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Business Environment of British Airways

Business
Environment
Analysis of
British Airways

Business Environment of British Airways

Executive Summary
This study aims to provide business environment in which British Airways works. The
organisational purpose and mission and vision of the company along with its
objective in the short and long term form the foundation of a company. The company
is responsible towards its stakeholders and keeps their interests in mind before
taking decisions. To understand the nature of business environment deep knowledge
of economic environment and government monetary and fiscal properties is required.
The regulatory and competitive policies needed to be followed along with the legal
challenges. The impact of market structure and other players on the demand and
supply of airline seats impacts the pricing due to competition.
The business expansion and operating in other countries is affected by working
practices and cultural variations. Global factors shape up national policies of a
company and thus the way business is done. The trades between two countries are
affected by value of respective currency, trading rules, civil aviation authority and
tourism bodies The European policies on travel, competition and aviation affects
British Airways. Stricter policies related to environmental protection need to be
followed. The management requires proper training and needs to be assertive in
allocating resources to staff. The union problems need to be solved in effective way
for long term gains.

Business Environment of British Airways

Table of contents
Executive Summary......................................................................................................2
Introduction...................................................................................................................4
Task 1............................................................................................................................4
LO1: Organisational purpose of British Airways.......................................................4
1.1 Mission, vision of British Airways and short and long term objectives...............4
1.2 Key stakeholders of British Airways....................................................................5
1.3 Responsibilities of British Airways towards its stakeholders..............................6
LO2: National environment where British Airways operates....................................6
2.1 Challenges pertaining to Economic systems......................................................6
2.2 Impact of Fiscal and Monetary policy on British Airways....................................7
2.3 Regulatory, Competition policies, Legal Challenges on British Airways.............8
Task 2............................................................................................................................9
LO3: British Airways in its market environment........................................................9
3.1 Market structure and different players affecting price and demand...................9
3.2 British Airways response to Market Forces........................................................9
3.3 Impact of working practices and cultural variation on British Airways..............10
LO 4: Global factors shaping National Business activities of British Airways.........11
4.1 Impact of Trade, Civil Aviation, Tourism bodies on British Airways...................11
4.2 Impact of Global Factors, policies and regulation on British Airways...............12
4.3: Impact of EU policies on British Airways:........................................................12
Conclusion..................................................................................................................13
References.................................................................................................................14

Business Environment of British Airways


Introduction
British Environment refers to both external and internal factors affecting business.
The factors can be political, economic, demographic, cultural, technological, social
and environmental. These factors affect the business decisions and require a
company to follow governmental policies and regulations respective to that sector.
British Airways was founded by British government and was state owned initially
when in 1987 it was finally privatised. It has seen a lot of mergers and alliances since
then and has remained one of the most sought after airlines in terms of comfort and
safety it provides to its customers. It has expanded in its operations and size many
folds after privatisation.

Task 1
LO1: Organisational purpose of British Airways
1.1 Mission, vision of British Airways and short and long term
objectives
The different types of organisations are sole traders, partnerships, franchise, private
and public companies and voluntary organisations. Sole traders are those
organisations which are owned by a single owner and the purpose behind such an
organisation is quick decision making as well as close relationship with the
customers. Partnerships are the organisations formed by individuals or organisations
entering into partnership deeds. The purpose of formation of such organisations is
the sharing of knowledge, skills and risks of business. Similarly, franchise is an
organisation which an alternative to the formal chains formed by giving license to
other organisations to produce the franchisors products and services. The purpose
of formation of such organisation is reduction in investments for business expansion.
On the other hand, private organisations are formed by private individuals with an
intension of maximising profits, increasing market share etc.; whereas public
organisations are those which are formed by the government to provide the public
facilities and services for the social benefits (Ghuman, 2010). Lastly, voluntary
organisations are set up by a group of people who feel their moral and responsibility

