THE RISE AND FALL OF BRITISH AIRWAYS

Executive Summary In this report we will aim to analyse the rise and recent incurring demise of British Airways. including organizational objectives Strategic issues for BA Recommendations By investigating in depth recent changes and threats towards the corporation.New concepts and cases in business and management. This evaluation will be focused on the major issues affecting the business and will be broken down into various sections making it easier to read. we hope to conclude upon well suited recommendations which can be put into practice to help BA climb back to the top of the UK Air-travel industry. . These include: The history of the company An analysis of major issues affecting the company’s loss of profits in recent years The Business plan for BA. 25th of May 2010.

due to lack of competition. was appointed Chairman in 1981 with the goal of preparing the airline for privatisation. the new company began to exert its position and significance.highbeam. a subsidiary based in the Taiwan. while many other large airlines struggled.1 2 This effectively made British Airways the national airline for the United Kingdom and.html .uk/news/danair-swallowed-up-by-ba-rivals-say-competition-and-choice-will-becut-by-takeover-that-will-axe-1900-jobs-1559258. BA became the world's most profitable airline under the slogan "The World's Favourite Airline". In 1993.History of the company British Airways (BA) was created in 1972. 4 The flag carrier was privatised and was floated on the London Stock Exchange in February 1987 by the Conservative Government5.keesings. BA was one of only two airlines to operate the supersonic Concorde. Sir John King.com/newspapers? id=inkRAAAAIBAJ&sjid=PeADAAAAIBAJ&pg=5479.google.com/gst/abstract.nytimes. to operate between London and 1 2 http://www.co.In July 1987.independent. later Lord King. King was credited with transforming the loss-making giant into one of the most profitable air carriers in the world.html 5 http://www.com/doc/1P2-4896070. During the 1990s.5052446&dq=concorde 4 http://www.html?res=F00D1EFA3E551A7493C6AB178AD85F478785F9 3 http://news.3 inaugurating the world's first supersonic passenger service in January 1976. The final commercial Concorde flight from New York to London was on 24 October 2003. when the British Overseas Airways Corporation (BOAC) and British European Airways Corporation (BEA) managements were combined under the newly formed British Airways Board.com/search?kssp_selected_tab=article&kssp_a_id=25231n01uki http://select. BA formed British Asia Airways.

14 6 http://www.html?_r=1&ref=todayspaper 13 http://news.html 10 http://www.bbc.13 The combined company will be known as International Airlines Group. similar to KLM and Air France.9 In March 2000.12 On 8 April 2010.htm 11 http://www.uk/life-style/special-report-on-longhaul-air-travel-air-asia-goes-from-strength-tostrength-simon-calder-looks-at-the-growing-success-of-the-eastern-travel-industry-1456925.10 In September 2005. The two airlines would retain their separate brands. took charge of the company.co. its worst since privatisation.do# 8 http://www. The combined group will be headquartered in London.brandrepublic. in 1999.html . new CEO Willie Walsh.independent.com/articles/2010/04/08/340389/ba-and-iberia-sign-formal-merger-agreement.6 BA also purchased a 25% stake in Australian airline Quantas and acquired Brymon Airwaysto form BA Connect all in the same year. BA unveiled its new subsidiary Open Skies which takes advantage of the liberalisation of transatlantic traffic rights.com/Discipline/Advertising/News/775685/BA-brands-new-airline-OpenSkies/ 12 http://www.nytimes.html 9 http://www. and flies non-stop between major European cities and the United States. Colin Marshall while Robert Ayling took over as CEO.co.11 On 30 July 2008.uk/1/hi/business/8608667.thisislondon. Eddington set about cutting the workforce further. 7 Lord King stepped down as chairman in 1993 and was replaced by former deputy. in response to the slump caused by the 11 September attacks in 2001.co. In January 2008. with completion before the end of the year. British Airways reported an 84 percent drop in profits. former Aer Lingus boss.com/1999/08/29/business/market-insight-seeing-fool-s-gold-in-airlines-cheap-seats. Benefits under his management included cost savings of £750m 8 and the establishment of Goin 1998.usatoday.nytimes.com/money/biztravel/2001-09-20-ba-layoffs.com/2000/03/11/business/international-business-british-airways-ousts-chief-after-fourtumultuous-years. though both the Iberia and BA brands will continue to coexist. in their merger agreement. it was announced that the merger would go ahead.html 7 http://www.nytimes. one year on. Robert Ayling was removed from his position and British Airways announced Rod Eddington as his successor. British Airways and Iberia Airlines announced a merger plan that would result in the two airlines joining forces in an all-stock transaction.flightglobal. However.uk/news/article-13037118-ba-selling-163425m-qantas-stake.Taipei.stm 14 http://www.com/2008/07/30/business/worldbusiness/30air.

