British Airways Plc is one of the largest international airline in the world, which has its base in Heathrow Airport London, that commands one of the busiest international airport in the world. British Airway has a global flight network through partners such as American Airlines in the United States and Qantas in Australia. As the United Kingdom’s sole global network carrier, it transports 36 million passengers a year to approximately 268 destinations and 97 countries (referenceforbusiness.com)
The airline industry has undergone significant modification in recent years. Airlines in the past who had been rivals in a highly regulated industry, have forged needed co?operation. Today we have a situation where mega?carriers and small airlines are working together rather than competing with one another through sub?contracting, code?sharing, franchising and the formation of global marketing networks. Such alliances allow firms to focus on their respective core competencies, while drawing the benefits of improving profit margin (Leo-Paul and Vignali 1999).
Co-operation among competitors has led to increased competitiveness, this has accelerated the trend of joint marketing, and airlines have become characterised by the desire to belong to a global network. The tendency has been to strive for a global presence (Leo-Paul and Vignali 1999).
A British Airways aircraft takes off from somewhere in the world every 90 seconds, British Airways has a fleet of more than 280 aircraft, including the A380 and 787. The airline carries more than 145,000 customers every day and 40 million customers a year and serves their customers about 25 million cups of tea, 9.9 million bottles of wine and 1.25 million bottles of Champagne. (ba.com 2018)
By 2020 British Airways have forecasted to have 100 new airplanes. British Airways currently has approximately 45,000 employees including 16,500 cabin crew and 3,900 pilots. British Airways will be celebrating its 100th anniversary on 25 August 2019. The airline can trace its origins back to the birth of civil aviation, Since the world’s first schedule air service on August 25, 1919 (ba.com 2018)
External environment of the Airline Industry
Industry overview and Analysis
British Airways operates and competes in the airline industry. Its principal place of business is London with significant presence at Heathrow, Gatwick and other London airports. It operates one of the most extensive international scheduled airline networks. With a total revenue of £12,226m; Operating profit of £1,774m after exceptional items (Bloomberg 2018).
The airline industry has faced various challenges which ranges from global pilot shortage, lack of capacity and fluctuating fuel prices and not to mention Brexit. “It really has been a case of turbulent skies over the last year” said John Strickland, director of JLS consulting, which advises the aviation industry (Haines 2017).
Competitive Market Analysis
The five forces model was invented by M. Porter, it was originally developed as a way of assessing the profit potential of different industries (Johnson, Scholes and Whittington 2005).
Threat of new entrants: Access to the airline industry can be daunting due to the huge investment required, its pain staking to gain the desired market niche since they are already established airlines and the industry is highly regulated by the government. It is quite difficult to build up a competitive edge and maintain cost. There and strict barriers for exit which discourages any new entrant. There is low threat of new entrants for British Airways. (BA 2008/2009, Adamkasi 2017)
Threat of Substitute: The substitute available to customers as compared to British Airways, includes train, car, bus, ship and all other modes of transport. All of these can pose a threat to British Airways customer base, but it all depends on the customers’ needs and valuation. (Adamkasi 2017).
For example, if a customer is looking for convenience and time saving means of travel, there is a high probability of choosing British Airways because it is a house hold name. There is a moderate level of threat of substituting for British Airways. (Adamkasi 2017).
It can be said that there is no substitution to airline transport, but this can be argued; with the advancement of technology, there is internet-based information and communication technologies which could be said to represent an indirect substitution for air travel.
