for certain flight destinations they highlight the fact that with BA everything is included in your quoted price and that they do not have any additional hidden charges such as drinks & snacks or payment methods with certain cards.

British Airways also offer sales promotions for target markets such as large groups in which extra benefits are included such as free baggage allowance and complimentary refreshments during the flight. Other such sales promotions can include Christmas Sales Promotions in which there are guaranteed savings when booking packages such as flight + hotel + rent a car.

In terms of advertisements British Airways recently launched their largest brand advertising campaign in over a decade, with adverts on peak time TV, newspapers and online. The adverts are focusing on BA’s heritage and to emphasise the motto on BA crew uniforms: “to fly to serve” highlighting their dedication to their customers over the years.

The second objective is to secure a dominance of growth markets. Within the airline industry there are a variety of setbacks which will limit one company’s ability to secure dominance of a growth market such as the internet (price comparison websites offering cheap flights) or external factors such as fuel which can have a huge effect on an airline company, however BA have fought through these factors and maintains their reputation of being a reliable airline which can be seen as one of the more dominant companies operating in today’s airline industry through their dedication and history to serve and do everything they can in order to give the customer less stress and hassle when it comes to flying. (British Airways, 2011 Value Calulator)

Market Penetration’s third objective is regarding the restructure of a mature market by driving out competitors. Not every objective is achievable for British Airways, although BA do offer deals on holiday packages such as hotel + flight + car rental there are many companies that may be able to offer cheaper deals on perhaps the same location. This is where you can see that BA are more focused on the quality of their

service rather than focusing on pricing strategies designed to make the market unattractive for competitors.

The final objective is to increase usage by existing customers. British Airways reward customers through their premium membership known as “the executive club”. This is a free to join membership that enables customers to earn Avios points (air miles) not only by booking BA flights but also out with their company through their worldwide network of hotel, car rental, financial and shopping partners. The executive club also ranges on level of rewards from blue membership up to gold membership. This encourages passengers to spend more through their companies to redeem rewards for themselves such as discounted flights & special offers. On top of this British Airways also have set up a business loyalty programme in which they encourage companies to use their services and in exchange receive discounts and also the allowance of other businesses to advertise for free on their website.

British Airways have always usually managed to perform on a high financial strength, although some factors are completely out of their reach to have any control of such as the economic crisis in which they have managed to survive through and are now showing positive signs of profits again. They have been around since 1974 which is more than the majority of most airlines which shows they do have a stronghold within this industry and are showing no signs of finishing anytime soon.

Section 6 – Methods of Development

Once a company has established their strategic direction the next stage is to ensure that they are able to grow within their company in order to stay one step ahead of competitors and to ensure that they will not go out of business, for British Airways there are a variety of these methods which they have adopted in order to ensure that they can remain one of the largest and well known corporations in this sector.

One of the most important areas to cover in regards to their development was the merging of the Spanish national airline ‘Iberia’ with British Airways. This took place in 2009 and with the collaboration of these two airlines created the 2nd largest carrier in Europe after Air-France. The appeal towards this merge was favoured also by their shareholders as the amount of shares held within one company would be duplicated with shares in the other. This merge took place after both companies incurred severe losses due to the economic crisis however when combined the companies create a dominant corporation with further plans to involve more companies which could over time create a monopoly market. This method alone shows BA’s development to secure dominance in the airline industry.

On top of this important merger British Airways is a founder of the Oneworld Airline Alliance which involves airline companies all across the glove such as American, Canadian, Japan Airlines and also Qantas. Alliances have a powerful competitive advantage as is explained by Hook

“Strategic alliances can provide a powerful competitive advantage in new markets, cost, speed, knowledge and technology access. To achieve success, there must be ownership, and commitment of top executives to the process and it must be managed with discipline” (Hook, 2004)

This award winning alliance has become the 3rd largest airlines alliance in the world. These airlines operate a codeshare agreement, this is an aviation agreement in which companies share the same flight, such as customers purchasing tickets with one airline which may be operated by a separate Oneworld company. This creates less hassle for customers whilst increasing profits for each company. On top of this customers using the executive club with BA can claim their avios points with any of these companies thus creating a further benefit for customers encouraging them to use these companies more frequently.

A further example of the methods of development British Airways have enforced is the creation of further franchises, A South African airline known as com-air and a Scandinavian airline (Sun-air). These methods show that British Airways expanding their growth to accommodate the passengers who previously may not have been able to achieve these flights to certain destinations or even with their class the BA strive upon. However, it is clear that through this variety of methods British Airways are only continuing to develop through their variety of methods.

Section 7 – Conclusion and Recommendations

The variety of sectors displayed in this report show that British Airways are one of the leading Airlines today in this sector. From the first establishment of the company they having only grown in size and have a rich history behind them which they now feel they would like to highlight through new advertisements and the slogan ‘To Fly, To Serve’. Through methods such as their differentiation in competitive strategy and market penetration for strategic directions it is clear to see that British Airways have a stronghold over this sector and are only growing stronger with alliances through the oneworld alliance and a the merge between Iberia shows that they are destined for an exciting future.

