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1.0 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.
1.1 PESTEL Analysis (Source: Johnson et al., 2008, p56) An analysis of the macro-environment has been carried out using PESTEL (Figure 1).
2008). Cancellations of flights and loss of baggage (Channel 4. Possible reduction in the amount of business travel as companies are cutting costs and using alternative means of communication such as teleconferencing. Economic Global economic crisis: World growth is projected to just over 2 % in 2009 (IMF. BA is vulnerable as a UK operating airline to a poor exchange rate. 2008). 2009). Decline in fuel price = strengthening of the dollar (IMF. Increasing unemployment (Kollewe and Sager. Sufficient security measures should be in place to ensure consumer confidence and competitive advantage is maintained. Opportunity for BA and its competitors to freely transport aircraft between the EU and US. 2009) Legal . Climate Change Bill) enforcing tighter environmental regulation may increase operational costs each year. Implications for BA Compliance is essential if BA wants to continue operations. Increased consumer awareness and therefore bargaining power. 2008). Online booking services and check-in is becoming increasingly used by the airline industry.g. Collusion and price fixing. 2008). A recent survey revealed that 34% of online consumers plan to use pricecomparison sites more in 2009 (NMA. 2008) The UK has an aging population (see appendix 3) (National Statistics Online.e the elderly) who don’t feel comfortable using such technology. Pound weakens especially against the Euro.Figure 1 – PESTEL Analysis PESTEL Factor Political Key Points Heavy regulation (AEA. 2008). Such ethical issues could have a detrimental effect on reputation if left unresolved. Open Skies Agreement (AEA. as this may isolate certain consumer markets (i. Restriction on mergers will have an impact on BA’s proposed alliance with American Airlines. Social Potential opportunities for growth as older generations have more time to spend on leisure activities such as international travel. BA must ensure that they remain up to date with these technological advances whilst avoiding becoming overly reliant. Technological Environmental / Ethical Noise pollution controls. Oil prices: declined by >50 % since their peak retreating to 2007 levels. 2008). and energy consumption controls (DFT. Increased bargaining power as an employer. Increased security due to past terrorist threats (DFT. Failure to adopt an integrated environmental strategy could lead to a detrimental effect on the BA’s reputation and income. New legislation (e. Fluctuations in oil prices and exchange rates will directly affect BA’s cost base. Consumers are becoming increasingly ‘green’ and more aware of the environmental impact of their actions. 2009).
Increased internet usage has amplified awareness and interaction of customers (Keynote. p60) It is important to analyse the competitive nature of the airline industry in order to assess the position of BA. Barriers to exit are in place which deters new entrants. Threat of New Entrants Significant barriers to entry: such as the competitive environment. Virgin has a website opposing the proposed strategic alliance between BA and AA .‘No Way BA/AA’ (Virgin Atlantic. 2008). 2008). high regularity requirements and high capital cost requirements. BA restricted by sole supplier of fuel to the airport..g. Power of Suppliers Two aircraft manufacturers = High bargaining power. The failure of recent airlines such as XL and Zoom is likely to deter new entrants (Times Online. Threat of Substitutes There are few direct substitutes: o Short haul flights: the Eurostar or a ferry. 2008). in terms of price and service offering. The short haul market is more fragmented with many small players. Strength HIGH HIGH MEDIUM LOW LOW . BA employees use collective bargaining through trade unions in order to increase their bargaining power Power of Buyers Low concentration of buyers to suppliers means they have little bargaining power.1 Porter’s Five Forces (Source: Johnson et al.REVIEW EXISTING BUSINESS PLANS AND STRATEGIES OF A BRITISH AIRWAYS 2. e. Within long haul there is little differentiation between BA and their competitors. The ‘Five Forces’ tool will enable BA to make strategic decisions in order to increase profitability. 2008. Priority of landing slots is given to historic rights of existing users (IATA. o Long haul flights: no notable substitutes.Porter’s Five Forces Force Competitive Rivalry BA caters for both long haul and short haul flights. Direct competitive rivalry is fierce. 2008c). Figure 2.
