British Airways Plc. is one of the largest airlines of United Kingdom, which is also internationally scheduled. The company was privatized in 1987. However, International Airline Group Plc (IAG) that was formed in 2011 owned British Airways Plc. Along with the transportation of the passengers, it also operates domestic and international freight and mail and other additional services. The company has grown along with the mounting competition over the years. It has presently pioneered in green technology adaption and eco-friendly strategy, which helped it to reduce greenhouse gas emission. The paper will focus on discussing the external environment and the internal strategic position. Moreover, the paper will identify the major factors behind the change of British Airways and its implications. While explaining the external environment discussion will be made on market segmentation of the company; PESTLE analysis and Porter’s 5-forces. It will also review some critical success factors. In order to discuss the internal strategic position, the paper will focus upon the basis of competition; activities and resources of the company; culture of the company; stakeholders of the company. It will also make a comparison with the competitors in the airline industry.
Market Segmentation:The process of dividing the total market into different sub-market for a particular product is known as market segmentation. A company segments its market according to the specific characteristics of its consumers (Malaval, Benaroya and Aflalo 2014). The customers differ in many ways; in terms of their resources; choice; location; buying practices etc. Through segmentation of the market, the British Airways divide its large heterogeneous market into smaller sub-markets. They disaggregate the market according to the age; occupation; income and nationality. British Airways groups the customers according to their needs and wants. Some of the common market segmentation practices by British Airways are as follows:
It provides additional benefit for the high class. For example, benefits like Club Card.
People from business class prefer to travel in British Airways as the airfare is too costly.
This airline company provides private jets for wealthy people for national and international level. This satisfies the well-being of the niche market.
They offer services to cluster of individuals according to their common needs. For example, it provides four different services to different customers, such as, economy; premium economy; executive and first class.
Limited discount is provided to the children between the age group of 2 to 12 years.
There are many more bases of segmentations made by this airline. British Airways also segments it market in terms of geographical; demographical; psychological and behavioral variety.
To understand the external environment, it is required to do a PESTLE Analysis of British Airways Plc.
Political: Political condition affects the airline companies. For example, a war with Iraq led to decline and cancellation of flights to Iraq. The air control and security has increased over the past few years due to terrorism; bombing and hijacking of flights. Government has imposed heavy regulation and limitation on airline schedule for security measure, which made operation of the airlines difficult (Walters 2016). This results into heavier costs of the British Airways. The engagement with trade union also affected the British Airways. However, in spite of the limitations the security measures are helpful to increase the confidence of the consumers in the airline company that assures a safe journey.
Economic: The economic factors also affect the British airline company. For example, due to global economic crisis, the business of the British Airways was badly affected. The global growth was only 2% annually. The British pound declined against Euro during this period, which badly affected the company. Along with this the consumer spending has declined that led to fall in number of passengers. However, landing charge has also increased that is beneficial for the existing companies like British airways, as it creates barrier to entry of new firms. Hence, this condition is favorable for British Airways.
Social: The population of United Kingdom is aging. This can be beneficial to the British Airways, as the retired people are more willing for a vacation and travel frequently (Tribe 2015). However, the country’s unemployment level is quite high, which prevents the company to increase its fare. The airline companies are also affected by the social and cultural influences. When the airplane reaches to a different country, it has to follow etiquette of that particular country. For example, a flight to Pakistan should not include pork in the in-flight meal.
Technological: The online booking services and check-ins have become the industry standard, which has reduced the cost and increased the competition. All other competitors are using this technology. Hence, the British Airways is not alone. This industry is constantly innovating new technology not only to improve the service and to improve the security measure. However, the company cannot ignore the offline procedures due to the older generation and other customers who are not technology-savvy. British Airways have invested in Lotus technology than includes the use of UNIX and other database application.
Legal: Legal dispute due to the strike of the Cabin Crew cause to be an unstable legal platform to the company. British Airways has affected by many strikes and the engagement with the trade union causes many problems to the company. The legal regulations on customer rights and employment rights also affected the company adversely. Merging with American Airlines causes a number of legal proceeding that were costly and also caused distraction from the main business f the company. Ceiling has been imposed on the flying hours of the pilots; hence this airline cannot force the pilot to fly more than the particular hours.
