Online booking, travel insurance for UK residents, a detailed online timetable/schedules and ‘real-time’ arrivals and departures. It also contains contact telephone numbers worldwide.
2.2 Weaknesses
- Damaged reputation – the organisation’s reputation is currently under fire. The withdrawal of the Concorde was a major factor in this. BA has a long history and is a well established firm, however over time it has come under much scrutiny due to its high prices, especially in comparison with organisations such as EasyJet and Ryanair. BA has also endured criticism for it’s customer service. The problem with such a firm is that as it established a well respected brand name and was known for it’s quality, as soon as the quality declines, it is noticed and receives unwelcome publicity.
- Worrying financial position – BA has been losing money for the last three years, for example in £142 million in 2002. Below is a graph that shows the fluctuating share prices:
This shows that the share prices are unsteady at the least. The prices were in massive decline after September 11th 2001. This not only had an effect on British Airways but on the airline industry as a whole. Although they enjoyed an increase in 2003, the share price has been steady decline in 2004 with few minor increases.
- Little market activity – BA looks after its current customer’s very well, especially its corporate customers. The aspect they do not focus marketing schemes to attract prospective customers. This is the opposite compared to most other organisations. Many organisations place too much emphasis on attracting new customers rather than focusing on those they already have. I feel that the company suffers from a deprivation of strategic management for investment, which is the most important aspect for growth of the airline.
- Reliance on certain revenue sources – BA tends to rely heavily on particular sources of revenue, such as the On Business service or long haul flights. However it is difficult to rely on short flights to Europe, as it simply cannot compete with EasyJet and Ryanair.
- Lack of innovation and ideas – BA tends not inspire innovation and new ideas which I feel is a large stumbling block for them. An organisation needs innovation to compete in different markets and to increase its market share in those which it already competes.
2.3 Opportunities
- Further alliances – although BA has increasing debts, a huge investment opportunity would be the purchase or merge with a firm such as Ryanair. This would not only help them compete with EasyJet but also mean that they could possibly sell some of their aircraft as they would not need as many. This isn’t likely to clear the huge debts that are amounting but would certainly help to ease the financial worries that they clearly must have.
Another alliance that I think should at least be a consideration is that of an alliance with a large hotel chain, such as the Hilton Group. Both firms offer luxury services and it would be a logical association for the two of them. For example, if a flight is either delayed for longer than 12 hours or is cancelled for the day, the firms could offer discounted rooms. Increased hospitality for travellers, who are not generally ‘relaxed’, would be an ideal solution. This would suit people far better than driving back to their homes. Such an alliance would also be logical as the Hilton Group has many hotels located less than 30 minutes drive from many major international airport terminals.
- Government regulations - in dealing with suppliers such as airports and the government, the airline industry has few options. Taxation and deregulation have already revealed the significant influence the government has on the sector. The lucrative routes or slots are scarcely available for smaller firms, but for organisations with big market share (although it is decreasing) like BA it is relatively easier to get these resources.
2.4 Threats
- Strong competition – BA has many competitors, the main competitors it has on trans-atlantic operations is Virgin Airlines. For shorter routes, the main threats are EasyJet, Ryanair and Monarch. Increased competition is a benefit for the consumer but not for businesses. BA simply hasn’t sufficient financial resources to warrant cheap European flights.
- Fuel costs – the cost of oil and other fuels are constantly rising. One of the worlds largest sources for oil is Iraq, which is of course under attack from the U.S and the U.K. This is resulting in far less oil being exported which in turn forces distributors to sharply raise their prices.
- Terrorist attacks – this is a major physical threat to not only BA but to all airlines. With an increasing number of attacks being carried out, consumers are far more concerned about flying, especially to the US, than they were five years ago. Apart from increased security levels, there is no specific way to stop these attacks, causing the trans-Atlantic market to decline dramatically.
- Global recession – A recession on a global scale would mean that firms would not be able to afford executive travel, as offered by BA. It would result in BA’s “cheaper” competitors gaining yet more market share. This is likely to leave many of BA’s fleet grounded and an increasing number of staff redundant.