Business Environment of British Airways


towards community and society and establish them to serve for the welfare as well
as uplift of the society.
The vision of a company defines the purpose and goals of a company and mission
works on how to achieve them in the short and long term frame (Adekola & Sergi,
2012). They form the foundation of a company.
British Airways vision is to be the most admired airline across the worlds key cities
and mission is to ensure their customers fly confidently and act responsibly towards
the world (British Airways, 2008-09). The aim of British Airways is to provide cost
effective and punctual services to its customers. British Airways is one of the worlds
largest private premier airlines (British Airways, 2008-09). It provides transportation
service and falls in tertiary sector. Their long term objective is to make profit and grab
larger share of market while giving excellent customer service. They want to
maintain and sustain their leadership position. The major objective to expand its
wings in major cities of the world. One of the long term objectives is to reduce carbon
dioxide emission and thus helping in threat against Global Warming. Their aim is to
cut 50% CO2 emission by 2050 relative to 2005 which can be achieved by using low
carbon jet fuels. Other short term objectives are to provide education through
community learning centres and donations to various charitable institutions. It
believes in creating a working environment compatible for both employees and
employers where regular surveys are taken to understand their concerns.
Employees are given chances for further studies so that they are able to complete
their degrees.

1.2 Key stakeholders of British Airways


Key stakeholders are any individual, group or party interested in an organization and
gets affected or affects the decision making by the organization (Friedman & Miles,
2006). Financial institutions which grant funds to it like banks, credit factors or
mortgage lenders who trusts the organisation and want to make profit by investing in
them. Shareholders who invest their money on buying shares, employees,
customers, suppliers to British Airways, media, local communities, governmental
agencies both central and local, trade unions, environmental groups, all are
stakeholders in British Airways (Glynn & Woodside, 2009). Effective management
and sustained growth of a company depends on satisfaction of its key stakeholders.
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The relationship between management and employees needs to be strengthened by
introducing various initiatives working towards wellness of staff because they are the
ones to influence customers.
The main suppliers to British Airways are Boeing and Airbus (British Airways, 200809). For fuel supply it is dependent on only one supplier which may influence its
decision making power. Relationships with the media affect relationships with the
public so they need to be good for better public and brand image. If there is a
change in board members and other internal management changes shareholders
must be consented and taken in confidence. Financial institutions like banks,
mortgage lenders should have confidence in lending which will depend on liquidity,
credit factor and market sentiment among its investors (MacCulloch & Rodger,
2008). To satisfy local groups like environmental groups British Airways is working
towards global warming and reducing carbon footprints and establishes itself as a
socially responsible corporate.

1.3 Responsibilities of British Airways towards its stakeholders


To keep stakeholders interests is responsibility of company. All stakeholders are
affected differently by company policies. Key holders are entitled to fair trade
practices.
British Airways needs to increase its customer base. The shareholders are
concerned with the increase in share prices and company needs to take them in
confidence related to business and its profit margins. Employees are affected by cost
cutting measures and layoffs which affect workers and thus local economy. The
internal transactions are monitored under chartered compliance which looks into
following procedures in Banking code like prevention of insider trading and money
laundering, transactions done etc. to maintain the professional ethics of company.
Competitors affect decision making by eating a share of airline profit by their own
schemes like low cost tickets etc., therefore, British Airways has to market
aggressively to remain a top player. They have to abide various legislations
European, Domestic and international to fly in various continents without trouble
(Hatch & Schultz, 2008). Impact of high fuel costs to some extent cushioned by
British Airways by its early planning as it had hedged 45% of fuel requirements at the
on-going dollar price (British Airways, 2008-09). The union problems need to be kept
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at bay and proper solution in this direction is the need of hour. Cutting down
operational costs by reducing redundant staff is one of the good measures taken by
British Airways. It is working towards threat of Global Warming by pledging its
contribution towards greener fuels and recycling of waste.

