INDUSRIAL ANALYSIS 1

BRITISH AIRLINES INDUSTRIAL ANALYSIS

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Executive summary

Based on a theoretical framework of the macro environments, the British Airlines

Industry is found to be moving towards the micro-environmental aspects through the low fare

airlines ideologies. This research work involves the identification of the concepts of the

strategies that aids in providing a competitive advantage as a way of positioning the company in

a good state. It has been done through the introduction of the Porter’s Five Model of analysis.

After noting down the threats in the entire industry, the company can design the best strategies to

employ to prosper. It has been noted in the report that the company stands an excellent chance

through emblazing technology, contributing to environmental preservation, and providing

consumer friendly services.

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Executive summary --------------------------------------------------------------------------------- 2

Table of contents ------------------------------------------------------------------------------------ 3
Introduction ------------------------------------------------------------------------------------------ 4
1.1 The external environment --------------------------------------------------------------------- 4
1.1.1 Political or legal issues ---------------------------------------------------------------- 4
1.1.2 Economic issues ------------------------------------------------------------------------ 5
1.1.3 Social-cultural issues ------------------------------------------------------------------- 6
1.1.4 The Technology ------------------------------------------------------------------------ 6
1.1.5 The Environment ----------------------------------------------------------------------- 7
1.2 The internal environment ---------------------------------------------------------------------- 7
1.2.1 The threat of new entrants -------------------------------------------------------------- 7
1.2.2 The bargaining power of the suppliers ------------------------------------------------ 8
1.2.3 The threat of substitutes ----------------------------------------------------------------- 9
1.2.4 The bargaining power of the buyers --------------------------------------------------- 10
1.2.5 The existing rivalry among the key players ------------------------------------------ 10
1.2.6 The future of the European Airline Industry------------------------------------------ 11
1.2.7 The position of the airline industry in the Industrial Life Cycle ------------------- 11
2. The internal environment ------------------------------------------------------------------------- 12
2.1 British Airline’s Resource based view -------------------------------------------------- 12
2.2 The Value Chain Analysis ---------------------------------------------------------------- 13
3. Public Relations Analysis ------------------------------------------------------------------------ 14
4. Strategic Analysis --------------------------------------------------------------------------------- 15
4.1 The Business Level Strategy -------------------------------------------------------------- 15

4.2 Corporate Strategy -------------------------------------------------------------------------- 15

4.3 Future evaluation strategies ---------------------------------------------------------------- 16

4.4 Implementation techniques ----------------------------------------------------------------- 16

Conclusion ---------------------------------------------------------------------------------------------- 18
6. References ------------------------------------------------------------------------------------------- 20
7. Appendix -------------------------------------------------------------------------------------------- 23
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Introduction

The British Airline Industry, in general, is one of the low-fare airlines and using such a

model to maximize its profitability. Both the micro and macro-environments have been the key

contributors to the modern development of the industry, owing to mind that they two impact

negatively or positively to the overall development. The industry has been faced with

competition, amidst the small customer inflow. However, the recent liberalization processes have

led to dramatic progress and the need to strategically position any company, especially the new

entrants. The critical approaches of the British Airlines towards ideal strategic goals have

mapped the industry among the most competitive industries globally.

1.1 The external environment - Macro Environment: Theoretical framework of the

PESTEL Model.

While assessing the macro-environment of the Airline Industry, the PESTEL Analysis

Model is important. In the model, five fundamental concepts that are analyzed, namely; the

Political or Legal, Economic, Social, Technological, and Environmental factors. Upon evaluating

the PESTEL factors, a company can quickly identify the available opportunities as well as the

threats that the firm faces. In turn, recommendations can be made for the future trends and

requirements in a bid to change the business strategies (Johnson, et al. 2008). The model has

proved appropriate, especially to the European Airline Industry, in which development of sound

strategies must be discussed at the European Union level.

1.1.1 Political or legal issues

Several factors that should be considered when analyzing the political or moral policies

that affect the industry. One, the analytical tool must review the liberalization policies (Palma,
 INDUSRIAL ANALYSIS 5

2011), in which the European Airline Industry faces the challenge of political regulation, both in

operation processes and ownership. The laws have resulted in full or partial ownership of almost

every airline by the national governments across Europe. Over the past few years, the cry for

“Freedoms of the Air” (Anon, 2016), has been echoed, urging the governments to open up the

market and allow flexibility.

