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Saturday, 19 November 2011

Strategic Management of British Airways Company

Strategic Management of British Airways Company


 


Introduction


            Transportation plays an essential role to the success of many businesses and organizations. Without efficient transportation, many supplies and raw materials will not be brought from one place to another. It has been reported that humans have always needed to get around from place to place, making the act of walking a limitation on the distance traveled and the things they could carry. Consider the innovations that help humans travel around and transport cargo, including automobiles, ships, and airplanes (2006). Through these innovations, humans were able to effectively and efficiently move from one place to the next with the convenience of bringing luggage and cargo.


Today, through transportation, humans were able to make trade relations with one another. Many business organizations make it a point to travel to different cities and countries to promote their products and services. Traveling and promotion are now part of an organization’s strategic management. From this, airlines play a major importance in the success of business organizations around the world. Business organizations are able to widen their market by traveling to different places via the airlines. Their importance leads us to evaluate their strategies in dealing with their business. This paper aims to discuss the strategic management of a specific airline company and assess its effectiveness in the business.


 


British Airways Airline Company


            It has been reported that the British Airways is the largest airline of the United Kingdom and one of the largest in the world, with more flights from Europe across the Atlantic than any other operator ( 2006). British Airways flies to over 550 destinations and to more than 130 countries worldwide, including London, major European centers such as Paris and Frankfurt, and Asian hubs like Hong Kong, Singapore and Bangkok (2005). This airline is synonymous with excellent service and quality and has always been regarded as a leader in the airline industry, and serves more than 35 million passengers annually. Its history traces back to 1924 when the five small British independent airlines merged under state guidance to form Imperial Airways. At present, British Airways operates out of London’s two main ports, namely Heathrow, which is the world’s largest international airport, and Gatwick (2005).


            For its travel classes, the British Airways offers four cabins. The first cabin is complete with fully flat seats, each in its own cocoon-style area with a seat for a companion to join the passenger for meals or for a chat. The second cabin is called the Club World, having flat bed sleeper seats. The third cabin is the World Traveller Plus, a premium economy services, offering more room in-flight and dedicated check-in desks, and the last cabin is the World Traveller, which is the airline’s economy, or coach class ( 2006).   


 


Strategy Review of the British Airways


            Strategic management is that set of managerial decisions and actions that determines the long-run performance of a corporation, and includes aspects such as environmental scanning, strategy formulation, strategy implementation, and evaluation and control ( 2006). Strategic management is important for every business, as it determines its success in the market, in its formulation and implementation of projects. One of the strategies of airlines is alliances or merges. Alliancing in airline industry seems persistent, as every international airline is forging alliances of some form, which can be traced as far back as the 1940s (2004). From a strategic perspective, airline alliances have become an inherent part of the task environment of airlines (2004). Alliances are beneficial for airlines in its control and maintenance on the business. Similarly, this strategy was adopted by the British Airways for better service. On March 31, 1924, Britain’s four airlines, namely, Instone, Handley Page, Daimler Airways, and British Air Marine Navigation merged to form Imperial Airways (2006b). However, during this time a number of smaller UK airline companies had started their operations, so in 1935, these airlines merged to form the original privately owned British Airways Ltd. The British Government in 1939 nationalized the airlines and after the Second World War, the airlines were combined to form the British Airways in 1974 (2006b). The driving factor behind alliances is long-term profitability, and their formation tends to be for strategic reasons, such as accessing larger markets, establishing global brand loyalty and building hub-to-hub traffic (1998). This move is advantageous for the airline to service more passengers and establish market reputation. Alliances or merges are part their strategic management plan, as being part of the strategy formulation and implementation. Strategy formulation and implementation is an on-going, never-ending, integrated process requiring continuous reassessment and reformation, is dynamic, and involves a complex pattern of actions and reactions ( 2006). Being dynamic, airlines tend to always innovate and improve their actions to further enhance the quality of their service.


            In addition, another way for the British Airways to cope with serious competition from other airlines, it continuously provides itself changes and innovation for better services. Strategic management, having its characteristic of being dynamic and complex, enables the British Airways to accommodate change. This change is done by improving the amenities of the airlines and developing new information systems as added services. It remains to be the world’s international airline and the first airline to offer jet passenger services, the first to operate weather-beating auto landings, the first to offer supersonic passenger services, and the first in the modern era to offer fully-flat beds (2006c). Due to the mentioned services, the British Airways were able to build a good reputation in the market and gain the trust of many customers. These has widened their industry and made the airlines to be “the world’s most favorite airline”.


 


Core Business


             British Airways is based at London Heathrow Airport in London, England, and has a commanding presence at Gatwick and Manchester International Airport. It has succeeded in dominating Heathrow to the point that the airport is commonly referred to as Fortress Heathrow within both the airline and its competitors (2006a). It serves flights to destinations in the United States of America, Canada, Australia, New Zealand, South Africa, Singapore, Hong Kong, Thailand, Malaysia, India, France, Germany and other major countries around the world.


