1

Executive Summary

Background and Introduction

External Analysis
.1 Macro Environmental analysis
.1.1 Political and Legal Factors
.1.2 Economic Factors
.1.3 Social Factors
.1.4 Technological Factors
.1.5 Environmental Factors

.2 Micro Environmental Analysis

.2.1 Industry Analysis
.2.2 Market Analysis
.2.3 Competitor Analysis
.2.4 Customer Analysis
.2.5 Stakeholder Analysis

4.0 Internal Analysis

4.1 Resource Analysis
4.2 Marketing Audit
4.2.1 Marketing Strategies Audit
4.2.2 Marketing Structure Audit
4.2.3 Marketing Systems Audit
4.2.4 Marketing Function Audit
4.2.5 Marketing Productivity Audit
4.3 Innovation Audit
4.4 Other Auditing Tools
4.5 SWOT Analysis

5.0 Conclusion

6.0 Bibliography

7.0 Appendices
2
This report identifies through research, the impact that marketing environmental
issues have on British Airways. It clearly outlines the macro and micro environmental
factors and internal factors that the new Chief Executive, Willie Walsh, has to
consider in order for him to successfully drive the company forward and receive a
10% operating margin.

British Airways (BA) is the UK’s largest international scheduled airline, operating
international and domestic scheduled and charter air services for the carriage of
passengers, freight and mail and the provision of ancillary services. The airline flies
to over 550 destinations globally and is considered to be a leader in the industry.

In order to profitably satisfy customer needs, an organisation must understand its

external and internal situation including the customer, the market and its own
capabilities. Furthermore, it needs to understand and adapt to the dynamic and
uncontrollable factors of the environment in which it operates.

A marketing audit is in a number of ways the true starting point for the strategic
marketing planning process, and is therefore, as Kotler (1999)has suggested ‘a
comprehensive systematic, independent and periodic examination of a company’s-or
business unit’s-marketing environment objectives, strategies and activities with a
view to determining problem areas and opportunities. An analysis of the three key
perspectives of a marketing audit; the 'macro-environment,' the 'micro-environment'
and the 'internal environment will be carried out for BA.

2005 saw a new Chief Executive being appointed in BA; Willie Walsh, former head of
Aer Lingus. The man with an excellent reputation for driving down costs has stressed
his determination to realise his predecessors, Sir Rod Eddington’s, goal of a 10%
operating margin.

3
The marketing environment is ever changing and therefore it is essential that a
structured, detailed and continuous analysis of the principal dimensions of the
environment is made.

3.1.1 Political and Legal Factors

The start of the millennium is turning out to be some of the most difficult times that
the airline industry has ever faced. The events of terrorism attacks in September 11,
2001 in New York and July 7, 2005 in London along with the wars in Iraq have no
doubt caused an unprecedented crisis and political instability. The events have
caused the introduction of new security1 regulations from the EU and US that come
into effect in summer 2006 and a fall in customer travelling confidence.

Governments have controlled where airlines can fly, and aspects of their product
planning and pricing policies. In recent years, substantial regulatory reform has taken
place, giving carriers more opportunity and increasing the market competition.
Deregulated companies like BA require systems that enable decisions to be made
quickly 2Open skies is an agreement which changes the regulatory landscapes
significantly (appendix 1).

A significant legal factor affecting BA is the power of trade Unions. BA has suffered
many strike actions (August 2004 and August 2005) and is aware of the implications
that the trade unions can cause. Legal regulations on employee rights, customer
rights and an upsurge in environmental and ecological issues are more factors that
BA must consider.

3.1.2 Economic Factors

1
New regulations from the US and the EU mean airlines have to provide details such as where a
passenger is staying on the first night of their visit, their place of birth and their home address, up to 72
hours before departure. BA has already started to react to this by collecting required information on the
‘manage my booking’ section of its website.
2
It may be necessary to change the specification of a product quickly, if a competitor offers customers
better value-for-money.

4
The demand for air travel is characterised by a very high income elasticity. Therefore,
as the world economy grows, so the demand for air travel can be expected to
increase too.

The political situation in Iraq has helped to drive oil prices to a record high and for
BA, the oil price rise might add £100 million to their costs. In response, the cost of
fuel surcharges is always at risk (appendix 2). BA is in the business of transporting
people to and from worldwide destinations for both business and pleasure. If the
international economy slows down, business trades less and fewer business people
will use planes. Equally, people may choose less 'exciting' holidays.

