Airline Strategy - Sample Essay
British Airways plc (LSE: BAY) is the national airline and flag carrier of the United Kingdom and one of the largest in Europe. Its main hubs are London Heathrow and London Gatwick. British Airways holds a United Kingdom Civil Aviation Authority Type A Operating Licence, and is permitted to carry passengers, cargo and mail on aircraft with 20 or more seats. The British Airways Group was formed on 1 September 1972 consisting of BOAC and BEA. These two companies were dissolved on 31 March 1974 to form British Airways (BA). The company was privatised in February 1987.
It expanded with the acquisition of British Caledonian in 1988 and some of the routes of Gatwick-based carrier Dan-Air in 1992. For a number of years the airline was a mainly Boeing customer, in November 1998 it placed its first direct order for Airbus aircraft. The company’s next major order was the start of its replacement of its long haul fleet, ordering Boeing 787s and Airbus A380s in 2007. In 2008 BA unveiled its new subsidiary Open Skies which will take advantage of the liberalization of transatlantic traffic rights, and fly non-stop between major European cities and the United States.
Operations are expected to begin with a single Boeing 757 in June 2008. Source: www. ba. com Investor Relations Mission Statement The British Airways mission statement in its own words is that it “is aiming to set new industry standards in customer service and innovation, deliver the best financial performance and evolve from being an airline to a world travel business with the flexibility to stretch its brand in new business areas. ” Corporate Responsibilities In November 2007, BA created a new corporate responsibility department, bringing together their former Community Relations and Environment teams.
The CRB includes representatives of health and safety, as well as people with responsibility for emerging issues such as climate change, whistle blowing, responsible procurement and fuel management. The CRB, which meets quarterly, is supported by the Corporate Responsibility Team and Corporate Responsibility Champions drawn from across the business. Their work is further supported by a variety of steering groups including health and safety, diversity, disability, procurement, fuel, environmental management and information technology. BA approach to corporate responsibility has three main components – the vision, goals and programme plan.
The activities are centered in four key areas: Workplace – ensuring of providing sustainable employment for current employees and become the employer of choice for future employees; Marketplace – working with suppliers and customers to build a more sustainable business Environment – making sure of minimizing their impact on the environment, including their contribution to climate change, air quality, noise and waste; and Community investment activities – supporting diverse projects that help to make communities in the UK and overseas more sustainable.
They have identified performance goals to measure the progress in each of these four areas. Finally, they have developed a programme plan containing over 80 programme level activities and several hundred individual projects aimed at delivering their corporate responsibility strategy. Resources On 18 May 2007, BA announced that it has placed a firm order with Airbus for eight new A320 aircraft. The new aircraft are due for delivery from 2008. They will be delivered to LHR displacing A319s to LGW which in turn will replace elderly Boeing 737-300/500, the leases on which expire at this time.
On 27 March 2007, British Airways placed a firm order for four 777-200ER aircraft with an option for four more, with the order totalling more than US$800 million at list price. The company has stated that these are for fleet expansion. BA’s first batch of 777 were fitted with General Electric GE90 engines, but BA switched to Rolls Royce Trent 800s for the most recent 16 aircraft. This has been continued with the most recent 4 orders as Trent 800 engines were selected as the engine choice. On 27 September 2007, BA announced their biggest order since 1998 by ordering 36 new long haul aircraft.
The company ordered 12 A380s with options on a further 7, and 24 Boeing 787s with options on a further 18. Rolls Royce Trent engines were selected for both orders with Trent 900s powering the A380s and Trent 1000s powering the 787s. The new aircraft will be delivered between 2010 and 2014. The Boeing 787s will replace 14 of British Airways’ Boeing 767 fleet and the Airbus A380s will replace 20 of BA’s oldest Boeing 747-400s and will most likely be used to increase capacity on routes to Bangkok, Cape Town, Hong Kong, Johannesburg, Singapore, and Sydney from London Heathrow.