g. PRIMARY ACTIVITIES INBOUND OPERATIONS OUTBOUND MARKETING & POST SALE LOGISTICS LOGISTICS SALES SERVICE Stock Control Increased Baggage Customer Service Security.1 Value Chain Analysis (VCA) BA has tried to control the system further by forward and backward mitigation. Update Brand allowing for communication large budget to be on other services spent in this field.2 Internal Analysis It is now essential to analyse the internal environment in order to formulate appropriate strategies. individual LCD screens). Marketing Loyalty club communications to card.2. SUPPORT ACTIVITIES . 2.g. and through BA Holidays Plc. Figure 3 – Value Chain (Adapted from: Johnson et al. Gate Gourmet. suppliers (e. TECHNOLOGY DEVELOPMENT BA has added value in this category over smaller companies due to slack resources that can be employed to innovated the service (e. PROCUREMENT Due to the size and historical business relationships and alliances. BA is able to leverage suppliers and through economies of scale make efficiencies where competitors may fail. 2008. Through controlling many component supplies in-house.2. all stakeholders.. 2008). HUMAN RESOURCE MANAGEMENT Invested in the development of customer service training in 2007 attracting the best employees. p110) FIRM INFRASTRUCTURE Structured hierarchy allows BA to make use of a multitude of specialist knowledge in order to gain competitive advantage over downsized firms. ‘Speak Up’ opinion survey encourages employees to provide feedback (British Airways. High quality Large database of training accredited Quick check-in airport slots enable by City & Guilds passengers to services and (British Airways. Ongoing additional relationship with services. BA increases their reach in the value system to the supplier and channel value chains. of destinations bookings with ability to pre-book from preferred airport. access the majority secure online 2008).
2003): Figure 6 – SWOT Analysis S Internal Strengths Brand Image TRENGHTS Partnerships & Alliances Financial size and stability Terminal 5 W O Internal Weaknesses EAKNESSES Poor employee relations history Reliability and trust Innovation & change External Opportunities SkyTrax Quality System PPORTUNITIES Competitors forced exit Competitors failing on delivering reliability Emergence of new markets T External Threats Open Skies Agreement HREATS Environmental awareness Global economic crisis Lower cost competition .2 SWOT Analysis (Source: Johnson et al.2.. p81.2.) It is important that strategic development is reflective of BA’s strengths and weaknesses relative to competitors and the opportunities and threats presented by its external environment (Pitts & Lei. 2008.
2008.) A range of strategic options will now be formulated using the TOWs matrix to resolve the strategic issues highlighted from the analysis.0 Strategy Formulation 3.1 TOWs Matrix (Source: Johnson et al.DEVELOP OPTIONS FOR STRATEGIC PLANNING FOR A BRITISH AIRWAYS 3. .. p367.
Technological advancement. Renovation of brand image. Poor employee relations history Recent negative attention on reliability and trust Quick innovation and change Strategies for opportunities to overcome weaknesses: Strategies for Weaknesses not to expose threats: Weaknesses Improved people processes. Supply chain migration. scoring each option using a number of defined performance indicators.star system of quality Competitors forced exit External Threats Open skies agreement Environmental Awareness (Climate change bill) Global Economic Crisis Lower cost competition Strategies for Strengths to defend threats: Competitors failing on delivering reliability Emergence of new markets Brand Image Partnerships and Alliances Strengths Financial Size & Stability Terminal 5 Internal Strategies for strengths to meet opportunities: Segment focus. Figure 8 below gives a brief explanation of each strategic option and classifies them within Ansoff’s matrix. A preliminary analysis will be made. Broader service offering. Improved environmental stance. leaving the 5 most appropriate strategies to be further analysed for consideration. .Figure 7 – TOWs Matrix Opportunities Skytrax. This will lead to the elimination of options that are not considered suitable for BA. Introduction of complimentary services. Diversify into other transport markets.