3.1.3 Social Factors

The social and cultural influences on business vary from country to country however
it is important that such factors are considered and include demographic and cultural
aspects. These factors affect customer needs and the size of potential markets.
Demographic changes have resulted in the development of the ‘grey’ market3 who
are spending more on leisure and travelling. Lifestyles , tastes and fashions are all
changing; customers require opportunities to visit new and interesting, often long-
haul, destinations.

3.1.4 Technological Factors

Technology is vital for competitive advantage, and is a major driver of globalisation. A

key issue will be the extent to which technological advancements can offset upward
pressures on prices and costs. Online sales are regarded highly important by BA and
they are placing considerable faith in its website presence to boost online-sales
which will reduce customer traffic via BA’s call centres. E-Tickets are now the
standard ticket format used by BA, making flight ticketing more straightforward,
flexible and secure (appendix 3).

BA is focused on improving its customer service in line with modern technology and
has opened its first drive-through, offer Wireless LAN systems and communicate
through modern SMS texting. A significant long-term threat is the effect of video-
conferencing on the demand for air transport and they may have to accept

3
whereby the over 50’s own around three quarters of the world’s financial assets and control
half of the discretionary budget.

5
telecommunications companies as formidable competitors for their business
customers.

3.1.5 Environmental Factors

Sir Rod Eddington, former Chief Executive of BA stated ‘The whole aviation industry
must accept global warming as a reality, and galvanise its efforts to limit generation
of greenhouse gases.’ (www.sbac.co.uk) Global Warming also affects the demand
for airline travel as warmer UK summers may result in more people spending their
holidays in the UK. There is also a threat of a pollution tax being imposed on airlines
from the government (Adam and Gow, 2005).

This environment influences the organization directly. It includes suppliers that deal
directly or indirectly, consumers and customers, and other local stakeholders.

3.2.1 Industry Analysis

Michael Porter’s (1998) five forces analysis will allow an examination of the amount
of power BA has in its immediate environment.

3.2.1.1 Competitive Rivalry

This not only refers to the degree of competition, but also the type of competition
occurring. BA operates in two different markets - long-haul and short-haul flights -
and therefore faces competition in both. In the long-haul market, competition comes
from other large airlines for example Air France, who compete on routes, service,
comfort and overall quality. In short-haul, competition is driven by low-prices from
airlines including EasyJet. A growing number of tour operators (like Thomas Cook
and TUI) are also now selling air only scheduled seats to reduced prices (Feldman,
2002).

3.2.1.2 Bargaining Power of Suppliers

This refers to the extent to which firms who supply a business can dictate prices,
contract terms or delivery times. For BA this situation can be complex. As identified in

6
the macro analysis BA’s prices depend on fluctuations in oil prices which it cannot
control. Without aviation fuel, planes do not fly and BA will not make a profit.
Although one may argue that BA has a choice as to which fuel supplier it uses, the
petrol market is alike in terms of prices. In terms of suppliers of the actual planes, the
situation is different again. Companies such as Airbus with its new A380 plane and
Boeing with its 787 Dreamliner, are desperate to secure long-term orders to recover
development costs.

3.2.1.3 Bargaining Power of Customers

There is a high degree of buyer power for BA’s. Customers as they have the ability to
vote with their feet if they are not happy with the product. Events such as the check-
in and baggage-handlers strike at Heathrow 2005 (in support of Gategourmet
employees) seriously affected BA’s revenue as customers had to find alternative
airlines to use. Buyer power is strong especially in the low-cost market , as there is
little differentiation between market offers, and hence consumers shop around for the
cheapest price, supported by the convenience of online-sales. These low switching
costs mean that customer loyalty is crucial. Customers also have the Civil Aviation
Authority (CAA) on their side.4

3.2.1.4 Threat of new entrants

BAs dominant position means that it would be difficult for a firm to compete with the
company on a global level from the start. However as barriers of entry are becoming
non-existent, new entrants are appearing in the short-haul business and these low-
cost operators, such as Easy Jet, have steadily chipped away at BA’S European
dominance. However, a lack of take-off and landing slots makes it difficult for new
carriers to find suitable airports. Several speculators have suggested that it is only a
matter of time until a low-cost operator attempts a more serious move into long-haul
market. Lufthansa has responded early to this speculation by offering a high-cost
4
CAA does the following:
*protection against the consequence of travel organiser failure for people who buy
package holidays, charter flights and discounted scheduled air tickets; and
* licenses airlines and ensures compliance with requirements of European and UK
legislation relating to financial resources, liability and insurance of airlines. CAA [online]
http://www.caa.co.uk/consumer/index.html, 21November 2003

7
high-quality service, including private limousine transfers to and from the airport,
massages and champagne.

