Strategic Analysis of British Airways Executive Summary, Exams of Business

Download Strategic Analysis of British Airways Executive Summary and more Exams Business in PDF only on Docsity! Strategic Analysis of British Airways Executive Summary The airline industry is a highly competitive and mature industry that comprises of legacy carriers such as British Airways, Lufthansa and Virgin Atlantic which traditionally provided full service flights, and low cost budget carriers such as Ryanair and EasyJet which provide a no- frills service (Byrne, 2011). Due to market deregulation in the UK, liberalisation of the EU markets and open sky agreements between the European Union and other countries, both market opportunities and competition have intensified for legacy national carriers such as British Airways, as more of its market share has been encroached upon by an increasing number of market rivals and other market forces (Berechmann and Wit, 1996). Important market dynamics that have resulted in the current industry structure include the emergence of the low cost budget carriers which introduced a different business model into the airline industry by redefining cost structures and operational strategies that were previously taken as industry standards (Wild, 2014). For example, through a radical cost cutting approach, Ryanair and EasyJet were able to democratise air travel and drive down the prices of airline tickets. This involved removal of standard extras such as inflight meals and entertainment, baggage handling, insurance and seat reservations, which were usually provided by as free complimentary services within the ticket price; charging for these services instead and offering customers the option of purchasing flight tickets at very attractive reduced prices (Frankel, 2004). This essay provides strategic analysis of British Airways in terms of its competitive environment and current challenges. The sections covered in the essay include company overview, external and internal environmental analysis based on the PEST Framework and SWOT analysis respectively. The essay also provides TOWS framework analysis which identified market development and market diversification strategic options for British Airways based on the SAF assessment of the recommended option. Strategic Review Company overview British Airways is a global UK legacy carrier, with the largest fleet of aircraft operations in the UK (British Airways, 2017). The airline has a reputation for its focus on customer service, modern business operations, and pioneering technologies for improving customer flight experiences such as happiness blankets powered with fibre optic technology to provide better inflight sleep experiences for customers (LUXE, 2017). British Airways strategy is identified as a differentiation strategy based on Porter’s (1980) framework for classifying competitive business strategies. According to the model, the differentiation strategy consists of a competitive strategy that achieved superior performance over competitors by offering more value, quality, innovation or uniqueness (Porter, 1980). In the case of British Airways, its differentiation strategy is based on quality flight experience and superior customer service (British Airways, 2017). However, the airline also faces stiff competition from low cost budget airlines, in addition to catering to people who would normally not have been able to travel by air, protracted economic recession has made these budget airlines more attractive to a larger customer base, encroaching into traditional market segments that were traditionally dominated by British Airways (Frankel, 2004; Needle, 2010). The budget airlines have also since shifted from offering only no frills services and single class tickets to offering improved customers services, priority and more privileged ticket classes that provided more comfort and travel efficiencies to business class travellers, which also directly competes with British airways for this segment of customers that were traditionally BA favourites (Future Travel Experience, 2014). In order to cope with the increased market competition and its higher cost base and reduced profit margins in relation to the low budget airline, British Airways has had to rethink its strategies by starting to offer reduced frill services and baggage charges on some of their flight routes (Denton, 2016). Weaknesses A major weakness of British Airways is that due to its large fleet operations it has higher operational costs than most of its competitors, including its low cost rivals. This is further compounded by its differentiation strategy which is based on quality, innovation/value added services and exceptional customer services (British Airways, 2017). The airline also has a history of labour issues due to frequent strikes by its pilots and cabin crew over pay disputes resulting in disrupted operations and loss of profits (BBC News, 2019). Recent dispute over pilots’ salary resulted in cancellation of more than 2,325 flights (Topham, 2019). Opportunities Given current poor employee relations history, there is opportunity for British Airways to improve in this area, which will helps to reduced operational disruptions improve reliability of its service. Furthermore, in order to improve its market share, there is opportunity to grow in the short-haul market through forming of the right strategic partnerships with low cost budget airlines that specialise on such routes. Threats Shrinking market share and increased encroachment from budget rivals such as Ryanair and EasyJet remain a serious threat for British Airways. Another serious threat relates to the Covid-19 pandemic, which has greatly reduced international travel and general movement of people (BBC, 2020). Deepened recession in the aftermath of the pandemic is also likely to affect disposable income of both businesses and consumers. Furthermore, the current social trend of meeting online and attending social events online through popular technologies such as Zoom, may have a more lasting effect on people’s view about travelling, which will reduce the need for both domestic and international travel and flights (PMGroup, 2020). Recommendations for Future Development TOWs Analysis The TOWS framework is used to generate the different strategic options that can be pursued by British Airways for the future (Table 1). This includes SO options which show how the airline can use its strengths and opportunities for future advantage, ST options, which shows how the airline can use its strengths to counter the threats in its environment, WO options, which shows how the airline can apply opportunities in its environment to minimise its weaknesses and WT Options, which shows how the airline can aim to reduce its weaknesses and threats. Table 1: British Airways TOWS Matrix Strengths Weaknesses Opportunities SO: Linking strengths with opportunities SO 1. Expand market share in short- haul segment through code-sharing partnerships with low cost budget airlines that already specialise on such routes. WO: Minimising weaknesses with opportunities. WO 1. Arrive at amicable agreement over pilot and cabin crew remuneration to minimise disruptions and profit loss. Threats ST Options: Minimizing threats with strengths. WT Options: Minimising weaknesses and threats. WT 1. Diversify into alternative travel solutions such as advanced virtual meeting solutions for business travellers that can be offered to business class customers and virtual reality environments that can offer entertainment experiences such as parties, festivals to users in any location of their choosing. SAF Evaluation of Recommendations In this section, the generated options are evaluated using the Suitability, Acceptability and Feasibility (SAF) framework (Johnson et al., 2014). Table 2 SAF Evaluation of TOWS Recommendation Strategic Option Market Development Expand market share in short-haul segment through code-sharing partnerships with low cost budget airlines that already specialise on such routes. Operational Improvement Arrive at amicable agreement over pilot and cabin crew remuneration to minimise disruptions and profit loss. Market Diversification Diversify into alternative travel solutions such as advanced virtual meeting solutions for business travellers that Suitability Acceptability Feasibility Yes Yes Yes Will improve market share growth Will provide access to additional customers who mainly travel short haul British Airways already has experience of code sharing with other partners in long haul Yes Yes Maybe Support strategy providing quality service Satisfaction of stakeholders needs including pilots, customers and shareholders May require additional significant investment that may be difficult in short- mid-term due to current Covid-19 crisis. Yes Yes Yes Will help the airline to recapture market share loss due to Covid-19 cultural changes Will minimise losses to British Airways and stakeholders Significant investment in technology will be required. Furthermore, it may lack current technical capabilities in this area. However, this can