From the above analysis, it is clear to see that British Airways is in an unsteady position. Not only are their finances in turmoil but competition seems to get stronger everyday. BA does not focus enough on attracting new customers which means they would go to one of the competitors. An uncertain future lies ahead of the organisation, which is certainly not being helped by the war in Iraq.
3.0 Boston Consulting Group Matrix
The Boston Consulting Group Matrix (BCG) is a well known tool for business strategists. It is an approach to product portfolio planning. The two controlling aspects of the BCG are market share and market growth. Shown below is a BCG for British Airways:
3.1
STAR ?/PROBLEM CHILD
M
a
r
k
e Reward schemes
t
G
r CASH COW DOG
o “On Business”
w Corporate travel
t
h
Concorde
Relative Market Share
3.2
There are not many products that British Airways offers as it is generally a service. I feel their “On Business” programme can be considered a product. I feel that it has a high share of a slow growth market. The corporate travel is slowly beginning to decrease in popularity due to advantages in technology and cheaper rates offered by its competitors. I consider the reward schemes offered by BA to be a “STAR” as it encourages repeat business and generates a fairly large percentage of BA’s income. Even though the Concorde is no longer in operation, it was a factor that had major contribution to BA’s debts.
4.0 Porter’s Five Forces
4.1 Competitive Rivalry
As previously mentioned, the competition between airline companies is intense. In recent years, airline companies have been suffering from losing customers. Many companies have been involved in cost efficiency savings; for example, British Airways has a Company Restructure Plan (The Press Office; ) which includes “a twenty per cent reduction in manpower.” Also, the emergence of low cost airlines makes the competition tighter in the short distance travel area.
4.2 Threats of entry
Threats of entry of the airline industry are low. This is due to the following two factors:
1) The capital requirement of entry.
A large amount of capital is required to set up an airline company. For example, a Boeing 737-800 cost £29.5m - £38.5m. Few organisations can boast such capital.
2) Experience
Experience is pivotal for an airline company. For example, staff training and the co-operation of each department, i.e. customer service. Obviously the main experience consumers want is a safe flight history, which cannot be established until passengers try your airline.
4.3 Threats of substitutes
Since September 11th 2001, the airline industry has been suffering from the loss of customer confidence. However there is no direct replacement for airlines for long journeys. Short journeys can be catered for by transport such as trains, ships/ferries and coaches.
An indirect substitute of air travel is the rapid development of technology. According to the International Air Transport Associations Corporate Air Travel Survey 2003, 40% of business travellers use video technology and video conferencing equipment in order to save both time and money. This limits an organisation’s travelling expenses.
4.4 Buying power
The buying power of consumers in the airline industry is high. Airline companies often provide over-complex offers; Virgin Atlantic does this, to customers. The budget airlines, EasyJet and Ryanair sometimes provide customers with ‘rock bottom’ prices. Also, the non-budget firms can often give competitive offers to customers. All of these factors amount to s higher buying power for consumers.
4.5 Power of suppliers
Airline companies have suppliers for many different products, for example, suppliers of aircrafts, fuel and in-flight services. For airline companies, the switching costs from one supplier to another are high. The brand of a supplier in the airline industry is powerful. For example, if British Airways have Boeing aeroplanes, they have to keep the services and maintenance of their airplanes with Boeing.
5.0 PEST Analysis
5.1 Political
- The stability of a country’s Government can affect the routes that airline companies operate. For example, Iraq is now in a war with the UK and the US. Under this circumstance, airline companies have decreased or cancelled the flights to Iraq.
- National and international governments can affect airline industry by their own regulation and policies. Airline companies have to know not only the domestic laws and regulations but also the international ones. Since airline companies provide multiple services to customers, they are regulated by various legislations and regulations. Such legislations and regulations include protection of environmental pollution, health and safety regulations and security legislation.
- Like all airlines, BA must observe the rules and regulations of the USA's Federal Aviation Authority (FAA) and the UK's Civil Aviation Authority (CAA). This leads to heavier costs and more administration, which of course does not help BA’s financial situation.
