The airline industry received a major blow due to the temporary shutdown of the air travel system and later widespread fear of flying by potential customers. Airlines and air freight were down for weeks. People who chose to fly faced long lines due to increased security measures. The facts that there are too many seats on offer to too few passengers have all taken their toll on BA's, and other airlines' profit levels.
(Source: 11/10/01 article, the after effects on airlines, John Haste)
External Influences – LE PEST C analysis
British Airways needs to ensure that it as a good understanding of its external environment. This will ensure it the business to decide on appropriate objectives and strategies. Failure to consider their external environment is likely to result in them being unable to achieve their objectives.
LE PEST C
External environment can be defined and analysed using LE PEST C analysis, examining the Legal, Economic, Political, Ecological, Sociocultural, Technological and Competition categories into which external influences on the organisation can be put down.
(Sources for LE PEST C analysis, various articles, website www.airwise.com)
British Airways need to look at LE PEST C factors, such as:
Legal
British Airways has a number of legal issues and requirement which affects the way the business is running. For example:
UK competition law is widely acknowledged to be inadequate to protect small companies being damaged by anti-competitive activities of larger competitors. Basic enforcement action against anti-competitive activity is by public authorities (Monopolies and Mergers Commission or the Office of Fair Trading).
It is a very important issue in which not only British Airways but other businesses are affected in their day to day running of their business. British Airways under the health and safety act must provide a safe environment for both their workers but most of all their customers. This means that the company needs to provide a comfortable and safe working place and environment for their employees and to provide safety, health care services to their customers while flying on their planes. However these issues affect the company since providing these services cost a lot to BA on a daily basis therefore affecting the way the business operates.
Economic
British Airways is an international business; therefore they are potentially vulnerable to fluctuations within the exchange rates. It is mostly due to the strength of the pound meaning that less foreign customers will fly with British Airways and perhaps would go for another airline where it is cheaper. As a result this may affect their level of sales and profits.
The degree to which a change in the interest rates affect British Airways in their ability to invest and it will also affect the abilities of their customers to purchase and book flights. For example if the interest rates go up, this might mean that customers might start saving has they would get better returns on their savings as for the company. However, theoretically the opposite should happen if otherwise.
The likely rising fuel prices on the short to medium term period due to a Middle East conflict between Iraq and USA. If a war occurs between the two countries, there could be major fluctuations on the fuel prices in which they more likely to go up. Then as a result this will affect the stock market in which it is likely to go down. Thus this conflict is likely to affect and lower British Airways’ sales and profit levels.
Political
British Airways needs to consider possible political instability in their industry and changes in different countries legislation, which may hinder the business. For example the war with Iraq, if the threat of war with Iraq becomes reality British Airways might have to shed even more jobs and reduce capacity on top of its present cost cutting program. In fact if there is military actions taking place in Iraq this could have an impact on all major industry such the civil aviation industry the world economy.
The warning came from Chief Executive Rod Eddington who told the Financial Times that a conflict over Iraq would have a substantial impact on the airline industry.
They focused on a Middle East conflict because it could affect the way British Airways operates which could mean more cutting programs.
Ecological
Another key aspect is the ecological factors which are part of British Airways external environment. The public is now becoming more and more aware of the ecological factors. Such factors often take the form of pollution, such as that of air, water, ground, and noise pollution. British Airways must ensure it is not making to much pollution.
Emissions and fuel efficiency
Every aircrafts have powerful turbot engines which reject a fairly high level of pollution into the air when flying. The impacts of aviation on the atmosphere are now taking over from noise as the main environmental issues faced by all airlines.
Noise is produced by nearly every form of transportation, although the levels and impacts can vary widely. Noise from aircraft has been established as a significant source of pollution, although it is typically confined to areas in the immediate vicinity of an airport. The principle exceptions to this are the Concorde aircraft when it is cruising at supersonic speed and helicopters, which produce potentially substantial levels of noise over areas of flight.
Sociocultural
British Airways will need to measure any social changes affecting their business, which may affect the demand for flights. For example, since the terrorist attack on the 11 September 2001 and other events such as the foot and mouth crisis have had a big impact on British Airways sales mainly because the customers are becoming more or less afraid to fly on transatlantic flights and perhaps domestic flights.
Technological
British Airways can be affected by a change in technology. In nowadays the technologies are getting better and improving at a very fast rate. BA needs to monitor any changes in technology which may for example lower their expenses, allow the airline to carry more passengers in planes at a faster speed for long distance destinations. Failure to invest in new technology may men that the business loses out to more advanced competitors.
Competition
The dramatic fall in British Airways' profitability reflects a combination of changes to the industry which have left the airline looking cumbersome and slow to adapt to competitors' strategies.
British Airways is in a very competitive industry both at national and international levels, there are a lot of airlines competing with each other such as Air France, Continental Airline etc, and all providing similar services but at different prices. The company is also facing intensive competition from low fares airlines such as Easy jet, Ryan air, Debonair, AB airlines, Virgin Express.
SWOT Analysis
By compiling a detailed SWOT analysis one can gain a good understanding of the current position of British Airways. By investigating their external environment, one might find a strategic fit, where the strengths of the business can be used to exploit opportunities in their external environment and may also able one to suggest how the business can minimise its weaknesses and deal with potential.