Secondly, the passenger rights legislations are frequently reviewed. Recent bills allow

for flexible tickets for the passengers within the EU, especially the business travelers while at the

same time prohibiting overbooking. Compensation schemes have also been put into place for the

inconvenienced passengers. Another policy is the State Aid (Anon, 2016). The principles laid

down by Articles 87-89 in the EC Treaty and the Council Regulation 659/1999 strictly control

the State Aid as a way of discouraging governments from subsidizing costs for political leaders

(Roche, 2011). Consequently, a commission has been put in place to oversee the Aviation

Industry. One of the efforts made by the board is their decision-69 against the agreement

between the Walloon government which runs the Ryanair and Charleroi Airport, declaring it a

violation of Article 87(1) of the EC Treaty (Roche, 2011). The agreement aimed at reducing the

aeronautical charges for the companies.

1.1.2 The Economic Issues

The most important of all the economic issues is the world economy. The hgh-income

elasticity characterizes the demand for air travel or the related facilities. The Airline Industry is

highly dependent on the global GDP and the trade cycles (Schirmer, Hoehn & Vogt, 2011).

Another factor is the Labor Costs, which usually follow the economic activity levels. An
 INDUSRIAL ANALYSIS 6

increase in many economic activities causes an increase in the wages, attracting investors, and

after that, an upward trend in the air travel (Anon, 2016).

Fluctuation in the oil prices has a significant impact on the economics of the Airlines.

The costs contribute to 10-14% of the total operation expenses of an airline (Mouawad, 2010).

To lower these costs, airlines can choose to use a fuel-efficient aircraft, design fuel ferrying

strategies, fuel surcharges, and hedging by purchasing contracts for future oil (Mouawad, 2010).

1.1.3 Social-cultural Issues

Some of the issues that affect the Airline Industry, especially in the entire Europe, are;

the changes in the perception of air travel, the cultural beliefs, and the social classes (Palma,

2011). It was earlier believed that air travel was not available for lower and middle-class income

earners. The recent low-cost revolution across Europe has helped in the reduction of air fares,

hence, making the services available to the general public (Campbell, 2010). Evidence of people

from Britain purchasing real estates in French, for example, proves that commuting between the

two States is cheap.

1.1.4 The Technology

Technological advancement in the aspects of the internet and video conferencing are

some of the dominant drivers in the current macro-environment. The use of latest technology is

the only way to survive in the intense competition (Walsh, 2011). Technology has helped in

lowering fuel consumption, the cost of operation, and improved efficiency, including the use of

mobile technologies in ticketing, customer services, and distribution (Mouawad, 2010).

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1.1.5 The Environment

There has been a growing concern about climate change as the vice enters social

consciousness. Environmentally, the use of rocket fuel has been one of the greatest contributors

to carbon emissions, which are directly responsible for global warming. The airlines have

adopted the “green flying” (Walsh, 2011), in response to the concerns of the environmentalists.

Community noise is also an environmental hazard. Air traffic noise causes irritation and

unpleasant experiences. Social responsibility is, therefore, becoming more pronounced towards

environmental conservation (Palma, 2011).

1.2 The internal environment- micro-environment as per the Porters Five Forces Model

The Five Forces Model, by Michael Porter, is an analytical tool that helps in analyzing

business threats through five factors. These factors are the barriers to entry into an industry, the

power of the suppliers, the power of the buyers, rivalry within the industry, and the threat of

substitutes (Georgelander, 2010).

1.2.1 The threat of new entrants

The availability of an Airport slot has been a barrier to the expansion of the European

Airline Industry. The existing national airlines had already accessed the major airport hubs,

leaving behind none or off-peak slots only. The European Commission has, however, introduced

legislation that would help regulate the market (Roche, 2011). Secondly, the concept of

predatory pricing, based on the incumbents, squeeze the new entrants by lowering the prices

temporarily. The aim is usually to limit the profits of the new companies until they are drawn out

of the market when they increase the prices back to the original levels (Palma, 2011).
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The Frequent-flyer programs are used as marketing schemes by the airlines giving

bonus flights, free accommodations, or free gifts (Palma, 2011). Only the older and larger

companies can offer such treatments to their customers, hence, outshining the new entrants. The

programs go hand in hand with the economies of scale (Schirmer, Hoehn & Vogt, 2011). Studies

show that the average cost when using a larger aircraft is lower than when using a smaller one.

The more major companies, with high capacity aircraft, tend to charge less than the upcoming

ones, with smaller shuttles.

Although the entry to the industry may seem difficult due to the high capital

requirements, the barrier remains a moderately high threat (Palma, 2011). It is arrived at by

considering that the governments and the Commission have over the recent past liberalized the

industry. If an emerging company has a strong cash position, the barrier cannot be significant as

the firm can favorably compete in the war of price and give incentives to their customers (Anon,

2016).

1.2.2 The Bargaining Power of Suppliers.

The aircraft manufacturers have a high bargaining power if they are concentrated.