5.2 Economic
- A world economy recession also affects share prices of airline companies. BA’s share price has been in a trend of decrease since 2001. A global recession would be bad news for all major airlines.
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Since the September 11th attacks, insurance costs of airline companies increased due to the tighter airport security check and the global fear of terrorism. I cannot see the price of insurance for airline firms decreasing in the foreseeable future.
- Landing charges have also increased over the last 6 years. This is a barrier of entry for new firms who wish to enter the industry. The financial implications that are required are far higher than many firms can afford.
5.3 Social/cultural
- The Airline industry serves a wide range of global destinations, carrying passengers from many different national, religious, disability, ethnic, language and cultural backgrounds. For example, when airplane arrives in a different country to its departure a different language and social etiquette should be used.
- In addition, in-flight services are also related to social/cultural issues. Airline companies should have a clear idea of the cultural issues of destination countries. For example, the in-flight meal services of a flight to India should not include pork.
5.4 Technological
- Airline industries are constantly looking for new technology to use to improve not only the security but the service overall.
- British Airways invested a huge amount of money in Lotus technology and other associated technology. The Lotus technology installed sits within a complex and sophisticated IT environment that also encompasses the use of UNIX for real-time and other database applications.
- With the rapid development of technology, airline companies now are forced to adopt technology into in-flight services. For example, British Airways have started to provide in-flight Internet services. Additionally, airline companies have Internet ticket booking systems in order reduce costs and become more competitive. BA also does this.
6.0 Competitor Analysis
The airline industry contains many different firms. They compete with British Airways in different markets. In shorter routes, e.g. European/UK flights, the budget airlines are British Airways’ main competitors, such as Easy Jet and Ryanair. Their strategy is, offering stunning pricing to the passengers, which excluding the meal service in order to reduce the cost. BA simply cannot compete with these firms as BA has a luxury reputation which would be damaged further if they offered such low prices.
I feel that one aspect that BA beats the two competitors is through the use of the Internet. The layout and design of the BA website reflects luxury compared to EasyJets bright colours. The two are shown in figure 6.1 on the following page:
6.1
BA only has two main competitors for shorter flights. However there are more competitors in long routes for BA. The major competitor is Virgin Atlantic in the U.K, which offer very similar services as BA. Competition is very intense between the two.
However in a recent survey, it emerged that Virgin Atlantic was preferred to BA. This is shown on the following page:
6.2
Data from an independent survey from YouGov published in the Daily Telegraph 28 August 2004. Over 4000 people interviewed. Asterisks indicate the proportion of respondents rating airlines as excellent.
().
Air France Airline, Lufthansa Airline and Swiss Airline also have their own competition advantages, such as the location advantage, being in the middle of the Europe.
I think that BA has a competitive advantage over its competitors. That advantage being its business class and reward offers for customer loyalty. BA needs to continue to focus on this in order to keep such an advantage but risks on losing out on potential customers/passengers.
7.0 Conclusion
From analysing all the information shown in this report, I think that British Airways plc needs to inspire innovation in order to keep up with their competitors. I cannot see them competing with EasyJet and Ryanair on price in the foreseeable future but I think that they should consider an alliance with either another airline or a hotel group. If BA manage to acquire a firm such as Ryanair, I think they will be one step closer to giving EasyJet further competition. Although such an acquisition would cost vast amounts of money, adding to BA’s debt, I think it would be a good investment in the long run. If they start to take customers away from EasyJet’s services then BA will slowly but surely begin to crawl out of the debt in which they currently sit.
I also think that BA needs to consider a marketing campaign in order to gain more customers. Although they look after their current customers very well, they need to gain more if they want their bank balance to look more promising. Not focusing on gaining potential customers can be the major downfall of many organisations. Looking after their current customers well is a very effective way of retaining them for repeat business, but new customers would bring much welcome cash flow to the firm in the long run. Such a dramatic debt is difficult to get out of, especially with many economic factors having negative impact on the organisation.
Reference:
Exploring Corporate Strategy; Johnson & Scholes, 6th Edition.
Lecture Handouts
Seminar/Lecture notes