LO2: National environment where British Airways operates


2.1 Challenges pertaining to Economic systems
The allocation of resources is an issue in every economic system because the
resources are limited and the demands of the human are unlimited. The allocation of
resources vary from one economic structure to another. In a free market economy,
the markets provide the mutual benefits in the exchange of goods between
consumers, producers and the system. The allocation of resources in such a system
occur due to the interaction between the self-directed and free market forces.
Similarly, in command system, the allocation of resources occur through the central
planning of the government. In the case of mixed economic system, the two major
forces are private sector and public sector forces (Hall & Lieberman, 2009). The
private sector forces allocates resources in the private organisations and are
influenced by the market forces; whereas the public sector allocates the resources
with the help of government in the projects which are directed towards the social
benefits and uplift.
United Kingdoms Gross domestic product turnover is $2.3 trillion and inflation rate is
2.8%. Its foreign direct investment is about $62.4 billion. The population is 63.2
million with unemployment at 8% (The Heritage Foundation, 2014). The economic
structure has changed a lot in past few decades, depending upon the income, the
taste of its population has changed generating demand and production is low which
has led to growth in inflation rate. Aviation industry comes in service sector and helps
in generating employment in all sectors.
There is huge gap in the amount of capital input and quality of labour output when
compared to countries like France, Germany and United States which needs to be
shortened. Balance of payments which refers to transactions with other countries in
the area of import, export, services and finance is in deficit due to lower
manufacturing output. To contain inflation government is taking measures to improve
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supply chain and labour market reforms. British Airways has long been impacted by
Eurozone crisis and recession. Eurozone crisis affected its plans of expansion when
British Airways was mulling with the idea of buying Portugals biggest airline (Egan,
2005). Many trades of company are done in dollars so profit also depends on the
exchange rate of currency into sterling. British Airways operates in mixed economic
system where its decisions are driven by market conditions and socio-economic
regulations set by the government.

2.2 Impact of Fiscal and Monetary policy on British Airways


The United Kingdom governments Fiscal and Monetary policies main aim is to
secure and maintain economic stability. Its planning for long term to restore credit
flow is helping businesses.
The total public spending is increased. Presently government is spending on
interests on debts, industries, agriculture, education, health, defence, training and
employment, social services and housing and environment. Public sector net
borrowing affects the government cash inflow and consequently debt. Cash
requirement is expected to increase compared to net borrowing in 2014-15. Public
sector net cash requirement tells about public sector net debt and central
governments net cash requirement. This is generated through treasury bills, gilt
issues, savings and investments under quantitative easing programme. Competition
Act 1998 allows utility regulators like office of gas and electricity markets (ofgem),
office of water services (ofwat) to have power similar to Director General of Fair
Trading. The guideline to implement the provision is jointly published with office of
fair trading.

Under fiscal policy government has levied various taxes to improve

infrastructure of airports, runways, security and services. The good news is in the
form of personal allowance which is increased from 560-10,500 in 2014-2015
meaning a lot of people will get exempted from tax bracket and will affect consumer
spending behaviour with disposable income to fly and holiday (Commons:Transport,
2013). The current interest rate of 0.5% is constant from past few years so British
Airway can borrow funds at earlier interests without paying extra. State regulation
and state aid regulates the financial assistance.

Business Environment of British Airways


2.3 Regulatory, Competition policies, Legal Challenges on British
Airways
The regulators have the power to monitor prices and services. While liberal bilateral
ties have opened new routes for British Airways but they are restricted by pricing
policies. The need of competition law arises from the need to control monopoly.
UK civil aviation authority (CAA) has the power to ask for justification from airlines if
it finds discrepancies in the pricing relative to the services provided by the operator
(Civil Aviation Authority, 2014). British Airways has been accused of monopoly due to
its stronger market position and financial status. This poses the threat of overpricing
to the consumer (MacCulloch & Rodger, 2008). Conspiracy under cartel is prohibited
by company law. Virgin Atlantic Airways challenged British Airways in court of giving
loyalty bonus under frequent flier scheme. The loss occurred on Atlantic route was
recovered from other routes where British Airways has its monopoly (British Airways,
2008-09). British Airways has its own legal cell and take expertise from other sound
legal institutions to face the legal challenges in the form of mergers or Cabin crew
strike or wage problems etc.
Competition law sees that during merger of two companies, the interests of both are
fulfilled. The franchise agreement between Comair and British Airways came into
effect from Oct 27, 1996. British Airways gained by having a regional partner (Fraes
& Van Dyke, 2009). The union trade strikes which have become a frequent feature in
British Airways have been controlled to some extent.