- British Airways has been privatised by the government to become a PLC meaning that the business can sell its shares on the stock market in order to raise greater capital.
- The airline has been established in 1938 and is now well established suggesting a high degree of awareness.
- British Airways cover and offer a wide range destination all over the world.
- British Airways represents and is England’s national airline suggesting that most English people will tend to travel with their national airline.
- British Airways may have financial troubles but is still successful in the eyes of its passengers. The UK airline came top in seven categories at the Business Traveller Awards. The seven awards were for Best Airline, Best Business, Best Cabin Crew, Best Short Haul Flights, Best First Class, Best Frequent Flyer Program and Most Innovative Airline. The annual poll is conducted by Business Traveller magazine.
- British Airways has had a decreasing number of customers since the event on the 11 September. Therefore this increases the BA’s costs per passengers, resulting in a lower profit margin.
- British Airways has an unhappy workforce due to a management taking decisions without consulting their stakeholders.
- British Airways have high cost levels because they are committed to operate from high-cost airports.
- British Airways has merged with KLM and in order to do so BA has cut down 1500 jobs. This means that the company will have to pay redundancy payments to those workers.
- BA with the purchasing of new larger aircrafts such as the A3XX from Airbus coming out within the next few years can or will be able to reduce their cost per passengers because those new aircrafts will be able to carry more passengers in one plane.
- The possibilities for BA to sell tickets on the internet in other words, to do e-business which will allow BA to sell tickets at any time and lower their cost in commission to travel agents but also to employ less employees to sell tickets without sacrificing relationships with customers.
- The strength of the sterling may be good for the UK citizens as it is cheaper for them to travel to other locations around the world. This could mean a potential increase in sales for BA.
- There is the global slowdown in the travel industry. Bookings were sharply down even before the atrocities committed in the USA.
- British Airways is facing an intense competition from other airlines but their major threat is meeting the challenge from budget airlines such as easyJet and Ryanair which is British Airways’ major threat and arguably their main problem.
- The conflict in the Middle East mixed with terrorism. Customer are still worried, some even stopped travelling by plane. Along with being a threat to safety, it is a threat to the company because it can still affect sales and profit level.
Five forces Analysis
This is a model for examining competition in an industry or sector. The diagram below represents the 5 forces.
(Five Forces by Micheal E. Porter)
Competition
The civil aviation industry has a particularly intense competition between rivals there are a lot of airline companies throughout the world.
Threat of new entrants
The threat from the low-cots airlines such as easyJet, Ryanair or Go, offering very competitive prices.
Threat of substitution
British Airways provide travelling services via planes. It is therefore the quickest way to reach long distance destinations. However a direct substitute would the boat or train or the car, it is possible to travel distance but those are not as quick or necessary cheaper. Unless there is a new invention, which is equally as good and cheaper then there is no potential threat of substitute.
Power of buyers
Between all the airlines available to customers, the bargaining of the buyers can be strong. Because there is such an intensive competition between airlines, the buyers are able to shop around to find the best deal and most suitable choice of services.
For example, a UK buyer who needs to go to New York from London can choose between British Airways, Virgin Atlantic or American Airline etc.
Power of suppliers
British Airways have many suppliers. The company gets daily supplies for the services such as food, drinks and magazines provided on the plans to customers, the suppliers for the deal with BA are competing against other similar firms and they stand a low chance of winning a contract. Therefore the bargaining power of the supplier is low indeed. However the firms supplying the planes such as Air-Bus or Boeing might have more power because there less firms competing against each other and since planes are one of the most important assets of BA, the supplier is likely to have more power.
Stakeholder analysis
Stakeholders are those individuals or groups who depend on the organisation to fulfil their own goals and on whom, in turn, the organisation depends on.
The diagram below represents all the stakeholders.
Conclusion
In this report the author has analysed the environment of BA as a whole. Having conducted all the analysis, the writer has come to a conclusion that whatever strategy or combination of strategies BA choose to have, BA needs to find a way of getting back on their feet.
British Airways have years experience in the civil aviation industry and until recently have been successful. They have built their reputation as a British and quality airline. This would enable them to build on their strength rather than taking the risks involved with alternative strategies. The business could in the short term reduce its workforce in order to lower their expenses, and wait to see if the global travel industry improves.
However in BA’s opportunities, it is suggested that the e-business is one good way for BA to cut down its costs. The increase in the popularity of the use of internet by the public clearly offers BA an opportunity to improve their performance.
Recommendations
Having considered the possible strategies the author would recommend that the business reduces the workforce in the short term, then make good use of the e-business and continues to analyse its external environment before making any long term commitment such as the purchase of new lager aircrafts. The business has had many years of success as an airline and should only abandon this strategy if it is certain that it has no alternatives but change. Once things have settled down that the travel industry and the economic climate improves, the British Airways may find that demand will begin to increase again.
Furthermore whilst British Airways waits to see how things improve, the writer would also recommend that it compiles more research into the other possible strategies it might be considering in the future.
Bibliography
British Airways, 2001/2002 Annual report & Accounts.
The Times – July 21 2001, BA’s wings could be clipped by staff unrest.
British Airways Social and Environmental report, 2000 ()
The Encyclopaedia Britannica 2000
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