Along with the Finance Standing Instructions. detailing lines of authority and control responsibilities. assurance regarding: (a) the safeguarding of assets against unauthorised use or disposition. including internal financial control. the Company’s system of internal control. The professionalism and competence of staff is maintained both through rigorous recruitment policies and a performance appraisal system which establishes targets.Organisational Analysis of British Airways Internal control The directors are responsible for. but not absolute. . A clear organisational structure exists. These controls are designed to manage rather than eliminate the risk of failure to achieve business objectives due to circumstances which may reasonably be foreseen and can only provide reasonable and not absolute assurance against material misstatement or loss. which is designed to provide reasonable. These are two of a number of Standing Instructions to employees of the Group designed to enhance internal control. The Company also has a Code of Business Conduct and Ethics which applies to all employees. The Company has a Statement of Business Principles applicable to all employees. and (b) the maintenance of proper accounting records and the reliability of financial information used within the business or for publication. these are regularly updated and made available to staff through the Company’s intranet. and reviewing the effectiveness of. reinforces accountability and awareness of controls. and identifies appropriate training requirements.

. it reviews the Company’s key risks contained in the corporate risk register and ensures that all new and emerging risks are appropriately evaluated and any further actions identified. The Risk Group consists of the Leadership team and the Heads of Internal Control and Risk Management. This can be in confidence through a third-party helpline if the staff member so chooses. The management of each major area of corporate risk is subject to review by an appropriate ‘assurance body’. The Board carried out a risk review in December 2007 in preparation for its review of the annual business plan at its meeting in January 2008.Action plans are prepared and implemented to ensure that staff develop and maintain the required skills to fulfil their responsibilities. and that the Company can meet its future management requirements. Risk management approach The Company has put in place a structure and process to help identify. and to the departmental risk leaders. The Risk Group also provides policy and guidance to those responsible for managing the individual risks. Meeting quarterly. assess and manage risks. the Company has continued to monitor any staff concerns about possible improprieties relating to financial reporting or other matters. This process has been in place throughout the year to which these statements apply and up to the date of their approval. The Risk Group reports bi-annually to the Audit Committee to assist the Board in the management of risk in accordance with the revised guidance for directors on the Combined Code (June 2006). This includes a review of the controls in place to mitigate the risks and the further actions being taken by management. During 2007/08.

this will be more important than ever before. planning for growth. Objective: To increase security to combat terrorism Specific – To increase security for the safety of passengers and staff Measurable – Hand luggage of passengers was reduced to a ‘plastic bag’.A. .Business Plan of British Airways New business plan – BP11 – sets the direction the company will take for the next three years. Delivering an upgraded experience to all of our customers – not just through Terminal 5 but through all aspects of our customer service – is absolutely fundamental to the long-term success. BP11 includes a new theme of corporate responsibility. the continuing need to control our costs. To afford this investment in new aircraft and services. Faced with rising fuel costs and an economic slowdown in some of the key markets. they had to change their aim to having an increase in security as this was the main issue globally and they needed to keep their customers safe after the horrific terrorism attacks in the U. and in 2008/09 British Airways will take delivery of their first new long haul aircraft since 2001. Objectives of British Airways Like all businesses one of their objectives were to maximise profits. BP11 also recognises the need to grow the business. British Airways is determined to demonstrate it can grow in a responsible way and will be doing and investing even more to manage its environmental impact. It sets out four key priorities which build on last year’s plan: an upgraded customer experience. after the September 11th.S. Finally. However. and taking a lead in corporate responsibility. the company needs to control its costs.

More security staff will be in place and they have the finances to do so.com/cms/global/microsites/ba_reports/corp_gov/c g_corpgov_p2.3 million customers within the UK. Time-bound . References for this part : 1) http://www. Measurable – Annual reports show that in 2006/07 they had 148. they need to regularly monitor the amount of customers that fly with them.britishairways. Realistic – This objective is realistic as terrorism is a threat and they also have the finances to do so to ensure that all passengers and staff are fully protected.theofficialboard. Objective: To increase profit by the end of the tax year 2009 Specific – To increase profit by the end of the tax year 2009 than this year’s profit which is currently at £694 million.This was put into force straight away but over the years it has been relaxed as the treat of terrorism has fallen.com/cms/global/microsites/ba_reports0809/pdfs/ Strategy.com/org-chart/british-airways 3) http://www.britishairways.html 2) http://www.pdf .‘stop and search’ was also put into place and metal detectors as well as a regular ‘anti-terrorism drills’ Achievable . Possibly increase their promotions on certain flights such as offering ‘special deals’ and to increase the level of customer service that they provide.

