British Airways’s Environment
British Airways (BA) is the UK’s largest international scheduled airline, operating international and domestic scheduled and charter air services for the carriage of passengers, freight and mail and the provision of ancillary services. The airline flies to over 550 destinations globally and is considered to be a leader in the industry. In order to profitably satisfy customer needs, an organisation must understand its external and internal situation including the customer, the market and its own capabilities.
Furthermore, it needs to understand and adapt to the dynamic and uncontrollable factors of the environment in which it operates. 2005 saw a new Chief Executive being appointed in BA; Willie Walsh, former head of Aer Lingus. The man with an excellent reputation for driving down costs has stressed his determination to realise his predecessors, Sir Rod Erdington’s, goal of a 10% operating margin. 2. 0External Analysis 2. 1 Micro Environment 2. 1. 1 Market Analysis The first thing that needs to be done is to identify which market BA operate in to be able to carryout an accurate analysis.
British Airways’s Environment Essay Example
BA operates in the airline industry. Their main market is hence transportation but they also work in other areas such as communication, leisure and logistics. During the last 10 years the airline industry in the UK has changed out of almost all recognition. Today, according to the International Air Transport Association (IATA), the airline industry is going through ‘the worst crisis in history’ (BBC, 2006) British Airways operates within the highly competitive airline market. The UK market for airlines grew by 1. % since 2003 to reach a value of ? 8. 7 billion in 2004.
The number of passengers flying from UK airports alone has increased from 70 million in 2000, to 86 million. The development of a fifth terminal at London Heathrow testifies this growth. However, against this expanding consumer market, the airline industry continues to struggle with the continuous threat of terrorism, high fuel prices and increased competition. The two main sectors of the market are long-haul and short-haul, both of which BA operate in.
The airline sector is more competitive today than it has been at any time in the past, providing consumers with more choice and cheaper fares than ever before due to the emergence of low-cost airlines British Airways operates within two strategic groups within the airline sector – the short-haul and the long-haul. Each of these sectors has different competitors (see fig 1). One group consists of airlines with regional operations offering scheduled flights and competing on costs.
The second group offer long haul flights, with quality environments and services to a range of destinations. Therefore, BA competes on a global, European, national and regional scale. Within the UK, BA is the largest carrier in the market accounting for 45. 1% of passengers in 2004 (Euro monitor) with Virgin Atlantic being the second largest carrier in the market with 9. 2% market share. It is also likely that long-haul licenses will be granted to low-cost airlines which will enable them to compete in both strategic groups increasing its influence on BA’s strategy (see appendix 6).
In Europe, the UK’s EasyJet and Ryanair were the pioneers of budget airline travel. Their initial business model was based upon offering low fares through outstanding cost management. Lufthansa’s change in strategy will have direct affect on BA as they continue to attract customers for their high quality standards. Another strategy that seems to be emerging amongst traditional carriers is to reduce fares in order to become more competitive with the low-cost airlines. New planes, new routes, additional flights and management changes are all factors that impinge a business.
Such changes made by a competitor need constant monitoring in order for BA to examine its current position and develop future strategies. 2. 2 Macro Environmental (PEST Analysis) 2. 2. 1 Political and Legal Factors The start of the millennium is turning out to be some of the most difficult times that the airline industry has ever faced. The events of terrorism attacks in September 11, 2001 in New York and July 7, 2005 in London along with the wars in Iraq have no doubt caused an unprecedented crisis and political instability.
The events have caused the introduction of new security regulations from the EU and US that come into effect in summer 2006 and a fall in customer travelling confidence. Governments have controlled where airlines can fly, and aspects of their product planning and pricing policies. In recent years, substantial regulatory reform has taken place, giving carriers more opportunity and increasing the market competition. Deregulated companies like BA require systems that enable decisions to be made quickly open skies is an agreement which changes the regulatory landscapes significantly (appendix 1).
A significant legal factor affecting BA is the power of trade Unions. BA has suffered many strike actions (August 2004 and August 2005) and is aware of the implications that the trade unions can cause. Legal regulations on employee rights, customer rights and an upsurge in environmental and ecological issues are more factors that BA must consider. 2. 2. 2 Economic Factors The demand for air travel is characterised by a very high income elasticity. Therefore, as the world economy grows, so the demand for air travel can be expected to increase too.
The political situation in Iraq has helped to drive oil prices to a record high and for BA, the oil price rise might add ? 100 million to their costs. In response, the cost of fuel surcharges is always at risk (appendix 2). BA is in the business of transporting people to and from worldwide destinations for both business and pleasure. If the international economy slows down, business trades less and fewer business people will use planes. Equally, people may choose less ‘exciting’ holidays. 2. 2. 3 Social Factors
The social and cultural influences on business vary from country to country however it is important that such factors are considered and include demographic and cultural aspects. These factors affect customer needs and the size of potential markets. Demographic changes have resulted in the development of the ‘grey’ market who are spending more on leisure and travelling. Lifestyles, tastes and fashions are all changing; customers require opportunities to visit new and interesting, often long-haul, and destinations. 2. 2. 4 Technological Factors
Technology is vital for competitive advantage, and is a major driver of globalisation. A key issue will be the extent to which technological advancements can offset upward pressures on prices and costs. Online sales are regarded highly important by BA and they are placing considerable faith in its website presence to boost online-sales which will reduce customer traffic via BA’s call centres. E-Tickets are now the standard ticket format used by BA, making flight ticketing more straightforward, flexible and secure.