British Airways Strategic Management

Published: 2021-09-15 13:55:10
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Category: Strategic Management, Airways, British Airways

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British Airways (BA hereafter), with 36 million annual customers (Explore our Working World, not dated) is a top global brand. It is one of the most enduring successes of British industry and enterprise, and is virtually as old as the history of civil aviation itself. The company has ridden crests of massive discontinuities throughout the 20th century, which have not just affected operations deeply, but even its ownership and nature. It is therefore also a powerful symbol of successful transfer of business assets from government to private hands. The branding of a network carrier presents formidable management challenges.
Air travel, especially in business and first class, is as much a service as a tangible product (Payne, 2002). Differentiation is complicated by having to serve both business and vacation travelers simultaneously, though the demands of the 2 segments may even be contradictory in some respects, and in convergence only rarely. Competition is amongst the most intense for any sector of enterprise, with few opportunities to stand apart in terms of aircraft specifications. Innovation in all elements of the Marketing Mix (Payne, 2002) can sustain financially viable operations.
The People and Process elements of the Marketing Mix (Payne, 2002) have most strategic significance, as seen by the threat of industrial action by cabin crew in January 2007 (Latest Update, 2007). This document uses the tools of PEST (Politics, Economics, Social, and Technological) Analysis and the Ansoff’s Matrix to make suggestions for the strategies BA should consider for the reminder of this quadrant of the 21st century, so that it can consolidate its vanguard position as a global brand with superior potential for sustained returns on investment.



It is evident that the foreseeable future will witness continuing changes in competitive and environmental challenges, which will require fundamental new branding initiatives.
PEST Analysis
Political factors:
Deregulation is one of the most telling developments in the environment for BA (Delfmann, 2005). It is a double-edge sword for the airline, giving it the flexibility to expand operations in emerging markets, to which hitherto it had limited access at best, but simultaneously taking away the protection it enjoyed by virtue of landing slots in the most lucrative airports of the developed world.
Deregulation also dilutes the protection against predatory pricing which the International Air Transport Association (IATA) once offered. Entire swatches of BA customers have been taken away by low cost carriers (Delfmann, 2005). However, the flexibility of the airline to offer enhanced services to preferred customers (Payne, 2002) who pay premium fares, has also improved as a result of regulatory moves in favor of unfettered competition. BA adopted its present share ownership structure as a result of UK government policy in favor of private ownership of corporate entities.
It may not have been able to survive in the present global context of country subsidies, and could have suffered the fate of some national carriers from the mainland of Europe (Delfmann, 2005) in this respect. Even a labor government in the U. K. has not succeeded in arming trade unions with requisite legislative strength to bring pressure on the airline management (Latest Update, 2007). However, with a home base within the European Union, BA suffers from regulatory fetters on price, network, labor, and environment fronts, which do not apply to peers based in some Asian countries. Also read about British airways organisational structure
Overall, the political environment for privately owned carriers is now much better than for most of the previous century, and the early decades of the industry, but risks of bankruptcy are also heightened, with little possibility of government intervention in events of severe demand and price pressures, due to geo-political developments and equations.
Economic:
Few other sectors of organized economic activity have witnessed as much growth as civil aviation, disruptions due to wars and epidemic outbreaks notwithstanding (Delfmann, 2005).
Some regions have recorded especially rapid growth in passenger traffic. The business traveler and vacation segments have expanded in tandem. The demand for cargo traffic has also swollen appreciably as a result of globalization and industrial growth throughout the world (Delfmann, 2005). Margins are under pressure due to high inflation in fuel costs, and more recently, because of pressures from within the European Union for better controls on emissions and environmental conservation. The growth of low cost carriers has not only made inroads in to market shares, but their successes threaten international routes which continue to be preserves of full service airlines such as BA.
