Executive Summary

This report was produced for the purpose of providing British Airways Plc (British
Airways) with a strategic plan to implement over the next three years. British
Airways is the UK market leader in airline operations, however has faced increasing
competition over the last decade resulting in erosion in their market share.

The report begins by analysing the current internal and external environment of BA.
Through strategic evaluation we have recommended that BA focus on their
fundamental service delivery to restore their competitive advantage within the
industry. This will require implementing a combination of two strategies; a people
processes strategy and a strategy focused on technological advancement.

The people processes strategy was derived from a number of industry sources
outlining BA’s decline in customer satisfaction. The technological advancement
strategy coincides with the renewal of BA’s aircraft fleet and will further improve the
overall customer experience.

2
Table of Contents

Table of
Contents..................................................................................................................... .
. . . . . . . . . . . . . . . . . . . . . 3 1.1 Report
Objectives.....................................................................................................................
.... . . . . . . . . . . . . 4 1.2 Company
Overview......................................................................................................................
.......... . . 4 1.3 Current
Strategies.....................................................................................................................
.... . . . . . . . . . . . . 4 Figure 1 - Business Map (T-O
£8.32bn)........................................................................................................ 5

.....................................................................................................................................
...................................6
2.0 External
Analysis........................................................................................................................
............. 7
2.1 PESTEL
Analysis........................................................................................................................
... . . . . . 7
2.2 Porter’s Five Forces................................................................................................
............................9
2.3 GE
Matrix...........................................................................................................................
.......... . . . . . 10
3.0 Customer
Analysis........................................................................................................................
......... 11
4.0 Competitor
Analysis........................................................................................................................
. . . . . . 12
4.1 Strategic
Groups..........................................................................................................................
....... 12
4.2 Airline Quality Review
(AQR).......................................................................................................... 13
5.0 Internal
Analysis........................................................................................................................
............ 14
5.1 Value Chain Analysis
(VCA)............................................................................................................. 14
5.2 Resource Based View
(RBV)............................................................................................................. 16
5.3 Financial Analysis (Source: British Airways,
2008).......................................................................... 17
6.0
Summary......................................................................................................................
. . . . . . . . . . . . . . . . . . . . . . . . . 18
6.1 SWOT
Analysis........................................................................................................................
....... . . 19
6.2 Key Strategic
Issues.................................................................................................... . . . . . . . . . . .
. . . . . . . . . . . 19

.....................................................................................................................................
.................................21
7.0 Strategy
Formulation..................................................................................................................
... . . . . . . . . 22
7.1 TOWs Matrix...........................................................................................................
. . . . . . . . . . . . . . . . . . . . . . . . . 22
Figure 11 - Preliminary Comparison of
Strategies................................................................................. . . 23
8.0 Analysis of Strategic
Options................................................................................................................. 24
8.1 Strategic Option 1 - Improvement to People
Processes..................................................................... 24
8.2 Strategic Option 2 - Improved Environmental
Stance. ..................................................................... 25
8.3 Strategic Option 3 - Improved Technological
Stance. ...................................................................... 26
8.4 Strategic Option 4 - Segment
Focus................................................................................................... 27
8.5 Strategic Option 5 - Broader Service
Offering................................................................................... 28

.....................................................................................................................................
.................................30
9.0
Implementation............................................................................................................
......................... . . 31
9.1 Company
Structure.......................................................................................................................
...... 32
9.2 Service Quality Gaps
Model.............................................................................................................. 34
9.3 Managing the
Change.........................................................................................................................
35
9.4 Gantt
Chart.............................................................................................................................
............ 37
9.5 Stakeholder
Map...............................................................................................................................
. 38
9.6 Control
Systems........................................................................................................................
......... 39
9.7 Balance
Scorecard.....................................................................................................................
......... 40
10.0
Critique.........................................................................................................................
........................ 41

3
1.1 Report Objectives

The objectives and structure of this report will consist of four main sections which
will enable a

strategic direction to be recommended to BA:

1To research in to the current strategic position of British Airways.

2To critically analyse British Airways’ internal and external environment.
3To design a selection of strategic options utilising the internal and external
analysis.
4To evaluate the most appropriate option for British Airways and discuss
implementation.

1.2 Company Overview

British Airways Plc (BA) is the UK’s largest international scheduled airline. Alongside
scheduled services, BA is engaged in the operation of international and domestic
carriage of freight and mail, and the ancillary services (Datamonitor, 2008). In
association with codeshare and franchise partners, BA fly to more than 300
destinations, and carried more than 33 million passengers, earning over £8.7 billion
in revenue in 2007/08 (British Airways, 2008). Employee headcount in March 2008
stood at 42,377 people (Datamonitor, 2008).