Many are more determined on just getting from ‘a’ to ‘b’. lower quality flight. who focus clearly on a cheaper. Firstly. looking at the political aspects. Due to recent market trends and the financial crisis of recent years. many have chosen to lower their service class in exchange for a cheaper alternative to British Airways. Its necessary for British Airways to be in an ‘alliance’ with countries around the world which they aim to travel to.Analyse of the competitive environment and BA’s major issues British Airways have been threatened in recent years by competitors who offer a cheaper service. British Airways has always been seen as a luxury airliner. PESTLE Analysis If we apply a PESTLE analysis to British Airways we are able to analyse each factor which can contribute to the success of the business. These alliances . meals on board planes etc. it’s clear that their are several operating restrictions which airlines have to work within in order to operate successfully. symbolising the Great British standards by offering luxuries such as more leg room. opposed to wanting a deluxe aviation experience. These services are offered by businesses such as Easy Jet and Ryan Air.

Workers have been striking due to job insecurity on both a financial and job stability level. Trade unions for these workers seem to be asking for a little much however. BA cannot afford to meet all of these demands and mean while. Technology in the aviation industry is fast moving and very expensive but choosing the right innovations to implement into the running of the business can be highly beneficial.e. quality seating. more leg room etc are fixed. The leader doesn’t listen to staff and care about their human relation needs such as motivation through job security etc. overheads such as seeing luxuries are there for the customer i. British Airways doesn’t choose specific flights to ‘go without’ said luxuries for the sake of keeping profits low. not accepting current offers put forward by BA. as workers continue to strike millions are being lost as a consequence. Economically. Technology is also an important issue for BA. .allow the business to make otherwise unreachable routes a reality through agreeing with political aspects of operating a business within that country. especially within Europe where passenger capacity outstrips demand. Workers are continuing to strike. in both terms of operating and selling the service to customers. As British Airways is primarily a business offering a quality flying service. This over supply of seats compared to customers leads to rate wars emerging between companies. BA’s management style seem to be very autocratic. British Airways is threatened by rate wars. Perhaps the biggest political benefit is the mutual agreements with each country regarding flight routes. More efficient check in systems for example can lead to quicker handling of luggage and lower waiting times of customers in duty free. As long as British Airways is in agreement with these political aspects then the business is able to utilise these routes and operate within designated airspace.

uk/tol/business/industry_sectors/leisure/article7009074. Moreover. One of BA’s big strenght is also its London-Heathrow hub. being among one of the only nine carriers to do so. These rate wars are mostly noticeable between short-haul flights to European countries but have had big impacts for BA. The airline deregulation. The company also announced that the passenger numbers was 4 percent lower. Several analysts and British Airways are expecting further losses for the year 2010-2011.html . economical and operating difficulties.timesonline.) services (both on and off board). British Airways provides a very broad range of cabin classes (Euro Traveller.. which is the worst financial year in BA’s history. Galleries Club.. British Airways announced in january 2010 that it was heading more than £1 billion losses. Galleries First. 15 One of the first reasons of BA’s decline is probably the emergence of the low-cost companies and the changes of the sky market.co. the process of removing entry and price restriction on airlines. members lounge (Concorde Room. British Airways started operating in 1974.ece http://www. It built its reputation on a very developed sense of service and by beeing a pioneer in many sectors. Club World. The company lost £602 million between march 2009 and 2010. Ryanair and Easyjet progressively took over BA’s in terms of passengers carried. World Traveller. the second busiest airport in the world. This part of the report aims at understanding how the former operator of Concorde is now facing financial. helped a growing number of small companies to enter the busiest routes.com/EN/News/dec_08_passenger_statistics. the company owns more than 220 (plus 48 orders) and serves nearly 150 destinations over the 6 continents.. Indeed. International First.) and loyalty programmes such as the Executive Club or Premier. Since their establishment.. 15 16 http://business.easyjet. Club Europe. with losses that almost doubled since the last year.As already mentioned in the company’s history part of this report.. 16 These firms undercut BA with their ability to offer much lower quality flights but for a very low rate.