3.2.1.5 Threat of substitutes

The threat of substitutes refers to the ability of buyers to switch to an alternative type
of product, hence alternatives to air travel. While it is fair to suggest that there is no
real alternative to long haul air travel in terms of time and cost, the alternatives for
short-haul destinations do exist, and vary from coach to car to rail. The extent to
which any of these pose a real threat depends upon factors such as the efficiency
and the price of the rail or coach service, however, until trains travel as fast on UK
rail as they can on the continent, this will not be so much of a threat.

3.2.2 Market Analysis

The first thing that needs to be done is to identify which market BA operate in to be
able to carryout an accurate analysis. BA operates in the airline industry. Their main
market is hence transportation but they also work in other areas such as
communication, leisure and logistics.

During the last 10 years the airline industry in the UK has changed out of almost all
recognition. Today, according to the International Air Transport Association (IATA),
the airline industry is going through ‘the worst crisis in history’ (BBC, 2006)British
Airways operates within the highly competitive airline market. The UK market for
airlines grew by 1.2% since 2003 to reach a value of £8.7 billion in 2004. The
number of passengers flying from UK airports alone has increased from 70 million in
2000, to 86 million. The development of a fifth terminal at London Heathrow testifies
this growth. However, against this expanding consumer market, the airline industry
continues to struggle with the continuous threat of terrorism, high fuel prices and
increased competition. The two main sectors of the market are long-haul and short-
haul, both of which BA operate in.

The market for airlines is forecast to grow by 5.7% by 2009 to reach a value of £9.2
billion (see appendix 4) as air travel will remain to be the favourable mode of
transport . Short-haul is expected to be both the most dynamic and largest sector
accounting for 72.9% of the market in 2009 (appendix 5). Prices for both markets will
continue to decline as the price competition continues to grow between major carriers

8
 like BA and low-cost airlines who are already dominating the short-haul market.
There will be however, some upward pressure from the ever growing fuel prices.

3.2.3 Competitor Analysis

The airline sector is more competitive today than it has been at any time in the past,
providing consumers with more choice and cheaper fares than ever before due to the
emergence of low-cost airlines5

British Airways operates within two strategic groups within the airline sector – the
short-haul and the long-haul. Each of these sectors has different competitors (see fig
1). One group consists of airlines with regional operations offering scheduled flights
and competing on costs. The second group offer long haul flights, with quality
environments and services to a range of destinations. Therefore, BA competes on a
global, European, national and regional scale6.

British Airways
Virgin
Lufthansa
UAL Corporation
EasyJet Air France
PRICE

Ryanair
BMI Baby

Regional Scope Operations Global

Fig.1 Strategic groups in the airline industry (Drummond & Ensor 2004)

Within the UK, BA is the largest carrier in the market accounting for 45.1% of
passengers in 2004 (Euromoniter) with Virgin Atlantic being the second largest
carrier in the market with 9.2% market share. It is also likely that long-haul licenses
will be granted to low-cost airlines which will enable them to compete in both

5
This was originally a major cause for concern for British Airways and they initially set up Go-fly to
be able to compete with its new competitors. However, it later decided to focus on its core business and
sold Go to EasyJet in 2002.
6
For example, regional competitors such as Air Wales have entered the market offering European
flights from local airports in Wales.

9
strategic groups increasing its influence on BA’s strategy (see appendix 6). In
Europe, the UK’s EasyJet and Ryanair were the pioneers of budget airline travel.
Their initial business model was based upon offering low fares through outstanding
cost management7.

As mentioned in 2.2.1.4, Lufthansa’s change in strategy will have direct affect on BA

as they continue to attract customers for their high quality standards. Another
strategy that seems to be emerging amongst traditional carriers is to reduce fares in
order to become more competitive with the low-cost airlines.

BA also has to consider the indirect competitors that were mentioned in 2.2.1.

New planes, new routes, additional flights and management changes are all factors
that impinge a business. Such changes made by a competitor need constant
monitoring in order for BA to examine its current position and develop future
strategies.

3.2.4 Customer Analysis

Shaw (2004) addresses what he calls the most fundamental and commonest
mistakes made in airline marketing - failure to make a proper distinction between the
‘Consumer and the ‘Customer’. Consumers are the people who actually travel
however it is important that BA consider customers, as they are the decision makers.
This is important in both consumer and industrial markets.