Environment: The consumers are conscious regarding the environment and they ethically they choose services or products that are more environment friendly. Moreover, the environment policies like energy consumption and noise control has been debated for a long time. Moreover, the land expansion for Heathrow airport has causes land acquisition issues. Hence, to become more competitive it is important to develop a more pollution free business (Chang, Park, Jeong and Lee 2014). The new flights emit less pollutes gases, so the British Airways is enjoying an added advantage.
Five Forces model developed by Michael Porter helps to analyze the situation of the company in the competitive market. The five forces are: Threat of new entrants; Bargaining power of buyers; Competitive rivalry; Bargaining power of suppliers; Threat of Substitutes.
Figure 1: Porter’s Five Forces
Source: Mindtools.com 2016
Threat of New Entrants: There are significant barriers to the new entrants, as the cost of setting up this business is too expensive (Alderighi, Cento, Nijkamp and Rietveld 2012). It requires too high capital involvement. Moreover, this industry has barriers to exit hence new firm cannot enter. The failure of XI and Zoom discourages the new entrants. LOW
Bargaining Power of Buyers: There is lack of communication between buyers and sellers, which mean consumers have less bargaining power. However, due to increase in the use of internet, the scope of interaction has evolved and customers of airlines try to find better offers. They are highly price sensitive. MEDIUM
Competitive Rivalry: The differences with competitors in terms of price of long haul flight are insignificant, which implies a high competition in fare of the flight. In short distance travels also, there are many low cost airlines that are increasing the completion in this industry. Moreover, it faces tough competition from the US airlines and European airlines (Hannigan, Hamilton and Mudambi 2015). HIGH
Bargaining Power of Suppliers: The suppliers of aircraft have high bargaining power. Costs of switching on supplier to another are very high. Hence, aero-plane manufacturers like Boeing and Airbus are quite powerful. Moreover, the British Airways is restricted to a supplier of fuel to its airport. HIGH
Threat of Substitute: There is no direct replacement of air flight travel. However, Eurostar or Ferries can replace short haul flights, but they are time consuming and costly sometime. But for long journey there is no such alternatives. Hence, British Airways faces no threat of substitutes. LOW
The Critical Success Factor of British Airways has been identified that is, timely arrival and departure of the airplanes. Moreover, having committed sponsors an active champions are important criteria for success. Moreover, their attention towards the employees has developed the employees’ loyalty. Some other critical success factors of this company are consumer loyalty; strong brand image; sensitivity to changing market needs etc.
With the help of three approaches, a company can attain competitive advantage. The strategies are: Cost leadership; Differentiation and Focus.
Cost Leadership: To compete in the market, it is necessary for the company to produce at lower cost. The loss of £401 million, forced the British Airways to cut down its cost of production. After the loss has made, the company reduced its allowances for three years. In order to cut down its cost as much as possible this company has closed some routes that were not beneficial.
Differentiation: British Airways has emphasized on differentiating its product and services. By setting up a high price and providing a high quality of services, it tries to mark the differentiation. They provide “drink to phone” free to the premium passengers and sleeper service to its first-class travelers. To improve their services, this company provides training to its employees. British Airways emphasises on this strategy to create significant brand value.
Focus: By adopting this strategy, the company would like to focus on a particular market segment, in which the degree of competition is less. In British Airways, the focus market is the niche market. These segments of people are less affected by the price but prefer to have high-class quality of services. Therefore, by focusing on this segment the company is able to gain a lump sum profit by boosting up the sale and raising customers’ satisfaction.
Figure 2: Porter’ Generic Strategies
Value Chain and Resource Based view:
In order to be efficient in the market, the British Airways tries to reach maximum level in the value chain. By forming ongoing association with the suppliers; sophisticated methods of stock control the British Airways has attained competitive advantage in inbound logistic. Moreover, by preparing new services for customers like, security for luggage; quick check-ins etc. this company has competitive advantage in the operations. Through excellent customer services, it has gained competitive advantage in outbound logistics. British Airways includes not only the customers in their marketing activities, but also the stakeholders of the firm (Hill, Jones and Schilling 2014). Moreover, in order to achieve competitive advantage British Airways has recognized post-sale services as an important tool. It enjoys economics of scale and technological development by the company has placed it in a better position in the value-chain system. Moreover, providing job satisfaction to the employees and with a good infrastructure of the firm, the company gained competitive advantage in the industry.