SWOT Analysis Strenghts The most obvious strength for BA is the fact that they are the largest Ari Line in the UK and third one in Europe after Lufthansa and KLM / Air France joint venture. As per BA strategy they are a member of “One World ” which includes lots of other giant in the industry such as Qantas and Cathay Pacific . London is one of the most busiest hub for international travelers and BA can take great advantages of using Heathrow and Gatwick as it’s base . Particularly after moving to the new terminal 5 which is one of the most sophisticated terminals in Europe .
British Airways has always tried to keep it’s average fleet age lower than other competitors and currently maintaining 10 years . In addition, BA has purchased two of Boeing Dreamliner to be used for frequent destination and Airbus A380 for using the long journeys . British Airways brand name and it’s professional crew could be considered as one of their most important factors which helps them to keep their competitive advantages over the other competitors . Having a strong customer loyalty program through the frequent flyer schemes can be considered as strengths .
Weaknesses British Airways has been plagued by difficulties in recent years. The Association of European Airlines reports that BA is the worst airline for lost and delayed baggage, losing over twice as many bags as the average. They are also the worst airline for punctuality of short/medium haul flight departures and arrivals and ranked 17th out of 21 airlines for long haul delays. Many of BA’s problems stem from being based at London Heathrow airport which has become crowded and subject to delays.
In 2007 Heathrow was voted the world’s least favourite alongside Chicago O’Hare in a TripAdvisor survey.  The opening of their new terminal, Heathrow Terminal 5 was heavily criticised by politicians, unions, airlines and passengers as an operational disaster. Hedging fuel price is one of the effective tools for avoiding surprises , however; British Airways has not invested in hedging enough . British Airways has not realy differentiated itself with low cost careers . It is almost imporssible for BA to compete on price and therefore.
BA needs to come up with prodcuts that can be Opportunities Purchase of new aircrafts means more routes and services could be provided . With airplanes such as A 380 BA would be able to have more frequent flights to the popular destination and probably put hands on new destinations . The low budget career which is a threat can be seen as opportunity as well , BA has tried to cut expenses to be able to compete with low budget air lines which means BA is utilizing it’s resources in a more efficient way . The general the demand for flights has increased substantially and it is going to grow. Threats
One of the major threats to all Air Lines including British Airways is high oil prices which has effected their profitability is a big way . Low Cost Careers are another threat to British Airways. Environment concern could be another threat if BA or in general Air Line industry does not find an alternative for fuels . Open sky policy could be a burden for British Airways . PESTEL-C ANALYSIS Political & Legal Factors Post 9/11 there has been a lot of security concerns regarding travel by air. This has led to a tightening of security at all departure and arrival points for most major airlines.
The UK has been a major target for terrorism in the few years after 9/11 due to its involvement in the ‘war against terror’ therefore all commercial airlines operating out of the UK have been facing business challenges to make sure their flights are safe yet are able to generate enough profits to keep flying. There have also been terror attacks in London with numerous bomb scares at airports and travel hubs such as the underground rail-tube network. This has also led to stringent measures for passenger profiling before anyone flies to any of the UKs major airports.
This further places and economic burden on airlines such as British Airways who would like to maintain profits. In the UK, the Civil Aviation Authority has given the approval to London’s Heathrow Airport to charge Airlines 15. 6% more from 2008, but in turn would like to see its security procedures run smoother and faster to prevent delays. Some airlines, such as the British Airways who operate out of all major UK airports will find this decision favorable as opposed to competitors. Economic Factors The rising price of oil and fuels has been affecting airlines such as British Airways in a big scale.
They constantly have to monitor and review their pricing in light of the price of crude oil. With per barrel pricing hitting as high as 130USD per barrel, passengers have to cancel vacation plans because air travel is becoming expensive month on month. The oil price coupled with the price of the dollar is becoming a restrictive factor in promoting trans-continental business and tourism thus creating a slow-down in the world economy in general. The euro-dollar exchange rate currently favours European travelers which means that all in-bound flights from the US will not be operating at optimal capacity.