BAs customers differ enormously in terms of their buying behaviour. Not only do they
differ in terms of their age, income, educational levels and geographic location but
more fundamentally in BAs case in terms of their lifestyles and expectations which
are influenced by many factors.

BA also operates in an industrial market where differences in buying behaviour are

exhibited by the formality of BAs purchasing policies, delivery dates and expected
7
This means using smaller airports, not allocating seats, making passengers pay for refreshments and
not issuing tickets.

10
 performance. The majority of these decisions are made by a group of individuals
working to a set of purchasing criteria, known as the Decision Making Unit (DMU) as
illustrated below in fig 3.

BUYER

GATEKEEPER

USER

Post
Recognition Purchase Purchase Search and Evaluation of Choice of Agreement purchase
of purchase classification specification investigation alternative Supplier on terms and ORDER evaluation
requirement of alternative proposals conditions of PLACED and
proposals supply feedback

INFLUENCER

DECISION MAKER

Fig.3 Buying process for BAs industrial consumers. Adapted from Fifield and Gilligan

3.2.5 Stakeholder Analysis

BA recognises that financial stability alone cannot ensure long term prosperity,
therefore it strongly believes in the importance of loyalty, support and trust amongst
its stakeholders; customers, employees, pressure groups, government, suppliers,
banks and local communities within which it operates. A report carried out by Mintel
in 2003, found that 44% viewed BA as the most trusted brand in the UK.

11
All factors that are internal to the organization are known as the 'internal
environment'. The internal environment is as important for managing change as the
external and is used to aid communication and change management.

As stated by Hooley et al; ‘The realistic identification of an organisation’s marketing

strategy options can only be undertaken in the context of that organisation’s’. The
resources of an organisation should be the things that give it a competitive edge.
The corporate capabilities should be sources of competitive differentiation and
advantage in activities that matter to the customers.

BA places much importance on their employees and hence is seen as an excellent

employee. For example, for the fist 6 months that Walsh was with the company, he
spent getting to know the company through meeting the employees. However,
recent jobs cuts made by Willie Walsh will affect the morale of the workers. (See
appendix 7)

It is essential to have an understanding of BA’s strategic resources; both assets and

capabilities as these are the things that determine the nature and strength of the
internal and external resources BA have. Please see overleaf for resource analysis.

12
 RESOURCES

ASSETS COMPETENCIES

TANGIBLE INTANGIBLE
Physical Ownership and control of facilities Ability to expand e.g. Strategic Recent recruitment of Willie Walsh
at prime airports across the word terminal 5 at Heathrow who has an excellent reputation
since Aer-Lingus
Financial Is making a large profit yet still in Good credit ratings – the Functional Excellent skills of individual
some amount of debt. A government will always departments – marketing
Considerable amount of money is bail them out department– able to handle
put into marketing each year at customer relationships, product
BA. management and new product
innovation
Operational High standard and range of Procedures and Systems Operational The skills required to run the day
planes, equipment and to day operations including the
technology flexibility to react to sudden
changes within the environment
and the skills required to maintain
relationships with agencies for
example Bartle Bogle Hegarty
(BBH)
Human Highly skilled workforce from Their skills and abilities The three above competencies are successful in
managerial to baggage handlers. to perform effectively BA on an individual, team and corporate basis.
Legal Licensing agreements to fly into BA will go to court to
other airports defend their rights e.g.
(DVT case)
Systems Databases and MIS, E-ticket Specialised knowledge
system and an infrastructure that
supports decisions
Marketing

13
Having conducted the initial resources audit, Porters value chain is used to illustrate how these resources are being used by BA to gain added value and hence competitive
advantage. This process can identify ways of creating added customer value, hence affect future marketing strategies, and enable an organisation to analyse how well each element
is managed.

FIRM Excellent infrastructure – highly skilled management, presence at hub airports.

INFRASTRUCTURE
HUMAN Flight, Route and Yield Pilot and cabin crew Baggage Highly skilled and In-flight training.