            Currently, British Airways has a modern fleet with an average age of 9.7 years, and consists of Airbus A319-100, A320-100, A320-200, Boeing 737-300, 737-400, 737-500, 747-400, 757-200, 767-300ER, 777-200, and 777-200ER (2006b). The type of aircraft, aircraft number, capacity and destinations are shown in the table.


 


Type


Number


Seats


Notes


Airbus A319-100


33


126


Short haul European and UK domestic routes


Airbus A320-100


5


149


Being replaced by Boeing 737-500


Airbus A320-200


21
(7 on order)


149-150


Short haul European and UK domestic routes


Airbus A321-200


7
(3 on order)


194


Short haul European and UK domestic routes


Boeing 737-300


5


126


Short haul European and UK domestic routes


Boeing 737-400


18


147


Short haul European and UK domestic routes


Boeing 737-500


9


110


Short haul European and UK domestic routes


Boeing 747-400


57


351/291


Long haul international routes


Boeing 757-200


13


180


Short haul European and UK domestic routes


Boeing 767-300ER


21


181-252


Long haul and short haul routes to the Caribbean, the USA and Europe


Boeing 777-200


27


219-224


Long haul routes


Boeing 777-200ER


16


274


Long haul routes


From ( 2006a)


 


            Moreover, the British Airways have franchises from other airlines including the British Mediterranean Airways since 1997, the COM air in South Africa since 1996, the GB Airways of UK since 1995, the Loganair in UK since 1994, and the Sun Air in Denmark since 1996 (2006a). Due to these alliances, the British Airways were able to produce large sum of profits, shown in the table below.


 


Year ended


Passengers flown [4]


Turnover (£m)


Profit/loss before tax (£m)


Net profit/loss (£m)


Basic eps (p)


31 March 2006


35,634,000


8,515


620


467


40.4


31 March 2005


35,717,000


7,772


513


392


35.2


31 March 2004


36,103,000


7,560


230


130


12.1


31 March 2003


38,019,000


7,688


135


72


6.7


31 March 2002


40,004,000


8,340


(200)


(142)


(13.2)


31 March 2001


36,221,000


9,278


150


114


10.5


31 March 2000


36,346,000


8,940


5


(21)


(2.0)


31 March 1999


37,090,000


8,915


225


206


19.5


31 March 1998


34,377,000


8,642


580


460


44.7


31 March 1997


33,440,000


8,359


640


553


55.7


31 March 1996


32,272,000


7,760


585


473


49.4


From (‘British Airways’ 2006a)


 


Strategic Changes


            Demand for air travel has declined since four planes were hijacked and used to attack the World Trade Center and the Pentagon. The world’s favorite airline, the British Airways, is one of the airlines that have been forced to cut jobs and routes ( 2001). Due to the incident, more problems bombard the company, such as the global slowdown in the travel industry, the lower demand for bookings, fuel costs rise sharply, insurance costs going up, and higher airport taxes ( 2001). From these obstacles, the company saw the need for strategic changes in attracting the market.


            As a solution to this decline, the airline offered improved amenities, including sleeper seats, in an attempt to lure business travelers at the expense of economy class customers ( 2001). It has unveiled £600 million worth of new customer services and products, which is the biggest investment of its kind in airline history, including flat beds in its ‘Club World’ long haul business cabin. Furthermore, the airline has added legroom in its ‘World Traveller Plus’ section. With this sections, British Airways passengers can now upgrade from traditional economy on extended flights without paying for a Club ticket (  2005).


            In addition, due to the arising problems in the company, the president, Bob Ayling attempted to have a merger with American Airlines, but failed due to regulatory problems ( 2001). With this, different presidents of the company did many more attempts to revive its reputation and decreasing performance.


            Moreover, in 2005, Cisco Systems and Prime Business Solutions announced a major network convergence project for British Airways to improve its communications for 14,000 offices and airport staffs. This project marks the sale of Cisco’s five millionth Internet Protocol (IP) telephone system, which is being developed and implemented by Cisco Gold Certified Partner, Prime, and will be the largest of its kind in the airline industry worldwide ( 2005). This improvement in the system of British Airways reduces costs and improves productivity through the integration of all voice and data communications onto a single network. It allows British Airways to remove the cost of inter-office telephone calls and will streamline the management and provisioning of telephony services throughout the company ( 2005). Furthermore, the networked capabilities of Cisco’s IP phone system will make the relocation of communications services quicker and easier (  2005). With this advantage, British Airways deployed 8,500 Cisco IP phone system to the company, and the project was completed in March 2006 ( 2005).


 


Conclusion


            The role of British Airways in the transportation industry is an important factor for many business organizations. With this, it is necessary to conclude that the British Airways continue to improve their innovations and systems as their strategies of developing their company. These are in accordance to their aim of increasing their profit and for rendering better services to their customers. With better services, the company can persist on maintaining their established reputation and image to their market. With their strategies, such as the mergers, and improvement of amenities and services, the company can attract more customers and can guarantee more improved service to many passengers and airline staff. These would not only generate more profit and prestige for the airline company, but would also foster harmony and good working environment for each employee. Continuous innovation and improvement in British Airways can sometimes produce problems, but with good leadership and company maintenance, development can be achieved properly and efficiently.


 



Credit:ivythesis.typepad.com




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