Since privatisation in 1987, BA has continued to grow as competition in the market

has risen worldwide. In recent times, BA has successfully been labelled the world’s
first airline to take part in a scheme to reduce greenhouse gas emissions (2002) and
to allow passengers to print online boarding passes (2004) (British Airways, 2008).
In 2005, the company saw Willie Walsh become Chief Executive of BA (Flight Global,
2008), who to date has driven the company through the completion of Terminal 5 at
Heathrow, amongst other new initiatives.

Despite reported and imminent industry hits due to the global economic downturn,
BA’s future looks promising. As BA announces its aim of becoming the ‘world’s most
responsible airline’ in the latest annual report (British Airways, 2008), great
importance lies in developing guiding principles and careful strategic direction to
allow the achievement of this goal.

1.3 Current Strategies

The report will be designed in consideration of BA’s current strategies (British

Airways, 2008):

1Upgrade customer experience via the introduction of text and mobile services for
business class

customers.
2Modernise aircraft fleet and offer new services.
3Manage cost base.
4Increase corporate responsibility through environmental performance and
partnerships.

Although BA does operate in a number of areas such as cargo, we are choosing to

focus our report
on the scheduled passenger market due to the size and opportunities that BA has in
this market
(Figure 1: BA Operations).

4
5

Figure 1 - Business Map (T-O £8.32bn)

BA Service Portfolio

Component Suppliers

Support Provider Subsidaries

BA Avionic Engineering, BA Interior Engineering, BA Maintenance Cardiff

BA Leasing, BA Capital, BA Holdings, BA Cash Management, Speedbird Cash

Management, Speedbird Insurance Company, Air Miles Travel Promotions

Scheduled

BA Cityflyer, Openskies

Customers

International Travellers: (by sales)

Continental Europe = £1,219 ml

The Americas = £1,697 ml
Africa, Middle East & Indian subcontinent = £821 ml
Far East and Australisia = £659 ml

Domestic

Travellers: (by sales)

UK = £4,357 ml

Intermediaries

Travel Agents

Online websites

Adapted from: British Airways (2008) (* percent of operations)

Direct Sales

BA.com

Mail +freight

diplomatic bags

Aircraft Suppliers:

Boeing and Airbus SAS

Airports:

Heathrow and Gatwick...

Other Suppliers:

Food Suppliers…
Industry Regulators

And Influencers

UK Government

BAA, CAA, DFT

Member of:AEA

Research and Interest

Groups

Independent Customer

Review: Skytrax rates

BA as a 4* airline.

Non-scheduled services

BA Holidays

Cargo=7.0%

Passenger = 86.2%*

Investments (equity owned)

Associates: Iberia S.A. 13.15%
Avaliable for sale: Flybe Group Ltd 15%, Comair Ltd 10.9%

Other Airline Operators:

Ryanair, Easyjet, Virgin

Atlantic, Lufthansa,

Air France KLM, Aer

Lingus…

Alliances:

Quantas, AA,

Iberia, Continental

Cargo Handling, Airframe Maintenance, Computer and

Communication Services and Consulting Services

Other= 6. 8%
6
2.0 External Analysis

For success within the airline industry, an awareness of the external environment is
essential. This section aims to highlight the position of the industry, in particular
looking at competitors and assessing BA’s capability to meet current and future
challenges.

2.1 PESTEL Analysis

(Source: Johnson et al., 2008, p56)

An analysis of the macro-environment has been carried out using PESTEL (Figure 2).

Figure 2 – PESTEL Analysis

PESTEL Factor

Key Points

Implications for BA

Political

Heavy regulation (AEA, 2009).

Compliance is essential if BA wants to continue

operations.
Increased security due to past terrorist
threats (DFT, 2008).

Sufficient security measures should be in place to

ensure consumer confidence and competitive
advantage is maintained.

Economic

Global economic crisis: World growth is projected to just over 2 percent in 2009
(IMF, 2008). Pound weakens especially against the Euro.

Possible reduction in the amount of business

travel as companies are cutting costs and using
alternative means of communication such as
teleconferencing. BA is vulnerable as a UK
operating airline to a poor exchange rate.
Oil prices: declined by >50 % since their
peak retreating to 2007 levels. Decline in
fuel price = strengthening of the dollar
(IMF, 2008)

Fluctuations in oil prices and exchange rates will

directly affect BA’s cost base.

UK consumer spending saw its sharpest

decline for 13 years between July and
September 2008 (Channel 4, 2008).