the recession and the credit crunch also are factors that did not help to improve the company’s issues. Regarding the pensions deficit. A dangerous concern for the business at 17 18 http://business. BA’s reliance on Heathrow and the Atlantic business traffic turned out into a weakness.ece http://www. pensions deficit.co.400 at Easyjet.17 Indeed.600 compared with £71. as many business companies. leaving flights with many empty seats.uk/tol/business/industry_sectors/transport/article6466748. This dispute has also been held by Unite (BA’s trade union) accusing BA of using them to win over public opinion in case of industrial action. cut off their travel budgets.18” and The Times explains that “BA has a large pension liabilities. job cuts (which is tarnishing BA as a company with social responsibilities) and strikes.” Social factors are a main concern for BA at the moment regarding employer and employee relations.57 billion stock-market value. Figures from the Civil Aviation Authority showed that a BA pilot earn an average of £107. with a final figure on the size of the black hole expected in September.guardian.uk/business/2009/jul/17/british-airways-cash-call .The current economic situation.timesonline. British Airways has been at the heart of public discussions concerning how much the staff earn. banks accounted for nearly 40% of BA’s business-class traffic. Some analysts think it could be as much as £3 billion. specially the banks. and for instance. An actuarial review of its two defined-benefit schemes is under way. Indeed. While the company should be planning on resolving the profit loss and the pension deficit . the world’s former favourite airline is facing controversy and difficulties to keep up a good public opinion. nearly double the company’s £1. the Telegraph says “British Airways has alarmed pensions experts by persuading the trustees of its retirement fund to surrender bank guarantees that would have paid out £330m if the company went bust.co. due to several issues including baggage charges.

Threats of a twenty day strike are being thrown at British Airways who have previously lost in excess of £43 million over a period of just two weekends last spring because of strikes. after announcing the 20092010 losses.uk/tol/travel/news/article3635822. the company opened a brand new Terminal 5 in Heathrow airport.co. this kind of event is unfortunately part of the routine for British Airways now and helps us to understand why the company’s public opinion is currently steadily falling. who have taken BA to court in relation to several concerns for workers. 13. leaving passengers stranded in Heathrow airport.000 voluntary redundancies and making hundreds of full-time staff part-time. The strikes regularly going on since this Spring are playing a major role on how people consider British Airways.uk/travel/news-and-advice/strikes-leave-passengers-grounded-ndash-but-insultsfly-between-ba-and-unite-1981940.400. due to BA failing to reinstate travel perks for employees.co. forcing the cancelling of many flights and leaving thousands passenger into chaos. the company expressed its will to “reduce its number of fulltime cabin crew by 1. by taking 1.ece . and the new BAA’s sophisticated baggage system. Willie Walsh has offered a settlement towards Unite who turned it down. Indeed. dozens of flights were cancelled.timesonline. pensions and working conditions.the moment is in relation to ongoing strike action of employees.html 20 http://www. 19 http://www.000 of BA employees are being represented by the trade union Unite.”19 On the 24th of may 2010. and why people tend to fly with low-cost and reliable flights rather than flying with BA’s expensive and unreliable flights. British Airways staff are undertaking ongoing industrial action due to arguments over job security. The companies boss. In March 2008.independent. pay. It appears that due to the autocratic nature of Walsh he is failing to listen to the workforce and offer motivational incentives such as job security which is contributing towards the fall of BA.20 For a couple of months.700 out of about 13.

with staff branded rude and confrontational. BA has also tried to tap into a niche market with the acquisition of business class only airline. in real terms. So far this has come in the form of mergers with other airlines such as Iberia and now possibly American airlines.guardian.”22 Strategic Issues and recommendations BA’s Strategic Issues Due to British Airways’ abysmal performance recently the management team are going to have to figure out a strategy to reverse these losses and get the company back into the black. To do this they are going to need a viable and long term strategy to follow. There is also the hope for synergy to occur whereby the philosophy of 2+2=5 will.co.timesonline.ece . For example someone who wants to go to Pamplona (a destination with only a small airport) in Spain may book with BA because 21 22 http://www.uk/tol/travel/news/article7082336. leg room and seat comfort. L’Avion. Australians customers voted British Airways “least favourite carrier to the UK” and “criticising for having poor in-flight service.Easyjet has been quick to stoke the general sentiments about flying with British Airways. The biggest reason is that both airlines can benefit from a reduction in costs by spreading their cost base. Why Merge? Mergers make up a large portion of BA’s strategy in the long run and there are multiple reasons for this. translate into people booking with BA because they can get them to a wider range of destinations once they are in a country.co. The airline also scored poorly for its food. it is estimated by the Guardian that BA and Iberia will save £350 million a year by spreading their costs and being able to get one airlines administrative staff to do the work for both airlines. even asking in its advertisements the question “Why risk BA?”.uk/commentisfree/2010/may/20/british-airways-strike-ba-unite http://www.21 As a further blow to the troubled company.