Renovation and modernisation of brand image in an attempt to gain market share. Technological advancement. Focusing on business class customers as the most profitable segment of the business. Segment focus Go above and beyond current 3 5 3 5 3 19 environmental requirements. Introduction of complimentary services. Improvement to people processes Reduce current tension from negative employee and customer relations. 4. Market Penetration 2. 1 3 3 1 1 9 1 3 5 1 1 11 . 3. 3. 3 5 3 1 1 13 Increase number of destinations BA flies to. Diversify into other transport markets. Market Development 7. Vertical integration along the supply chain. Supply chain migration. Broader service offering Introduction of internet access on flights to improve the overall quality of service. 3 5 5 5 3 21 Offering of complimentary services such as car rental or hotels. Renovation of brand image.e. Diversification 9. Product Development 6. 2. i. Gate Gourmet or Boeing.Preliminary Comparison of Strategies Do BA have the financial Strategy linked to Ansoff Strategic Option Explanation resources? 1 = No 3 = Possibly 5 = Yes 1. Improved environmental stance.Figure 8 . 1 = Bad 3 = No change 5 = Good Effect on competence 1 = Bad 3 = No change 5 = Good In accordance with current strategy? 1 = No 5 = Yes Level of risk involved? 1 = High 3 = Medium 5 = Low Score Accept for further consideration? 5 5 5 5 20 1. 4. 5 Effect on Brand Image. 5 5 3 1 5 19 3 5 3 1 3 15 5. focusing areas of growth such as India and China. 3 5 3 5 3 19 8. Diversify into substitute services such as rail in an attempt to maintain competitive advantage.
BA’s current strategies are to motivate. 2008). engage. increasing the potential of high returns (Skytrax.1 Strategic Option 1 . Better customer relations may improve such reviewing mechanisms. Increase in internet usage. Given the current economic environment. The SWOT identified BA’s public criticisms for poor bag handling and delay management. . Therefore.Improvement to People Processes Brief Outline: The analysis highlighted recent negative attention both internally and externally. Skytrax highlights that customer relations is an important measure for customers when selecting airlines for travel. and disapproval following a number of negatively handled employment related cases. A people processes strategy may rebuild brand image and stakeholder confidence.0 Analysis of Strategic Options Based on the analysis performed in figure 8 the five most viable strategic options will now be considered further in terms of suitability. SUITABILITY Poor employee relations history and recent negative attention on BA’s reliability and trust (SWOT). acceptability and feasibility. unemployment is increasing (PESTEL).CONSTRUCT A STRATEGY PLAN FOR A BRITISH AIRWAYS 4. 4. support and develop employees. with more customers and independent services reviewing and sharing feedback (Porter’s five forces). the threat of industrial action and resignations are less likely at this time. SUPPORTS STRATEGY? ACCEPTABILITY SUPPORTS STRATEGY? Employees and customers are likely to invest high interest into the development of their relations with the organisation due to the negative past experiences. alongside improving baggage handling and delay management at their resident airports (British Airways. 2008).
. 4. As the requirements of environmental regulations are frequently increasing (PESTEL). as investing in environmental policies may not increase returns. and are likely to gain support from this external body when strategically developing employee relations. it would be beneficial for BA to be the first mover in the industry and make changes before any of its competitors.2 Strategic Option 2 . Consumers are becoming more environmentally friendly and this strategy would at least ensure that BA’s market share is not compromised if competitors move in a similar direction (PESTEL). especially when coupled with a low degree of uncertainty. therefore this strategy is low risk. Furthermore. FEASIBILITY SUPPORTS STRATEGY? Resources may be better employed elsewhere. this strategy will ensure that BA is identifying and meeting customer demands.Improved Environmental Stance. A reactive strategy therefore could be to build an improved environmental stance and go beyond the requirements of regulations such as the climate change bill. environmental issues are becoming increasing important. ACCEPTABILITY SUPPORTS STRATEGY? Changes in customer preferences indicate a heightened concern for the environment (PESTEL). Brief outline: As identified within the PESTEL analysis.FEASIBILITY SUPPORTS STRATEGY? The industry and organisation is highly unionised. SUITABILITY SUPPORTS STRATEGY? This would ensure that BA remains a strong global competitor by ensuring they are meeting changes in socio-economic behaviour.