More intense competition

Social

The UK has an aging population (see

appendix 3) (National Statistics Online,
2008).

Potential opportunity for growth as older

generations have more time to spend on leisure
activities such as international travel.

Increasing unemployment (Kollewe and

Sager, 2008).

Increased bargaining power as an employer.

Technological

A recent survey revealed that 34% of

online consumers plan to use price-
comparison sites more in 2009 (NMA,
2009).

Increased consumer awareness and therefore

bargaining power.

Online booking services and check-in is

becoming increasingly used by the airline
industry.

BA must ensure that they remain up to date with

these technological advances whilst avoiding
becoming overly reliant, as this may isolate
certain consumer markets (i.e the elderly) who
don’t feel comfortable using such technology.

Environmental/

Ethical

Noise pollution controls, and energy

consumption controls (DFT, 2008).

New legislation (e.g. Climate Change Bill)

enforcing tighter environmental regulation may
increase operational costs each year.

Limited land and for growing airports – Expansion is difficult at Heathrow as it would
result in a loss in the London’s Green belt area. (BBC News 2006)

Limited capacity=> utilisation of capacity.

Consumers are becoming increasingly

‘green’ and more aware of the
environmental impact of their actions.

Failure to adopt an integrated environmental

strategy could lead to a detrimental effect on the
BA’s reputation and income.

Cancellations of flights and loss of

baggage (Channel 4, 2008).

Such ethical issues could have a detrimental

effect on reputation if left unresolved.

Legal

Collusion and price fixing.

Restriction on mergers will have an impact on

BA’s proposed alliance with American Airlines.

Recognition of trade unions and industrial
action e.g. Cabin Crew strikes.

Good employee relations are essential if BA wants

to avoid industrial action and interrupted
operations.
Open Skies Agreement (AEA, 2009)

Opportunity for BA and its competitors to freely

transport aircraft between the EU and US.

8
2.2 Porter’s Five Forces

(Source: Johnson et al., 2008, p60)

It is important to analyse the competitive nature of the airline industry in order to

assess the position of BA. The ‘Five Forces’ tool will enable BA to make strategic
decisions in order to increase profitability.

Force

Strength

Competitive Rivalry

BA caters for both long haul and short haul flights. Within long haul there is little
differentiation between BA and their competitors, in terms of price and service
offering.

The short haul market is more fragmented with many small players.

Direct competitive rivalry is fierce, e.g. Virgin has a website opposing the proposed
strategic alliance between BA and AA - ‘No Way BA/AA’ (Virgin Atlantic, 2008).

Consolidation of competitors has increased competition.

HIGH

Power of Suppliers

Two aircraft manufacturers = High bargaining power.

BA restricted by sole supplier of fuel to the airport.

Priority of landing slots is given to historic rights of existing users

(IATA, 2008).
•

BA employees use collective bargaining through trade unions in

order to increase their bargaining power

HIGH

Power of Buyers

Low concentration of buyers to suppliers means they have little

bargaining power.

Increased internet usage has amplified awareness and interaction of

customers (Keynote, 2008c).

MEDIUM

Threat of New Entrants

Significant barriers to entry: such as the competitive environment,

high regularity requirements and high capital cost requirements.

Barriers to exit are in place which deters new entrants.

The failure of recent airlines such as XL and Zoom is likely to deter

new entrants (Times Online, 2008).

LOW

Threat of Substitutes

There are few direct substitutes:

o
Short haul flights: the Eurostar or a ferry.

Long haul flights: no notable substitutes.

LOW

9
2.3 GE Matrix

(Source: Johnson et al., 2008, p280.)

The GE Matrix (Figure 5) provides evidence of opportunities for growth through

market development

in new markets and market penetration in existing.

Figure 5 – GE Matrix

Competitive

Strength

Market Attractiveness

High

Medium

Low

High
Medium
Low

From the analysis above, it is evident that if a market development strategy was to
be pursued by BA, Asia Pacific and Eastern Europe would be prime markets for
profitability due to high growth (Appendix 5/6). It may also be a requirement to
build defence strategies in BA’s core market, Western Europe, due to low growth
and intense competition.

10

Asia Pacific

BA=1.1%

Australasia

BA=4.0%

Middle East

and Africa

BA=2.3%

Eastern Europe
BA=2.2%

Latin America

BA=1.9%

North America

BA=1.7%

Western Europe

BA=6.9%

Size of Circle = size of market (British Airwayssed on 2006 data)

Width of Circle = CAGR Forecast Growth (2006 – 2011)
Source: Euromonitor (2008)

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