History of British Airways
British Airways PLC has been formed by merging British European Airways and British Overseas Airways Corporation in the year of 1974 (Britishairways.com 2018). The company was owned by state by the end of 1987 it had become privatized. British Airways had remained one of the largest carriers all over the world. The organization had been the largest carrier of passengers till the year of 2008 but it was displaced by one of their rivals EasyJet. The U.S. Department of Justice fined British Airways of $300 for price fixing. The organization had been facing financial crisis in 2008 which led to develop a merger with Iberia Airlines which is one of the Spanish giants. However, the agreement was formed based on the conditions that both the companies will keep their separate brand names. British Airways merged with Iberia Airlines in the year of 2011 to developing a new holding company named International Airlines Group (Britishairways.com 2018). This had helped the organization to save them from being bankrupt and the organization has been able to maintain their sustainability in the market. However, recently the British Airways fleet had been grounded for more than 2 days due to failure in information technology system. Therefore, the organization will have to develop strategies for increasing their efficiency of their business model.
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Strategic planning in British Airways and its benefits
As stated by Bryson (2018), strategic planning is an essential component of strategic management and had been used for better management of organizations. The increase in competition in market has increased the level of importance of strategic planning where the success and failure of the organization is dependent on it. Strategic planning has a crucial role to play in the organization. Strategic planning is the driver of all other plans within the organization and all the short term plans are developed based on the long term strategic planning. On the hand, Ginter, Duncan and Swayne (2018) stated that exploration and identification of new market opportunities is known as strategic planning. Therefore, the organization will be able to maintain the objectivity of the activities. Strategic planning will consist of analysis of the macro, micro and internal environment of the respective organization. There are both financial and non benefits attached to strategic planning as it provides opportunities for evaluating the shortcomings and the opportunities.
In case of British Airways, it is essential to continuously evaluate the market and the competitors due to the fast changing nature of the business and the needs of the clients. British Airways needs a proper strategic direction for gaining competitive advantage over the major players in the market. Strategic planning will make the organization aware of the surrounding environment so they will have the option being proactive and reactive depending upon the situation. It is impossible for the company to predict al the uncertainties in the market but strategic planning will provide better adaptability and flexibility (Bryson, Edwards and Van Slyke 2017). Strategic planning will provide better direction to British Airways as the organization will be able to develop realistic objectives and goals that will be consistent with the mission of the firm. BREXIT has impacted the business of British Airways as it reduces the disposable income of the consumers and also the cheap flights such as Wow Air is causing issues for the company as they are strongly increasing their consumer base in the country. These issues can be identified and easily evaluated using the macro and micro environment model, which gives British Airways the opportunity to develop flexible strategies for improving market position.
Importance of Strategic Planning
Moreover, it makes it easy for the company to measure their own progress and limitations of their decision making. Strategic planning will enable British Airways to make decisions that are wise and effective as strategic planning will provide a clear structure and purpose of the ideas. Therefore, the organization will increase their sustainability in the market and increase their profitability. Effective use of strategic planning will unveil the market conditions, service offerings and customer segments. The use of strategic planning tools will provide British Airways with the clear view of the market competition and the strategies they may use to penetrate further into the market. Strategic planning provides deep insights of the internal environment of the organization so they will be able to manage their workforce in effective way and increase the productivity of the firm. Strategic planning will throw light on strategies that are specific to organizational success.
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Role of environmental analysis in strategic planning process
According to Grant (2016), environmental analysis is a key component of strategic planning and provides a wide overview of the current situation of the organization. Environmental analysis consists of evaluation of the macro, micro and the internal environmental of the firm. The macro environment analysis will evaluate the external environment of the organization and will include of PESTEL analysis. The micro environmental analysis examines the internal environment of the organization and includes different models such as porter’s five forces, value chain and Mckinsey’s 7s. The internal environment analysis consists of SWOT which evaluates the strengths, weaknesses, opportunities and threats.
As opined by Fraj, Matute and Melero (2015), environmental analysis provides the organization with the trends, opportunities, challenges, positive and negative issues. This assists in developing effective strategic plan for the future. Strategic planning is one of the fundamental functions in strategic management. It is necessary for a firm to anticipate the problems the organization may face in the future and be prepared for any kind uncertainty in the future. Therefore, environmental analysis is a key in developing the implementation plan and strategic plan. Environmental analysis consist of examining different aspects such as economical, social, technological, legal, political which provides an in depth knowledge about the operating environment.
The financial analysis of the company can facilitate in identify issues in different strategic levels which is essential for identifying the strengths and weaknesses of the organization. Environmental analysis will also include competitor analysis where the different competitors will be evaluated (Wolf and Floyd 2017). In order to develop an effective strategic plan, the organization will have to be aware of the capability of their rivals along with their own capabilities. This is essential as the firm will be able to identify counter measures that they can take against other rivals companies strategies and similarly identify the counter measures that other companies can take against their strategies. Therefore, developing an effective strategic planning strategy planning is essential for gaining competitive advantage in the market
PESTLE Analysis of British Airways
Environmental analysis
Macro environment Analysis
PESTLE
Pestle analysis will evaluate the industry scenario of the British Airways in United Kingdom. This will consist of evaluating the political, economic, social, technological, ecological and legal environment.