There is a possibility that the customer segments which BA has traditionally served may be reduced to small niches, if the trend towards low cost carriers continues. Margin pressures inevitably draw attention towards labor costs (Blyton, Lucio, McGurk, and Turnbull, 2001). Modern logistics and travel speeds make it possible for carriers to create and to maintain hubs in low cost countries, and while BA has not done this to date, it remains a challenge to maintain the brand without allowing labor costs to become unviable.
Process elements (Payne, 2002) mean that the high standards of customer service and interaction which BA offers require considerable infrastructure and costs in support functions (Explore our Working World, not dated). Price cartels are not allowed (Delfmann, 2005). BA cannot associate with other network carriers to protect the full-service values. Already, there are reports of German low-cost operators upgrading services so as to segment the market further (Delmann, 2005). BA’s pricing for business class seats are likely to migrate downwards as pressures in this respect mount.
The overall economic factors are in favor of sustained and superior growth in demand, but with severe and continued pressures on operating margins. The labor cost element, which is most controllable for management in the short-term, is therefore certain to occupy the lime light.
Social factors:
Global industrial growth, and the advance of private enterprise, stimulates demand from business and vacation segments alike. The number of occasions for executives to visit affiliate operations at distant sites, and to confer, have risen enormously.
Simultaneously, the creation of new jobs has led to economic prosperity of the middle-class in all major countries, spawning new demand for vacation trips. Tourism is now viewed by all governments as a major route to economic development, and in its classic as well as new ecological and adventure variations, all contribute handsomely to the growth of demand for airline travel. However, customer values have changed. Air travel is more egalitarian than it used to be during the first decade after World War II. Younger people are frequent fliers, as are working women as well.
Senior citizens from countries with generous pension plans are also important new categories of customers. The successes of low cost carriers indicates that while customers appreciate personalization and high standards of service, demand for airline seats is also highly price sensitive. The high economic status and educational profiles of typical airline personnel (Explore our Working World, not dated) imply that operating levels of organization demand greater say in policy matters. Confrontations with trade unions are not restricted to remuneration and working condition matters alone.
Employees demand respect, recognition, and participative roles in management matters as well (Latest Update, 2007). Multiculturalism is important for a network carrier such as BA with routes to exotic places and paying customers and key employees from every possible ethnic background. The corporate brand has world-wide reach and has to respond to even contradictory sensitivities. Religious beliefs affect service parameters as in the case of choice of meals on board, and a company such as BA has to equally adept at meeting multifarious needs and demands.
‘Fly the flag sentiments’ are outdated, and BA can no longer expect the kind of support from its home population, which it aggressively promoted in the 1970s.
Technological:
Know-how for civilian aircraft is so restricted that all major airlines have vastly similar aircraft in terms of capacities, fuel efficiencies, and speeds. Every innovation in interior fittings and amenities are copied quickly. Any benefits that some early adopters have by way of early deliveries of new generation aircraft are quickly neutralized, so they cannot be the bases of any sustainable advantage.
Low cost carriers have even been able to lease aircraft at such advantageous terms that investments in fixed assets do not always seem wise. The Internet has made a major impact on the industry, putting airlines in direct contact with passengers, and altering the distribution chain structure entirely. Convergence of mobile telephones (cellular) now offers competing airlines many avenues to enhance contacts with and services for customers (Payne, 2002).
Airlines can look forward to major savings in ground handling infrastructure as passengers become accustomed to printing boarding cards online.
The European Union has taken a lead in questioning aircraft emissions, demanding better emission standards. However, this has no segregated effect on BA alone, except that regional carriers in other continents are not affected as yet. Pressures to raise airline fares to meet conservation needs are also unlikely to affect BA in any discriminatory way on a global footing. The technologies of security have deep impacts on airline operating systems. Airlines have increased responsibilities with respect to anti-terrorist measures, and BA is especially vulnerable because of its dependence on Heathrow, and its lineage with the U.K. as a prime target nation of attacks.
Ansoff’s Matrix for BA Market Penetration:
BA is in a business of great turbulence (Delfmann, 2005). Some of its most dense routes, such as across the Atlantic have become intensely competitive, with increased service providers fighting for slices of a market which no longer grows. BA probably has as much of matured market segments as it can extract from favored and multiple landing rights. Flights to other continents are set to grow in the business traveler segment, but much of this growth will be neutralized by losses in the vacation segment to low cost operators.