Example: real life video conferencing sometimes does eliminate the necessity for long journey for business and meetings
Power of Buyers: Customers are price sensitive and are very much informed of their rights, they know there are many choices with zero switching cost. If they do not like the price offered by the airline they simply go elsewhere, except for customers very much loyal to British airways and satisfied with their services. There is a high level of bargaining power for buyers in the case of British Airways. (Adamkasi 2017)
Bargaining Power of Suppliers: British Airways relies on its suppliers to function as a business, they form an intricate part of the business. They range from suppliers who supply the airplanes, fuel and labourers. There are not many suppliers of such services due to the huge investment required. British Airways is restricted by operational cost and a sole dependence on these suppliers. As seen in recent strikes the employees use trade unions to increase their bargaining power. British Airways needs to develop a good relationship with all its suppliers. Thus, the bargaining power of supplier is high in the case of British Airways. (BA 2008/2009, Adamkasi 2017)
Competitive Rivalry: British Airways have rivals on different levels, they include EasyJet and Ryanair on a local level and Virgin airline on an international level. The competition can be quite intense on the premise of price, convenience and the services they provide. British Airways operates in two different markets and therefore faces competition in both short and long haul. The competition between airline companies is intense due to the saturation of the industry. The emergence of low cost airlines such Easy jet and Ryanair makes the competition even harder in the short-haul travel as their business model is based upon offering low fares through outstanding cost management. So British Airways face a high level of industry rivalry. (Adamkasi 2017, Rakib)
Value Chain: The value chain describes the activities within and around an organisation which together create a product or service (Johnson, Scholes and Whittington 2005)
British Airways inbound logistics operations involve the timely delivery of fleet of planes, catering and a wide range of on-board products. They do have the responsibility to ensure the foods and drinks served during the flight are of the highest standard. British Airways Competitive edge is achieved in inbound logistics stage of the business through establishing on-going relationships with suppliers, sophisticated system for stock control and professional training that has been accredited by UK City and Guilds. (Dudovskiy 2016b)
Th operational aspect of British Airways includes preparation of goods and services which is to be sold to customers. British Airways fly globally to more than 400 destinations. Therefore, the scope of its business operations is extensive. (Dudovskiy 2016b)
British Airways has a competitive edge in operations through offering its customers increased security for their luggage, offering quick check-in services and offering services such as ticket bookings and online booking of other services. A high level of customization of service provision and an extensive utilization of digital technologies in a wide range of business processes. (Dudovskiy 2016b)
Outbound logistics is defined as sending ready products to customers for consumption. Though outbound logistics mainly relates to manufacturing companies, but these can be applied to the airline industry. British Airways flies to airports in nearly 97 countries worldwide, and it is known for its efficient handling of baggage at the point of destination and utilizing an advanced information and communication systems. (Dudovskiy 2016b)
Marketing and sales
British Airways marketing strategy is targeted at prospective client as well as loyal customers. The marketing message attempts to associate the British Airways brand with efficiency, reliability, safety and convenience. The marketing message is streamed to the target customer through marketing mix such as print and media advertising, sales promotions, events and experiences, public relations and direct marketing. (Dudovskiy 2016b)
Services is defined as a transaction in which no physical goods are transferred from one person to another. British Airways handles customer complaints regarding the products and services etc. British Airways recognizes post-sale services as an important part for achieving competitive edge in the marketplace. They have done these through their loyalty club cards, maintaining communication with their customers through a range of channels. In 2015, the airline introduced 136 new scanners at check in desks across Heathrow Terminals 3 and 5 so that its app for Apple Watch can be used easier and faster for check in. (Dudovskiy 2016b)
Value: British Airways cabin crew is known for its high degree of customer orientation and one of the best service providers in the airline industry (British Airways 2016), Its capability to fly passengers securely has increased competence and its recognition as a reputable brand in the world. (Coffey 2017, Grundy 2013)
British Airways focuses on enhancing premium service, improved catering, lounges and a first-class experience. Delivering what their customers value most, and where they value it most. (Coffey 2017, Grundy 2013)
Rarity: British Airways has become the first airline worldwide to introduce high tech remote controlled device to push back aircraft across its short haul operation to improve punctuality for its customer. British Airways have also launched self-boarding gates on its domestic flights, self-serve bag drop points at Gatwick and Heathrow to ease customers burden. (mediacentre 2017)
Inimitable: To attain a competitive edge, British Airways with a view to providing a smoother end to end journey for premium passengers. British Airways have patent a digital pill or other ingestible sensors that detect internal temperature, stomach acidity and other internal properties, and wirelessly relay this information outside the passenger’s body. (Calder 2016)
Organization: British Airways have a unique organisational structure led by a general manager, who is answerable to the board of directors. Being a global company, British Airways have several branches across the globe. These branches are divided into several departments such as settlement, imports, handling, customer service, finance and sales. British Airways has been on the frontline in the creation of an all-inclusive culture among its employee. (Grugulis 2015)
This summarizes the key issues from the business environment and the strategic capability of an organization that are most likely to impact on strategy development
British Airways is the UK’s largest international scheduled airline. It is also one of the world’s leading global premium airlines. The company’s principal place of business is London with significant presence at Heathrow, Gatwick and London city airports. The company has a strong brand image and reputation and to add to these they have been given several awards in acknowledgment of their excellence and service in the airline industry. (ebscohost.com, Dudovskiy 2016a).
The company’s strong brand image and reputation gives it significant competitive edge and helps it to generate higher sales growth in domestic, as well as in international markets. Brand recognition puts British Airways in a position to charge premium prices than its competitors, it’s able to spread its business across the world., offering both passengers and cargo services internationally and locally. (ebscohost.com, Dudovskiy 2016a).