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PESTLE ANALYSIS OF BRITISH AIRWAYS
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Political
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The airline industry is subjected to various regulations. These regulations are based on the different routes taken by the organization. In the present scenario, British Airways have been operating in political environment that is challenging. The world has faced terrorist attacks in the past few years which have reduced the number of travelers significantly. Moreover, BREXIT has caused political instability for the organization (Nugent 2017). BREXIT has hampered the relationship with the neighboring along with members of EU. This will lead to weakening on the home currency in respect to the foreign currency which could be a huge problem for British Airways. This means that people will travel less often and the number of the frequent flyers will decrease. However, development of a new runway in the Heathrow Airport will have a positive impact on the operation of British Airways. Even though BREXIT will have a negative impact, there is a positive aspect to it. British Airways will be able to more direct flights to United Kingdom and other destinations.
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Economic
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The economic impact of BREXIT will be huge on British Airways. The annual report of British Airways in the fiscal year of 2016 shows that depreciation in pound and sterling more revenue has been generated but the overall impact on the financial result of the organization is negative due to the negative impact of exchange (Cesa-Bianchi, Thwaites and Vicondoa 2016). Similarly, British Airways profited due to decrease in interest rates and fuel cost which has increased the growth rate in competition and market capacity.
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Social
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The organization faced operational difficulty due to the airline traffic controller attack in France. France was hit by ATC union which caused cancellation of flights to and over France. This social unrest has hit the organization time after time; the same incident affected the organization due to similar strikes in the fiscal year of 2017 (Muldrew 2016).
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Technological
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There has been relative stability in the airline industry but current market trends shows that there is digital disruption. These have changed the cost structure of the industry significantly. The new firms using digital technology are causing issue for well established organization (Mokyr, Vickers and Ziebarth 2015). These consist of technologies such as advanced fuel efficient fleets and internet booking system. Thus, these new competitors (WOW Air) in the market are able to provide the consumers with international and domestic flights at cheaper rates. British Airways have been working their way to reduce the impact of digital disruption by investing technological equipments that may reduce the gap significantly in the upcoming years.
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Legal
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The organization had been planning to introduce paid-for-meals but was forced to delay due to threats from consumers seeking legal actions (Österle 2017). The organization had to delay it because of many claims of advanced bookings from different customers.
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Environmental
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The weather conditions have a deep impact on the operation of the organization as adverse conditions leads to the delay of flights. On, the other hand. The organization had to maintain the regulatory laws of environmental protection and safety. The harmful emission of greenhouse gases and other environmental factors will have to be monitored. Therefore, developing sustainable practice according to the requirement of the regulatory body is essential.
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Table 1: PESTLE ANAlYSIS
Micro environment analysis
Porter’s Five Forces
Porter’s five forces analyze the internal factors affecting the organization which could be mitigated and applies only to the organization.
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PORTER’S FIVE FORCES OF BRITISH AIRWAYS
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Bargaining power of the buyer
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The bargaining power of the consumers is high in the market. There is high level of competition in the industry and due to the absence of switching cost increases their bargaining power (Mills 2017). The consumers have become more sensitive to prices so they compared different prices before making a booking. These has decreased the consumer base and holding onto the existing consumer base is tough as they will choose flights providing them with a better deal at that current time.
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Bargaining power of the supplier
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The bargaining power of the suppliers in the industry is high and there are few numbers of suppliers in the industry. British Airways requires aircrafts, fuel and labors from their suppliers so it is essential for them to maintain good and long-term relationship with their customers (Belobaba, Odoni and Barnhart 2015).
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Competitive rivalry
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The level of rivalry is high in both domestic and the international market. British Airways faces intense competition in the international level which service quality and the prices (Mills 2017). Similarly, in the domestic market there are companies offering better deals than British Airways so they have to remain prepared and respond immediately in order to maintain their competitive advantage in the market.
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Threat of substitution
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The threat of substitution in the market is moderate and all the pother means of transport are the substitute products for the organization. The consumers may prefer to use trains, buses and ships as their mode of transport and is totally dependent on the perceived value of the product (Belobaba, Odoni and Barnhart 2015). However, some of these consumers may not be the target consumer of British Airways as they may be more sensitive to price than time and convenience.
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Threat of new Entrant
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The threat of new entrant in the market is quite low when compared to other industries in the market. Airline industry requires huge investment in this field. The number of established airlines in the industry is large and due to less product differentiation it is difficult to gain competitive advantage in the market. As it is difficult to acquire consumers in the market, the barrier entry is high.