RESOURCE Analyst training training including health Handling trained staff Union
and safety training representation
MANAGEMENT
AND
DEVELOPMENT BA has a large margin as it
TECHNOLOGY Computer reservation E-tickets, drive thru check Computer Product development Baggage has many extra benefits
AND SYSTEMS systems - Online in. High security systems, reservation and market research tracking that add value to the
booking and e-tickets. In-flight systems including systems systems company. Many people
flight scheduling. In flight
search for these extra
Fuelling machinery entertainment systems
benefits and buy into them.
PROCUREMENT Warehousing and Material Handling Maintenance
inventory management The margin of a low-cost
 Route selection  Check in operations  Baggage  Promotion  Lost airline would be
 Passenger service  Gate operations system  Advertising Baggage
considerably smaller as
system  Aircraft operators  Flight  Frequent flyer service
they focus on low prices
 Fuel  Onboard service connections  Group sales  Complaint
hence very few added
 Flight and crew  Baggage handling  Rental car  Electronic sales follow up
scheduling and hotel  Travel agent
benefits.

Customer based  AircraftDistribution

acquisition Alliance based reservation Internally
programs
based
based
INBOUND OPERATIONS OUTBOUND MARKETING AND SERVICE
Market leader Large global Member of the one world BA can achieve lower costs than
Strong brand which has LOGISTICS
geographic LOGISTICS
alliance. Allowing them to SALES
competitors through online booking.
developed customer network and have access to markets, Large customer database
loyalty and high reputation presence management expertise and Innovative culture – new product
exclusive agreements. development and welcoming ideas from
staff 14
Now that an overview of BAs resources has been made and demonstration on how
these resources relate to the organisations performance through using the value
chain, an internal marketing audit needs to be carried out to identify wider assets and
competencies that assist the marketing function. Hooley et al (1998) suggests these
wider non-marketing assets include how innovative the organisation is and its
organisational climate, the skills of the management team, the financial resources
and information systems. A specific review of BAs marketing activities is required and
includes analysing the following distinct areas.

4.2.1 Marketing Strategy Audit

Need to ensure that adequate resources are allocated to the right components of the
strategy for example; enough financial support for BA high impact advertising
campaigns. In 2004, BA spent £488 million on Marketing. (Euromonitor, 2005)

4.2.2 Marketing Structures audit

BA does not have a Marketing representative on the Board which indicates that it is
not regarded as strategically important. However communication is the key between
functions, especially Finance. As financial comparisons are extremely helpful and
can aid modelling, forecasting, competitor analysis.

4.2.3 Marketing Systems Audit

BA has invested in new product development such as flat beds in business class,
drive thru check in.

4.2.4 Marketing functions audit

Includes all aspects of BAs marketing mix, product, price, place, promotion, physical
evidence, people and processes.

15
4.2.5 Productivity audit

CIM developed a model that identified branding as an element of marketing

excellence. Either way, it can be measured differently, for example profits, passenger
traffic figures, BA shares (appendix 8). BAs brand is a phenomenal one and hence
contributes largely to its success. Is BA’s marketing effective or efficient? Based on
models developed by Kotler and CIM, the model below (fig 4) illustrates the effects
that this has on an organisation. In light of BAs profit and performance levels it is
both effective and efficient and hence this is why it is so successful.
EFFICENCY

EFFECTIVENESS
HIGH LOW
HIGH

THRIVE DIE SLOWLY

LOW

SURVIVE DIE QUICKLY

As stated within the market analysis, the airline industry is confronting increasing
global competition. It is stated that in order to survive, organisations need to foster
creativity and innovation (Higgins, 1996)

BA’s strong focus on customer service is driving its vision to deliver innovative
services. Its worldwide reputation is built on high quality (appendix 9 –Club world
benefits) of its customer service and for its track record and innovation
(www.londoneye.com). A survey carried out by Hay Group, August 2005, showed
that BA was in the top 10 of the World’s most admired UK innovators
(www.prnewswire.co.uk). Operating in such a competitive market, BA recognises
innovation as being a key driver to increase market share and this shows with

16
innovation such as the Club World flat bed that now features Sleeper Service on
selected routes, the continued rollout of Self-Service Check-In and improved control
of travel arrangements on ba.com.

BA encourages an innovative climate where creativity is rewarded, for example a

high-profile award ceremony is run to recognise the ideas put forward by line
management level. They cleverly link their meaning for existence into this sentence ‘
BA is all about brining people together, and taking them wherever they want to go.
This applies as much to our employees as the 36 million people who travel with us
every year’ (www.britishairwwaysjobs.com’
Management are highly trained so that they have a positive influence on the
organisation’s orientation towards creativity and innovation through a balanced profile
of cognitive styles.

It has been demonstrated how the Value chain can analyse BAs internal
environment. Other auditing tools that can be used include the product life cycle and
gap analysis.