British Airways has tangible resources like, 260 aircrafts over 550 different places and intangible resources like worldwide database of the customer. The company provides security training and ground level training (Britishairways.com 2016). Its capability to fly passengers securely has increased its competencies. It also has tangible resources, like monopoly over Heathrow Airport. Its recognition as premium and reputable brand in the world is another unique resource (Grundy and Moxon 2013). It also have core competencies in its services, as its subsidiary “Open Skies” does not allow 64 passengers per flight with 1 assistant per 12 travellers. However, to achieve competitive advantage the resources should be Valuable; Rare; Inimitable and Non-substitutable (VRIN). The British Airways has used this VRIN model to gain above average profitability and outsourced routine activities (Daft and Albers 2015). This helped the company to reduce costs with high service quality and a better focus on core business.
Cultural Web is useful for identifying the features of organizational culture and the values that support the culture (Geisler and Wickramasinghe 2015).
Figure 3: Cultural Web
Source: Mindtools.com 2016
British Airways had an apathetic culture. However, its extensive customer support programmes revamped the old image and the consumers welcomed this cultural shift positively (Coller, Helms Mills and Mills 2015). It has restructured the company by adopting livery and logos; staff training etc. the company got involved in the advertisement. It is believed that the cultural symbol changes the inherited perceptions. The new cultural shift was introduced by the then CEO Colin Marshall. Various training events; following up his promises; his presence in the events with staffs signaled how involved he was and how serious he was about the change (Shukla 2013). The culture of the organization towards providing excellent services has become the practice of the British Airways.
The stakeholders of British Airways can be assessed using Power and Interest Matrix (Davis 2016). The combinations of stakeholders of British Airways are as follows:
High interest – High power: Employees; Competitors; suppliers etc.
High Interest –Low Power: Creditors; on-air internet service providers
Low interest- High power: Government; Customers
Low interest- Low power: Charities
Virgin Atlantic; Jet Airways etc. are major competitors of British Airways. BA charge a high rate for its business class passengers, whereas, the competitors charge moderate price for the travelers. The high price charged by BA has no hidden cost unlike the competitors. However, BA used to maintain its enigma by setting high price for trip, until present as it offers cheaper fares on some selected routes for the passengers who travel without checked luggage. More choice is now given in order to compete with Ryanair and Easyjet. Moreover, the British Airway faces competition from several European airlines; hence, it has reduced its cost of fares.
The internal environment analysis of the company sheds light on the fact that British Airways is in an advantageous position. The resources of the company are VRIN. By analyzing the value chain of the company, it has been identified that company has achieved competitive advantages in many aspect. Its strategies of differentiating its product from its competitors; focusing on the target market; changing in the culture helped the company to grow and compete with the low-cost competitors.
The key drivers for the change in British Airways were technology; education; world trade and world finance. The changes in information technology have fundamentally affected the British airways. BA has competitive advantages over other companied of this industry. Moreover, the customers’ needs and preferences have been changing due to globalization. The customer satisfaction is the key factor behind the British Airway’s success. The commitment of this company has led to achieve long-term growth in the revenue. The progressive, high-performing employees are committed to this organization and they are willing to embrace change and improve in the performance of British Airways. The company focused on the technology innovation to make its service more efficient and innovative to the customers. The caring attitude of the company and its efficient trained employees are major factors behind the change in the British Airways. The creative innovation, increasing competition has driven the change in the organization.
The changes in the British Airways were highly accepted by the customers as well as the employees hype (Lange, Geppert Saka-Helmhout and Becker-Ritterspach 2015). The change in organizational culture created. However, in reality it has been argued that there are discrepancies between the promises of the company and the actual practice. However, the changes in the customer service affected the sales of this company. The BA has generated huge brand value and customers’ loyalty.
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