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Table 2: PORTER’S FIVE FORCE
SWOT
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SWOT ANALYSIS OF BRITISH AIRWAYS
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Strength
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· A considerable amount of experience in the industry
· Parent company is one of the biggest revenue generator in the world
· Strong Awareness of the brand
· Strong support from the government
· Strong infrastructure and technological support
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Weaknesses
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· Highly dependent on the United Kingdom market
· Employee union
· Less amount of penetration in the global market
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Opportunities
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· Global market is expanding
· Smaller players unable to maintain their market sustainability
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Threats
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· Major competitors in the global market
· Change in government regulation
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Table 3: SWOT analysis
(Source: As created by Author)
The SWOT analysis of British Airways provides a clear view of the company strengths, weaknesses, opportunities and threats. As the organization has been in the industry for a long time, their experience is a major strength of the organization. This has the reason for their strong consumer base and the number of loyal consumers. The parent company IAGC international airlines provide stability in terms of financial and organizational capabilities. In overall, the organization is a comfortable position in terms of consumer base and stability in United Kingdom. However, these factors are weakness to the organization as they are totally dependent on the United Kingdom market. Globalization has increased the number of global players in the market. The organization is more focused on the local market their penetration in the global market less especially in developing markets such as China and India. These developing countries have high disposable income so tapping into this market may provide competitive advantage to the organization. The global airline industry is expanding rapidly and British airways have the opportunity of capitalizing on the global market (Mallikarjun 2015). On the other hand, the competition in the global market is intense and the organization will face threats from the major global players. Moreover, while making an expansion in the global market, the organization will have to properly analyze the target market and their government regulation which is one of the major barriers to entry for the organization. British Airways will develop diversified products based on the needs of the consumers as the study shows that consumers are sensitive to prices, the organization will provide cheaper flights. In order to do so they will use innovation into their business model to improve the operating margin. This will enable them to provide services at cheaper prices.
Recommendations
British airways will have applied the following strategies to have a better chance in the global and as well as the local market. People process Involvement is a key to providing the consumers with better service quality. The organization has been in lime light for all the wrong reason where they were criticized for their delay in flight schedules, poor handling of baggage and inappropriate handling of human resources. There make improvement in these processes will facilitate in rebuilding the brand. The use of innovation has to be increased and continuous innovation is necessary to maintain sustainability in the international market. The organization will also have to focus on improving the safety of their flights which is one of the biggest concerns of the consumers. British Airways should use the lean management system to improve their operations. They should also include the use of big data analysis which will provide them in depth knowledge about the internal weaknesses and the changing pattern in buying behavior of the consumers. Therefore, based on this the organization will have to develop an implementation plan which define the activities require to fulfill the strategic objectives.
Conclusion
The conclusion that can be drawn from the report is that British Airways have a strong hold in the United Kingdom market but their global presence is poor. Therefore, the organization will have to capitalize on the market opportunities so that they can increase their penetration in the foreign market. British Airways will have to utilize their strengths and take advantage of the competitors’ weaknesses to increase their market share. The report has been able to highlight the importance of strategic planning and its use to identify suitable strategies for any organization.
References
Belobaba, P., Odoni, A. and Barnhart, C. eds., 2015. The global airline industry. John Wiley & Sons.
Britishairways.com 2018. About BA | British Airways. [online] Britishairways.com. Available at: https://www.britishairways.com/en-gb/information/about-ba [Accessed 23 Mar. 2018].
Bryson, J.M., 2018. Strategic planning for public and nonprofit organizations: A guide to strengthening and sustaining organizational achievement. John Wiley & Sons.
Bryson, J.M., Edwards, L.H. and Van Slyke, D.M., 2017. Getting strategic about strategic planning research.
Cesa-Bianchi, A., Thwaites, G. and Vicondoa, A., 2016. Monetary policy transmission in an open economy: new data and evidence from the United Kingdom.
Fraj, E., Matute, J. and Melero, I., 2015. Environmental strategies and organizational competitiveness in the hotel industry: The role of learning and innovation as determinants of environmental success. Tourism Management, 46, pp.30-42.
Ginter, P.M., Duncan, J. and Swayne, L.E., 2018. The Strategic Management of Healthcare Organizations. John Wiley & Sons.
Grant, R.M., 2016. Contemporary strategy analysis: Text and cases edition. John Wiley & Sons.
Mallikarjun, S., 2015. Efficiency of US airlines: a strategic operating model. Journal of Air Transport Management, 43, pp.46-56.
Muldrew, C., 2016. The economy of obligation: the culture of credit and social relations in early modern England. Springer.
Nugent, N., 2017. The government and politics of the European Union. Palgrave.
Österle, A., 2017. Equity choices and long-term care policies in Europe: Allocating resources and burdens in Austria, Italy, the Netherlands and the United Kingdom. Routledge.
Wolf, C. and Floyd, S.W., 2017. Strategic planning research: Toward a theory-driven agenda. Journal of Management, 43(6), pp.1754-1788.
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