There are serious dangers of regulatory attacks of the lucrative short-haul markets within Europe, as people question the environmental effects of frequent air travel. However, the greatest threats to the existing business of BA arise from its dependence on the security-threat prone Heathrow complex, and the propensity of its pilots, cabin crew, and other key staff groups to frequently threaten strike action, and to effectively demand huge productivity losses.
BA branding is so strong in traditional customer and market segments that further investments in increasing market shares will put increased pressures on margins which are already under strain. The emergence of younger people and women in the business travel market, and of wealthy retirees on vacation, mean that the profiles of some loyal BA customer groups have changed. Existing services and amenities in terms of booking tickets, and on board aircraft require complete overhauls.
Market Penetration is not the right quadrant of the Ansoff’s Matrix for BA at this time. Such an approach will reduce rates of returns on capital employed, and yield only marginal gains for large doses of inputs. It could also hasten industrial sickness in an industry which is so vulnerable to fuel cost uncertainties.
Market Development:
Economic developments in China, India, parts of South America, Eastern Europe, and in Russia, offer new geographic territories in which BA can promote its existing products and services for high growth and profits.
It can target peer network carriers in some of these areas, such as Singapore Airlines, and offer a globally standardized product and service combination to rival ethnic and regional specializations. BA has operational expertise (Explore our Working World, not dated) which can be used to rival local carriers and to fuel revenue growth at the same time. The World Trade Organization flexibilities for airlines based in the first world, and the move towards Open Skies should be aggressively leveraged by BA.
The company can also use competition based pricing to hold custom from existing customer groups for new destinations of economic significance on the network. Market Development would be an appropriate portion of the Ansoff’s Matrix for BA, because it will enable the company to take full advantage of the world-wide spread of economic and industrial development as a result of globalization. It will also be an opportunity for BA to make full use of the capabilities which it has honed over decades related to top quality service and excellence in logistics.
Residual effects of branding in geographic markets where BA has relatively low shares at this time can produce significant financial gains even in the short-term. The concept of ‘BA now in your city and on your routes’ will attract customers who may have limited experience of the brand to try it frequently and in large numbers. BA will have to add the business model of being a regional carrier in nations with large territories such as Russia, India, China, and Brazil, to its existing revenue model of being a leading network carrier.
The ability of BA to generate profits from within the European Union, which emanates from great operating efficiencies in aspects such as turning around aircraft, should be brought to bear in emerging economies where people have money to fly, but where local operators lack know-how. This is worth exploring by acquiring control of regionally branded airlines, apart from by establishing new hubs and corporate entities in selected third world markets. Overall, Market Development for existing products and services is an important and recommended strategy for BA to consider and to follow.
Product Development:
This part of the Ansoff’s Matrix has to follow the Market Development one for BA. The airline has always emphasized suitable services for the multi-ethnic nature of its passenger groups (Explore our Working World, not dated). Once BA decides to expand in new territories, its basic product and service offer will have to follow separate development paths to suit the needs of new customer groups (Payne, 2002). All elements of the Marketing Mix should be reviewed in order to tailor products and services with regional variations.
BA may have to downplay the established mother brand, and try to develop strong regional identities instead. The airline has succeeded in doing this for various classes of travel in the past (Explore our Working World, not dated). Languages, shopping facilities, uniforms and menus, are some of the key elements for the airline to address with regional experts used as consultants. BA may also have to work on special capabilities related to operating successfully with smaller aircraft on shorter routes than the large jets to which it is most accustomed as a global network carrier.
Economy class products and services will need more attention than the more paying categories. BA should consider developing products and services which address niche opportunities in between the low cost carrier and full service segments. Product Development in the charter segment also needs BA’s attention. Linkages with large tour operators and event organizers, and fresh thinking on pricing for high density corporate accounts can help the airline strengthen its presence in new markets (Delfmann, 2005). Fresh impetus for cargo business is also integral to Product Development in BA (Delfmann, 2005).