A Space matrix model is a tool in which management use to analyse a company. It is used to determine the strategy that a company should undertake through the examining of PEST factors. It is clear to see that due to their financial strength and Industry Attractiveness BA fall under the Aggressive method.

The recommendation is that that BA must use their internal strengths to develop a market penetration and market development strategy. This can be involved in such areas like their sponsoring of the London 2012 Olympics through advertisements and promotion, investing in new air fleets which they are already in discussion about and further integration with other companies to create a merger in which have a monopoly effect on the overall airline industry.

For British Airways all of these sections combine to create a successful and diverse business which has created a worldwide established name for itself. As the current market is still fragile it is vital that British Airways ensure that their methods to flourish are thought through and fully analysed and also to ensure that they can stay in the same direction that they have been perusing since the company was first established.

References

Campbell, D., Edgar, D., Stonehouse, G. (2011), “Business Strategy: An Introduction”, Palgrave

Capon, C. (2008), “Understanding Strategic Management”, Prentice Hall.

Hook, L (2004) Successful strategic alliances

http://tutor2u.net/business/strategy

http://www.guardian.co.uk

http://www.britishairways.com

http://tutor2u.net

http://www.investorwords.com

www.bbc.co.uk

Personal Reflection

Part One - Team Development, Peer Support & Peer Assessment

There were no issues in regards to commitment within the team which for myself was a great relief, due to the each member having other commitments such as work and individual class work to complete we scheduled our meetings to be every Tuesday around lunchtime, we would meet for a couple hours and ensure that all work for the week would be reviewed and finished. This was then emailed to each person to make sure they had copies when it came to handing in the work.

The Development of the group was a steady success as we all were familiar with each other helped if problems were to occur such as one person being unavailable to attend a meeting. This scenario did happen however it was easily resolved through the rescheduling of the meeting without causing any problems. During the meetings each person was assigned an area to focus on then at the end we would combine this work to then look over as a team, if any member had a misunderstanding of a topic the rest of the group would help out to ensure we were all

The roles of the team varied each week as we took turns for who would take responsibility of each position such as note taker in which everyone did this at least once.

The only way in which the team working process may have been improved would be if there were less commitments within the group which was something that would not have been possible, I myself was working a part time job at the time and would have go straight from meetings to work however I did hand in my resignation which helped for time keeping and managing workloads.

One the day of the presentation there were slight communication problems which did allow as much time to go over the work as anticipated however that being said, each member was already fully aware of their content of work so the team were prepared enough to give a smooth and professional presentation.

Part Two - Presentation Strengths and Weaknesses

In my opinion an excellent ‘strategic management presentation’ would consist of ensuring you stick to the time limit, apply clear/concise information and ensure you making eye contact with confidant speaking. In regards to these aspects the majority of these were established with all group presentations however the main weakness was time keeping. All groups in our class managed to go over the time specified however one had to be stopped before they could finish due to this. It was extremely difficult trying to provide enough information on each topic within the specified time however this all contributes to learning how to deal with this and in future can be handled in a more professional manor.

Through the tutor evaluation/mark sheet the two areas in which brought our grade down was the quality of content of analysis for Competitive Strategy and the Quality of Visual Aids which were both graded at a C, this problem came through the presentation itself which should have had a few more slides in regards to competitive strategy giving slightly more information on this matter although as previously mentioned the overall time for the presentation did not allow this.

The strengths of the presentation came through all other contents achieving a B in all of these, although there were not sections which graded as an A these it was encouraging to achieve this mark and in future factors such as timing, professional delivery and visual aids shall be fully examined before giving another presentation

Part Three – Self Evaluation

The skill that I used most whilst working in the team was trying to get my point across on a given situation. There was many times where I felt that the content researched on a section we were studying was irrelevant, in these cases I did try to stress my point on this matter however there were also times that I was incorrect. I feel that I need to development this aspect and in future thoroughly examine a question before jumping straight to a conclusion. A skill that I felt did improve whilst working in this team was my time keeping, as already mentioned I was working a part

time job this semester so time keeping was an important factor for me in which I felt I managed to balance out well resulting in less stress than could have been experienced.

When giving the presentation I did feel that I was slightly unprepared, although I had done sufficient research on my parts of the presentation my memorising of these topics could have been improved, this affected my eye contact with the audience due to reading from my prepared notes more often than anticipated. I would class this as a weakness however feel that now I have established this problem will remember this for future presentations during the remainder of my degree.

There was also a strength in which I noticed during the presentation, this was my overall attitude whilst speaking. I am confidant and clear with my chosen words and I have never had any troubles speaking in out in a crowd and this creates less fear or nervousness during a presentation.

In regards to the report my obvious strengths were the areas in which I was assigned for the presentation due to already having the relevant notes and references for achieving this. These areas of the report I had no trouble in typing out however my weaknesses came from aspects in areas such as the financial strengths, although our team had covered this during the meetings there were parts in which I struggled to write about. In future I shall ensure that I review all elements of work to give increased preparation and to make certain I can achieve the grade in which I desire.