British airways analysis

Executive summary

The aim of this report is to offer a global analysis of British Airways and explain it through several theories. Indeed, over the 10 last years, the United Kingdom’s leader has faced an increase of competitors, and so an erosion of its market share, now earned by newly entered firms.

Foremost, both external and internal environments have been studied, through a PESTEL and a Porter 5 forces’ analysis about the airline industry in its entireness, in order to better understand this particular industry. These will provide an analysis of the factors that impact the industry, and also measure the impact of the environment.

By conducting a strategic evaluation, British Airways’ business and corporate level have been identified, and various recommendations have been suggested. Indeed, efforts about their fuel- efficiency and environmental concerns and also about technological advancements have been proposed.

The technological advancement strategy includes the renewal of the current fleet, and will improve the whole customer experience.

Finally, British Airways will be analysed following to main theories, SAF and RACES models, which help to analysed various aspects, such as the suitability, the acceptably or the effectiveness of the company.

Above all, this report was written with the purpose of providing a global statement of British Airways’ environment, in order to be able to answer more specific questions.

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Table of contents

I. INTRODUCTION 5

II. EXTERNAL ANALYSIS 6

A. PESTEL 6

1. POLITICAL 6 2. ECONOMICAL 6 3. SOCIAL 7 4. TECHNOLOGICAL 7 5. ENVIRONMENTAL 7 6. LEGAL 7 B. PORTER’S 5 FORCES MODEL 8 1. THE THREAT OF NEW ENTRANTS TO THE INDUSTRY 8 2. THE TREAT OF SUBSTITUTES PRODUCTS 8 3. THE BARGAINING POWER OF BUYERS 9 4. THE BARGAINING POWER OF SUPPLIERS 9 5. THE INTENSITY OF RIVALRY AMONG COMPETITORS IN THE INDUSTRY 9 C. INDUSTRY LIFE CYCLE (ILC) 10

III. INTERNAL ANALYSIS 11

A. RESOURCES AND CAPABILITIES THEORY 11

1. TANGIBLE 11 2. INTANGIBLE 11 3. CORE CAPABILITIES 12 B. THE VALUE-CHAIN THEORY 13 1. PRIMARY ACTIVITIES 13 1.1 UPSTREAM FUNCTIONS 13 1.2 DOWNSTREAM FUNCTIONS 14 2. SUPPORT ACTIVITIES 14

IV. ANALYSIS OF PUBLIC RELATION CRISIS 15

V. STRATEGIC ANALYSIS 16

A. BUSINESS LEVEL STRATEGY 16

1. COST LEADERSHIP 16 2. DIFFERENTIATION 17 3. HYBRID STRATEGY 18 B. CORPORATE LEVEL STRATEGY 18 1. MARKET PENETRATION 18 2. PRODUCT DEVELOPMENT 19 3. MARKET DEVELOPMENT AND DIVERSIFICATION 19 C. SUGGESTED STRATEGIES 20 D. EVALUATING STRATEGIES 20 1. SUITABILITY, ACCEPTABILITY, FEASIBILITY (SAF) 21 1.1 SUITABILITY 21 1.2 ACCEPTABILITY 21 1.3 FEASIBILITY 21

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2. SAF IMPLEMENTATION 22 3. RACES FRAMEWORK 22 3.1 RESOURCES 22 3.2 ACCEPTABLY 22 3.3 COHERENCE 23 3.4 EFFECTIVENESS 23 3.5 SUSTAINABILITY 23 4. RACES IMPLEMENTATION 23

VI. CONCLUSION 24

VIII. APPENDICES 28

1. BUSINESS LEVEL STRATEGY 28

2. COMPARISON OF A RETURN TRIP LONDON TO NEW YORK 28

3. TARGET OF BRITISH AIRWAYS 30

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I. Introduction

British Airways is the largest internationally scheduled airline in the United Kingdom nowadays. The aim of this report is to understand issues that could be faced by the company if they do not take the evolution of the market in consideration. Through an internal and external analysis of the airline industry environment, we will try to highlight strengths and weaknesses, in order to advice the best British Airways compared to the strategy they could adopt. We will also analyse the company with a strategic point of view, so we can determine the changes to be undertaken.

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II. External analysis

The airline industry is constantly changing for several years. The purpose of this analysis is to have a better knowledge of this environment, in order to respond better to the crisis (Mullins, 1993).

Both analytical tools that we will use are PESTEL model, and the 5 forces set up by Porter. They aim to better understand the factors that impact the industry for one, and measure the influence of the environment on the other for concurrence forces.

A. PESTEL

1. Political

Regarding the political aspects, we can point out two things. First, the political instability of the present world, that changed and still changes the freedom of movement and that builds barriers to entry in some countries. Then, privatization of airlines, which changed the world organization and forced companies to rethink their strategies.

2. Economical

About the economical factors, the most important are economic conditions, difficult to anticipate, and the increase of fuel prices. Indeed, the economic crisis like that of 2008 remain an essential element, in the sense that they result in periods of economic recession, to result in higher unemployment and thus lower revenues allocated to leisure and travel. On the other side, no alternative to kerosene was found yet, and the fleet is quite old.

On the other hand, airline industry is undeniably a growing industry, and the amount of passenger is increasing by 6% per year, and 3 billions of people were travelled by airplane last year (International Air Transport Association).

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3. Social

The current economic model, and the reduction of working time also have a social impact on the industry. Short holidays are becoming increasingly popular, focusing on short haul destination to reduce costs. Added to this, the development of new means of transportation such as carpooling, the change in the "traditional" family structure, and an increase in divorce and single parent families, which limit the use of air transport (Shaw, 2011).

4. Technological

In an era where technological advances are everywhere, this sector has not been spared. The rises of e-tickets and pre-printing boarding passes have greatly facilitated the procedures and waiting time in the airport. At the same time, they have also benefited from advances in terms of safety and comfort in particular. Indeed, as many airplanes as airports have seen equipped with Internet connection and even game consoles, to make the wait more enjoyable for the customer.

5. Environmental

As everyone knows, the environmental impact of this industry is huge. Since the United Nations conference in Rio in 1992, people have realized the impact of using kerosene on global warming. Ironically, the biggest polluters are also the first to suffer from climate change, through natural disasters, which hardly alters the air traffic each time.

6. Legal

Laws pertaining to air transport are severe, particularly in terms of security, rights for the landing and take-off as well as free competition. In Europe in particular, the labour law (number of hours worked, the payment of retirement or paid leave) may restrict a company in a strategic change or a change in its organizational structure.

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B. Porter’s 5 Forces model

This analysis tool is designed to help companies develop their business-level strategy, through the analysis of its strengths in the industry concerned (Ahlstom and