. with loss of connection only occurring for a couple of seconds during adverse weather conditions. BA is currently testing the service on one flight from London City Airport to JFK. 2007). Many of BA’s main competitors are beginning to introduce basic internet capabilities on selected flights. Greater improvement of the in-flight services will enhance their overall service. This will lead to a long-term growth in the number of passengers. 2008). BA must successfully deploy this technology first time. from both leisure and business fliers. 2009). increasing long-term revenues. BA has the slack resources in the technology department needed to implement this strategy (VCA). New York (Shephard. ACCEPTABILITY SUPPORTS STRATEGY? Extensive testing has found the internet connection to be reliable. SUITABILITY SUPPORTS STRATEGY? The in-flight entertainment facilities need to be greatly improved and become more reliable.Improved Technological Stance.4.3 Strategic Option 3 . Brief outline: The technological capabilities of an airline is increasingly affecting consumer choice of airlines. Delivery time of the project – Implementation takes only 1-3 days per plane (Row 44. FEASIBILITY SUPPORTS STRATEGY? Ownership of the operations is much less costly and more reliable than the abandoned ‘Connexion’ service offered by Boeing (DailyWireless. Therefore it is in its interest to keep up with the competition and exceed it by rolling out internet access on all flights. otherwise it will receive serious criticism and could ruin its long-term image.
the imitation BA would offer may gain little credit (SWOT). ACCEPTABILITY SUPPORTS STRATEGY? In relation to other strategies the benefit to cost ratio may not be as great.Segment Focus Brief outline: Focus and tailor tactics to the business segment to combat Virgin Atlantic’s market share growth. The benefits should also be sustainable through increase brand image and preference.6% drop in BA’s business class passengers suggests a need to address the current strategy (Milmo. The recent 8. .4 Strategic Option 4 . as there is no immediate urgency or threat. BA may have already missed the first mover initiative with specialists such as Virgin being so successful. FEASIBILITY SUPPORTS STRATEGY? The time frame to implement the strategy is achievable through resource allocation. the profitability and sustainability of the customers demand provides incentive for market share growth. Although the business segment is not growing as significantly in long haul as in short haul. SUITABILITY SUPPORTS STRATEGY? The company overview shows this strategy aligns with the existing BA strategy to improve the customer experience. (Keynote. 2008).4. 2008c).
Based on this the people processes and technological advancement strategies are deemed most appropriate for implementation. ACCEPTABILITY SUPPORTS STRATEGY? Extending markets and their opportunities allows BA to capitalise on low competition as the first mover advantage is gained. SUPPORTS STRATEGY? Based on the analysis of the strategic options it has been decided that before growth strategies are pursued BA should focus on defending its current market position and achieving fundamental service quality. As the pound continues to fail against the Euro.com). FEASIBILITY BA’s brand strength accommodates globalisation and a higher probability of acceptability by new countries. the economic advantage to travelling to other destinations is found (PESTEL). although the difference in benefit to the current strategy may be doubtful in relation to other strategic options.Broader Service Offering Brief outline: Extend flights and services to new destinations past that of BA’s current strategy. . The risk to some destinations is still present and BA may not wish to take on the security risks. The benefits far outweigh the costs.5 Strategic Option 5 . Against local competition BA’s brand strength may not be enough to achieve the demand needed. SUITABILITY SUPPORTS STRATEGY? There is an increasing demand for new destinations to be reached directly by domestic and international travellers.4. BA has just restarted services to some destinations in the middle east after a decade of a turbulent political environment (Tradearabia.
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