As the biggest airline company in Europe they will be able to command far better prices and discounts for individual planes when they order en masse.accessed 24/05/10 . It will also give BA a massive advantage in terms of economies of scale. something that BA can ill afford. A sign of how BA are doing is that on 12th November 2009 BA share prices rose 8.co. However if the strikes continue then it could not only bring down BA but also Iberia if Iberia are used to try and save BA from collapse. the first is BA’s cabin crew issues that have already striked once this year and are planning a second round of strikes. The worry is that this deficit could bring down BA and any of its mergers if not addressed. BA will now also have control over 419 aircraft which means they can adapt to problems across the world by bringing in extra planes to take some strain.4 billion.guardian. If the cabin crew issues are not sorted out soon then not only will BA lose millions for each day of strikes but it will also risk permanently damaging its reputation as a world leader in the airline industry and so miss out on future customers.5 billion pension deficit. Their baggage is transported easily and booking is all centralised from the BA website. However BA have started to implement a plan to reduce that deficit and have consulted staff on how to handle the deficit and the Unions have accepted a pension cut.25%23 due to merger negotiations 23 http://www. Problems with the Merger There are two major problems facing the merger. the other is the massive pension deficit that BA has yet to fill.once BA has got them to Madrid Iberia can fly them from Madrid to Pamplona very easily. mostly due to the final salary pension that a lot of well paid BA staff have received. The second and most important issue is that of BA £3.uk/business/2009/nov/12/ba-shares-increase-iberia-merger . Between them BA and Iberia will fly around 61 million passengers to over 200 locations around the world and have a combined revenue of £13.

regarding the pension deficit.co. ring-fenced with the BA operating company liable for any increased payments. However if BA were to give in now their long term prosperity would be in significant danger. Code Sharing Extensive code sharing is another strategy BA is implementing.Iberia merger is that both companies have reported massive losses recently with BA declaring a record £531 million loss for the year ending March 2010 and Iberia £240 million loss with a €51 million loss already this year. Both airlines' codes appear in reservation systems and on tickets. however BA will actually own Iberia. BA has tried to implement staffing changes but met fierce resistance from the union Unite and already one strike has taken place.’25 This is similar to BA’s merger with Iberia.accessed 24/05/10 http://www. British Airways took over £8 billion in the year 2009-2010 and so this massive revenue that actually turns out to be a loss of over £530 million indicates that costs need to be slashed. despite its huge loses.accessed 24/05/10 .com/glossary/?letter_start=C . this is when. The final problem with the BA. This practice allows two companies to fill a plane and then share the cost of the flight between them whilst still offering a destination to their customers. indicating that people still enjoy flying British Airways and are willing to pay a slightly higher price for it.guardian.flyertalk. BA chairman Willie Walsh then moved to reassure Iberia by saying that the deficit faced by BA would be. does seem to be failing on the revenue side of things.uk/business/2009/nov/12/ba-shares-increase-iberia-merger . ‘in effect.’24 This effectively cuts off Iberia and any other BA merger company from being hit with BA’s problems. ‘one airline provides a connecting service under another carrier's name. Recommendations British Airways. BA could look into yet more code share 24 25 http://www.

British Airways should also look at improving their public image after the hammering it’s taken in the past year. This could possibly be facilitated by the use of excess planes resulting from the Iberia merger. Bibliography http://www.opportunities to cut further costs and also look at joint investment ventures such as shared check-in systems. no-frills service offered by some many competitors such as easyjet.guardian. The pensions issue is another major problem facing BA in the future. this should hopefully limit any long term damage caused by the cabin crew strikes. This could be done by possibly setting up a publically separate company to BA that is actually owned by BA. A more radical recommendation for BA would be to somehow break into the cheap. but as stated before BA has managed to drastically cut the deficit due to persuading staff to take a pension reduction and stopping final salary pensions.uk/business/2010/apr/08/british-airways-iberia-merger .co. Of course on the flip side is the recommendation that BA sorts out its staffing issues and gets the staff on side once again. This would allow BA to offer lower standards but at a lower price yet not lose its reputation as it is now.