Task 2
LO3: British Airways in its market environment
3.1 Market structure and different players affecting price and
demand
Market structure helps in deciding the prices and calculating profits virtually before
working on ground level (Shaw, 2012). Airline industry is not facing a perfect
competition as the numbers of players are many. In monopoly one company decides
pricing and in duopoly two companies take the whole market while in oligopoly they
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are interdependent and rival against each other in fixing prices which initiates price
war.
The UK airline industry is essentially an oligopoly in which very few companies are
in the fray. This is due to the fact that entrance is highly barbed and only a few
players can enter. Limitations are due to various factors like monetary, regulatory,
legal etc. Oligopoly leads to dependency of firms on each other to fix prices. If one
firm changes the prices the others follow the suit or if one increases the airline seat
price, others react accordingly. Oligopolies generate price wars but it has also seen
development of loyalty in customer base towards specific preferred company due to
various reasons like frequent flyer program or low cost seats in airlines which means
when the cost goes up even then they will get the customers.
The marketing in the aviation industry follows the same 4Ps model as other
industries- Product, Price, Promotion and Place (Shaw, 2012). Civil Aviation Authority
helps in regulation of competition by protecting consumer interests in case of
delayed or cancelled flights or denied permission to board. They monitor and
regulate airports and analyse air traffic services.

3.2 British Airways response to Market Forces


The demands for air travel has increased in past decade with increase in economy
and to supply new entrants have emerged in market. The change of price of ticket in
response to demand has resulted in elasticity of demand and change in response to
quantity has led to elasticity of supply.
British Airways has taken measures like reducing cost of and increasing productivity
by following current labour trends. The prices of tickets are fixed in accordance with
demand and customer perceptions. Low cost airlines may be able to make higher
cost output by low cost input following low cost operations. Example Ryanair, a low
cost airline was profitable in short run segment (Leeman, 2010). It has made joint
ventures with long run airlines based on other countries to reduce total expenditure
(Gossling & l Upham, 2012). It has decreased its strength of cabin crew and is
investing in employee skills and innovation.

The business strategy in aviation

industry is that as the departure date nears the price of tickets increase. But this
notion has been proved wrong mainly by low cost airlines whose prices depend on
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demand for the seat. If the demand is high their seats cost will show an upward
movement but if the demand is low the cost sees the downward movement till they
are able to create a demand. British Airways is investing in technology and research
and development. It has its own engineering division for maintenance of aircrafts.

3.3 Impact of working practices and cultural variation on British


Airways
As the air transport is exposed to newer avenues and newer routes along with profit
generation it is meeting differences in working culture and local cultural differences.
Changes are met in terms of behaviour, appearance, communication, attitude pattern
etc.
The business environment comprises of political, economic, social, technological,
natural, cultural and demographic factors aggregated together which affect business
(Egan, 2005). It helps in identifying opportunities and threats and careful analysis
helps in adapting to socio-economic changes. British Airways alliance with US
Airways is one such strategic alliance where British Airways was looking into
cracking of domestic aviation market of United States while US Airways was looking
for a global partner with access to international routes and well placed operation
resources. Although both the nations speak English still lot of variations cropped up
which was overcome by exchange programs and corporate training programs. The
key individuals were first exchanged to learn about the working culture of each other
by putting them on respective headquarters for few months followed by corporate
training programs where they learn about each others way of working. Then they set
up working committees in major departments like sales, marketing and operations to
look after the cultural differences and work as partners for benefit of airlines (Adekola
& Sergi, 2012).