Many of the emerging markets recommended for Market Development, are also important producing and consuming centers for a variety of manufactured goods. Globalization implies massive growth of air cargo movement, and BA should focus on new products and services for this rapidly expanding segment. All Product Development options for BA are limited in time. Market gaps can be filled by other network carriers with which BA competes. Novelty is central to the values which BA can contribute to emerging markets. The airline must use its accumulated capabilities to expedite innovation and bring new products to new markets quickly (Stalk, 1991).
Diversification:
While the Market Development and Product Development quadrants of the Ansoff’s Matrix provide short-term succor for BA, long term profitability is best secured through massive diversification. Turbulence in the market (Delfmann, 2005) and because of the many potential revenue generating opportunities for BA capabilities (Explore our Working World, not dated). The company should engage in major restructuring to match its strengths with the opportunities in the markets of the future. A start should be in the BA brand and the structure of business.
There are no advantages left in being British, being UK based, and having large numbers of employees from such high-cost and militant backgrounds. The civil aviation market is now global in character. Passengers want specified service levels at optimal rates: few people ‘fly the flag’. Capital is mobile, but labor is not (Blyton, Lucio, McGurk, and Turnbull, 2001). BA should contract in to a holding operation, moving strategic assets to hubs in low cost economies and growing markets. It should develop strong regional brands, and make strategic moves to contain its labor costs (Doganis, 2001).
This means that BA will become a kind of training and consultancy outfit for regional carriers which it owns. BA should also consider the spending habits of people who fly in its aircraft. Specialty cuisine, packaged foods, branded alcohol, especially fine wines, online retailing, conducted vacations, airport management, hotels, and event management-the numbers of horizontal moves which BA can make with its existing expertise extend far beyond air travel. BA cannot venture in to all these fields all at once, and it is beyond the scope of this document to make binding recommendations in this regard.
Suffice it to say that horizontal diversification will enable BA to profit from new enterprises, without adding substantially to its fixed cost structure. Conclusions Civil aviation is primarily a 20th century phenomenon (Hanlon, 1999). Air travel during the coming decades will have to meet new expectations from all categories of stake holders. Strategy must primarily prepare organizations for change. The January 2007 threat of industrial action by highly paid cabin crew should be the occasion for BA to recast its business altogether.
Competitive advantage is a constantly moving target (Stalk, 1991). BA cannot make drastic changes overnight, but it can begin to immediately shed some of its UK leanings, and redeploy itself on a broader base on internationalism. The company can then begin to consider new ways of deploying its resources, expanding sideways to serve brand loyal customers in new ways. BA has such as innovative track record that even the BA label is relatively recent, and not the name with which the organization was born.
A timely and enthusiastic response to challenges is the essential heritage of BA, and it is this spirit which should guide the company’s strategic thinking even today.
References
Blyton, P. Lucio, M. M. McGurk, J. and Turnbull, P. 2001
Globalization and trade union strategy: industrial restructuring and human resource management in the international civil aviation industry, International Journal of Human Resource Management, Volume 12, Number 3, p 445-463 Delfmann, W. 2005
Strategic Management in the Aviation Industry, Ashgate Publishing Ltd Doganis, R. 2001
The Airline Business in the 21st Century, Routledge (UK) Explore our Working World, not dated, British Airways web site, accessed January 2007 from: http://www. britishairwaysjobs. com/baweb1/? newms=info7
Hanlon, P. 1999 Global Airlines: competition in a transnational industry, Elsevier Latest Update, 2007, Transport and General Workers’ Union Web Site, accessed January 2007 from: http://www. tgwu. org. uk/  Payne, A. 2002
The Essence of Services Marketing, Prentice-Hall Stalk, G. 1991, Time-The Next Source of Competition, Montgomery, C. and Porter, M. E. (eds), A Harvard Business Review Book

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