4.4.1 Gap Analysis

This is a simple diagrammatical method of presenting ‘where are we now?’ and

‘where do we want to be?’ The existing situation of the market whereby low-cost
airlines are dominating the market, in order to fulfil this gap may adopt a
differentiation strategy; to offer a service that is superior to those offered by
competitors, instead of trying to compete on price with the low-cost airlines.

4.4.2 Product Life Cycle

BAs product is, of course, an intangible one which is instantly perishable and cannot
be stored. To be able to market its product properly, BA must be aware of the
product life cycle. The standard life cycle tends to have five phases: Development,
Growth, Maturity and Decline. Taking BA as a whole, it is currently in the maturity

17
 stage, which is evidenced through their current application of the marketing mix8. For
example, their product has been developed and they are now concentrating on
differentiation through emphasising quality, their pricing strategy is to simply compete
with other key competitors rather than price penetration and their advertising aims to
remind its target audience that they are ‘the no 1 airline’ and to re-emphasise the
brand which is already well established.

As suggested by Meek et al, BA is a classic product as it seems to defy the

traditional S shape PLC and go on forever (see fig below). Marketers in BA need to
SALES – BA
understand that the PLC is limited use as a forecasting tool and although they are in expected cou
PRESENTis still necessary to enable
the mature stage of the PLC, creativity and innovation
POSITION
organisational success.

SALES – Typ
cour

PROFIT –
expected c
+

- INTRODUCTION GROWTH MATURITY DECLINE SENILITY

TIME
PROFIT –

4.5 SWOT Analysis

4.5.1 Strengths

8
The aerospace industry illustrates well some of the risks involved in product innovation. For example,
the Concorde was completely unsuccessful in achieving commercial sales and had to be withdrawn
from production as a marketing disaster. (Shaw 2004)

18
 • British Airways is a well-established brand name that has gained loyalty and
trust from customers.
• Innovative culture enables BA to take full advantage of technological
developments for example, online sales, drive thru check in.
• BA has a global geographic coverage with excellent communication with
strong international alliances.

4.5.2 Weaknesses

• BA has yet to have recovered from events including the Iraq war, the 2001
and 2005 terrorist attacks because of its reliance on international air travel.
The threat still remains.
• BA continues to have extremely high debts.

• Recent job cuts may have a negative effect on BA as in the past this cost-
cutting exercise has resulted in understaffing and industrial action in 2004 and
2005.

4.5.3 Opportunities

• The growth of internet usage globally is likely to further expand BA’s online
customer base
• Value-added and innovative flight services such as sleeper services wil attract
more customers as customer expectations are risisng.
• Terminal 5 is due to open at Heathrow in 2008, which is likely to benefit BA.
The current UK government stresses Heathrow as a global gateway and
recommends a third short runway and sixth terminal be opened by 2020,
which will also benefit BA.

4.5.4 Threats

• Lo-cost airlines continue to enjoy strong growth and power in the market and
new entrants and the likelihood of them being issued with long-haul licenses
could pose a further threat to BA’s market share.
• The continuing growth and fluctuations in fuel prices is may threaten them
with regards to not achieving a 10% profit margin.
• Customers are still cautious of the threat of repeated terrorist attacks.

19
• With the increase of competition in the low-cost airline market, more
companies may focus their strategy on high quality and hence increase the
direct competition for BA.

20
British Airways remains cautiously optimistic about its future prospects. However, it is
certain that considerably more work lies ahead if the airline is to succeed. The FSAS
plan incorporated by BA resulted in considerable cost savings, and divestments also
raised funds to pay off debt. The goal of the FSAS plan was to achieve a 10%
operating margin and hence more recent cost cuts and job loses have been made by
Willie Walsh order to accomplish this.

In air travel, a great deal of success or failure depends on external factors, with BA
suffering badly in the aftermath of the 2001 and 2005 terrorist attacks, , the war in
Iraq and the global economic slowdown. However, the single most important external
factor is the price of fuel. Fuel prices are continuing to grow and this is likely to both
erode profits and raise prices for BA. Rising prices could place BA in a
disadvantageous position, particularly given the continued popularity of budget
airlines. This is an important factor for Willie Walsh to consider.

Walsh must understand that the key growth area for BA is likely to be in value-added
travel. In some areas, BA found that it could improve customers’ experience while
reducing costs, such as in its building up of online sales. Other value-added services
are likely to see mid-priced flights being upgraded, as air travel continues to become
more competitive.

Overall, BA, through Walsh, must continue to strive to reduce costs and improve
customer and employee satisfaction .

21
22