LO 4: Global factors shaping National Business activities of British


Airways
4.1 Impact of Trade, Civil Aviation, Tourism bodies on British
Airways
Britain is an open economy which means international trade with other countries
plays an important role in economy which fell during recession in response to global
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changes. Air transport is one of the major constituent of International trading. There
has to be understanding between the transporters and government bodies at various
levels. Moreover government is looking to increase its revenues by taxing airlines.
World Tourism Organization (WTO) works in the direction of promoting tourism. It
has rights to question about ownership of airlines, route networking, pricing and
handling of ticketing along with ownership of airport, infrastructure and connectivity.
International Civil Aviation organization controls the technical and operational
standards to maintain safety and security of passengers (Civil Aviation Authority,
2014). Apart from International organizations there are several local tourism bodies
which work alongside international ones and complement them. They provide
connectivity from airport to tourism destination and can provide incentives in the form
of package tours. The main aim of all of them is to build proper infrastructure,
connectivity, safety and comfort of passengers.
The economic conditions impact aviation directly and emerging economies Brazil,
Russia, India and China are throwing new markets to explore. British Airways has
long been impacted by recession where people search for low cost tickets with
maximum service. Oil prices are spiralling upwards dramatically thus increasing
operational costs. Moreover government is looking to increase its revenues by taxing
airlines. British Airways is honest towards its cause of environment protection and
green fuel.

4.2 Impact of Global Factors, policies and regulation on British


Airways
The aviation industry is compelled to follow Britains, European and Global
government policies and regulations to be in business and it is affecting the trade. All
the airlines including British Airways are under the supervision for their financial
condition, management and operations (Civil Aviation Authority, 2014).
Flying on international routes is governed by agreement between UK government
and the state government where flying is intended to be done. Generally for each
international route approved, both governments give a slot to an airline to operate in
their areas after obtaining necessary permits. British Airways needs to obtain
necessary permit before taking on that route which is not a problem as they meet the
International Safety Standards.
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Under European membership British Airways freely operates flights within Europe on
any route and at any price. It gives common market and free trade all over Europe
(Henderson, 2007).

They enjoy privileges and comply with obligations laid for

European members. State secretary for transport, United Kingdom has the power to
ask airlines for measures against criminal violence which exceeds the guidelines laid
by International Civil Aviation Organization and European regulations. All the states
are protective about their commercial airlines and in times of need have come out
with bail out packages to safeguard interests of their private jets.

4.3: Impact of EU policies on British Airways:


British Airways has to abide by the EU policies since according to the European
Treaty, all European airlines must follow the EU regulations (British Airways, 2007).
The EUs strict environmental regulations regarding the emissions from flights have
impacted British Airways. British Airways had to switch to improved fleet with
minimised gas emissions in order to control greenhouse gas emissions. British
Airways is regulated by EU competition Law which is governed by EU commission
which prevents the practices of unfair means of competition (European Commission,
2014). EU policy has made the air transport as a single market within Europe. As a

result, British Airways is able to freely access all routes within EU and also easily
access licensing process for carriers. British Airways is subjected to single market
policy across 28 EU natons as per EU regulations (British Airways, 2008). This is
reflected in pricing policy of the airlines.
EU is stringent about various safety measures to be adopted for air travel. EU law
mandated the incorporation of maintenance and safety standards based on the
IACO and IAA standards. EU and its member states are advised about various air
safety issues by European Aviation Safety Agency which was an independent body
that was set up (British Airways, 2008). British Airways need to adhere to all the
safety standards mandated by these bodies.

Conclusion
British Airways has come a long way since its inception under state government.

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The union strikes have hampered their business on several occasions and they need
to have a strong managerial staff to deal with this. They are open to mergers in
several new strong markets and need to be felt there presence all over the globe. To
enter new domestic upcoming markets they need to have alliance with local players
which will require them to have thorough research done before taking the plunge.
They are committed to their green fuel policy by the end of 2050 thus doing their bit
in environmental protection.

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