British Airways flies to more than 400 destinations around the world generating revenue from all these locations. Advancement in Integration of IT and digitalization gives British Airways a competitive edge. British Airways uses digital boarding pass for their 28,000 customers daily, they have launched an Apple Watch app for faster checking at airports, and the introduction of the industry’s first flat bed in the plane . (ebscohost.com, Dudovskiy 2016a)
British Airways business is more concentrated in the UK market which seems short sighted considering the risk in the globalized economy. Over-dependence on the UK market could be considered a weakness. British Airways has a unionised workforce, which could pose a problem to operation when complaints or grievances are not handled effectively and efficiently. Although British Airways has presence worldwide through affiliated companies but still they have not fully penetrated the Developing markets of India, China etc. These are potentials British Airways can harness from because people’s disposition has changed due to an increase in disposable income and change in life style. (Dudovskiy 2016a, Bhasin 2017)
The Emergence of developing economies, growing demand for travel and rise in tourism provides the need for route extension. To meet the need of people from different part of the world with their different preferences will now lead to an increase in the demand for airline service. (ebscohost.com, Bhasin 2017).
Over the years British Airways has been extending its routes on a regular basis to remain important in the market. It has extended its network by introducing 20 new flight destinations as at 2016. These new routes include Tehran in Iran, San Jose in California, San Jose in Costa Rica and Lima in Peru, and short-haul flights to Porto in Portugal, Mahon in Menorca, Palermo in Sicily, Biarritz in France and Inverness in Scotland. In 2016 British Airways launched new flights from Stansted, it also signed a new joint business agreement with Qatar Airways which will provide customers with better links between the UK and the Middle East. Though British Airways is extending their market but there is still more to be done in exploring market from developing economies (ebscohost.com, Bhasin 2017)
The emergence of EasyJet and Ryanair known as Fare discounting airlines as had a negative impact on British Airways in term of profits because it has the responsibility to respond to competitors’ fares to maintain passenger traffic. EasyJet and Ryanair have cost structures that are lower than British Airways targeting budget travelling segment (Bhasin 2017).
The airline industry is highly regulated, almost everything they do – from the routes they fly, to the business partners they cooperate with, the airport slots they use, the fares they set, the infrastructure costs they pay, safety and security, and the impact their business has on the environment. Improvement in infrastructure in developed & developing world see the emergence of high powered modes of transport like the bullet trains in Japan and China and Underground metros poses a serious threat to airlines industry (Bhasin 2017).
“This builds directly on the information about the strategic position that is summarised in a SWOT analysis. The TOWS matrix is used to identify options that address a different combination of the internal factors (strengths and weaknesses) and the external factors (opportunities and threats)” (Johnson, Scholes and Whittington 2005)
Strengths- Opportunities: With the brand image that British Airways boast of and its huge recognition at the international stage. It would be ideal for British Airways to focus on market segmentation. By focusing the goals and objective of the company towards area that growth is generated, quality can be achieved at a much shorter period and migrating supply chain at the same time. Creating a British Airways that is much stronger through mergers; from the competition of smaller airlines. Emergence of new market provides a good opportunity for British Airways to offer broad service ranges. (Thesus)
Strengths- Threats: With the increasing threat of environmental conscious consumers and stringent policies that place priority on environmental protection. It will be imperative for British Airways to produce a complete remodelling of its brand image to become a premier environmental friendly airline service. Completely remodelling the brand into an environmental predecessor which will improve the reputation of the brand for competition to operate and diversifying resources into other transport market to broaden its market. (Thesus)
Weakness-Opportunities: Over the years British Airways has been known to have Poor employee relation, these can be countered through employee engagement, investing in their employees and treating them as an important asset of the company. British Airways has to be abreast with technological advancement so as to be able to address rising concern which will give a boost to their reliability and trust as a company. (Thesus)
Weakness- Threats: These are strategy is applied in ways where the weakness of the company does not expose the threats of the company; one way british airways can do these is by improving the environmental stance of the company to deter negativity that might stem from increased environmental awareness. The negative attention British Airways has received in terms of reliability and change could be focused towards an improvement in environmental and ethical concern. (Thesus)
The competitive and Internal analysis of the company sheds light on the fact that British Airways is in an advantageous position. By analysing the value chain and VRIO of the company, it has been identified that the company has achieved competitive advantage in many aspects. In terms of differentiating its product from its competitors; focusing on the target market, creative innovation which increases their competitive edge which has driven the change in the organization. Though there are still more work to be done in term of employee relationship and harnessing the potentials in growing or developing economies.
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