However, there are only two key players globally, the Boeing of the US, and the Airbus of

Europe. Others are smaller companies which focus on smaller regional aircraft (Haas, 2009).

Since the airlines cannot substitute aircraft by any other product, the suppliers remain influential,

although the recent discoveries and new airline business models have made the bargaining power

to decrease (Cento, 2009). Subsequently, the global Inventory Network was put in place to curb

the inefficient development of aircraft.

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Within the Airports, the supplier’s role is to provide streaming services. The soaring costs

can be lowered by developing alternative routes to regional or secondary airports which provide

quick turnaround (Palma, 2011). One of the ideal ways of dealing with the suppliers by the

airports is by attracting various airline services that would ensure diversification.

The bargaining power of the suppliers is generally a low threat. There has been a

reasonably small economic stability in the industry. Further, liberalization and competition have

helped decrease the bargaining power of the airports facilities (Johnson et al. 2008). However,

the primary airports still have a stronger bargaining power than the second regional ones because

they have not reached the critical mass. Since neither the manufacturers nor the airports seem to

bother with the creation of an airline, the threat remains low (Cento, 2009).

1.2.3 The threat of substitutes

Among the threats of substitutes is the availability of alternative modes of

transportation. The options include automobiles, buses, as well as business or corporate

aviation. The availability of high-speed rail services such as the TGV and the Eurostar has been

taken to be an easier and cheaper alternative to air transport (Schirmer, Hoehn & Vogt, 2011).

Technological innovations like the use of video conferencing may limit face to face meetings

that would make people travel to distances far apart. A good example is the use of

telecommunications between companies and their correspondents lowers the information

transmission costs (Haas, 2009).

Nevertheless, it is not likely that the alternatives means of transport will impact severely

on the air travel although future deregulation might narrow down the competitive gap. Similarly,

the issue of technology does not affect the VFF travel segments or leisure, in which the
 INDUSRIAL ANALYSIS 10

passengers’ primary aim is to present them physically at their destinations (Johnson et al. 2008).

The threat of substitutes is, therefore, relatively small. The low fare airlines are still competitive;

owing in mind that air travel remains the fastest and convenient for distances beyond 400 km

(Johnson et al. 2008).

1.2.4 The Bargaining power of the buyers

Due to the customers who purchase flight tickets are never concentrated and do not

purchase large quantities, they have had a low bargaining power in the airline industry (Haas,

2009). It is a threat exhibiting a backward trend as the customers would not consider buying an

airline itself. However, there has been a rise in the bargaining power over the recent years as a

result of the Internet development, in which a customer can quickly access a cheaper ticket by

visiting the airlines’ websites or the price comparison sites such as the Travelocity, the MrJet, the

Priceline, or the Orbitz (Cento, 2009). The increasing bargaining power of customers is

attributed to the emergence of low-fare airlines.

1.2.5 The existence of rivalry among the key players

The liberalization process has led to increased competition and consequently, increasing

the rivalry among the existing firms. Competitive rivalry arises from conflicts between low-fare

airlines and the full-service ones, or in between the low-fare services. Further, competitive

rivalry has been increasing as a result of mergers and acquisitions (Johnson et al. 2008). Two or

more firms may merger, prompting the others to do the same to increase the market share. This

threat is, therefore, seen as a high threat as the second or upcoming firms will find it difficult to

compete favorably in the no-frill and terrible price trade (Haas, 2009).

1.2.6 The future of the European Airline Industry

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The PESTEL analysis of the macro-environmental factors that influences the Airline

Industry indicates that the technology is fast moving and will bring forth positive changes in

future. Similarly, the Porter’s analysis shows that most of the threats in the industry are a small

type of threats (Haas, 2009). It is, therefore, clear that the Airline Industry is one of the most

aggressively growing sectors. The industry is therefore attractive and bright, though it faces

some challenges. It is mainly through the growth of no-frills and low-cost airline (Cento, 2009).

All in all, with adequate capital funding, the industry is profitable and worthwhile investing.

1.2.7 The position of the aviation sector in the Industrial Life Cycle

The airline industry is currently in its growth phase, having been developed in its first

stage. Today, the dominant design emerges, the production tends to be standardized, and the

market is continuously expanding (Jung, 2013). The stage is characterized by the reduction in the

manufacture costs while the technological innovations are shifting from the product itself to

process changes. The international demand for air transport is projected to grow at a rate of 4.8%

all through to 2036 (Johnson et al. 2008). This stage experiences the emission of the greenhouse

gasses, in which the decision makers are designing the best policies to compact the effects of the

gasses. The global airline industry has over 2,000 airlines, which operates more than 23,000

aircraft and within over 37,000 airports. The expected 4 to 5% annual growths will double the

total air travel (Schirmer, Hoehn & Vogt, 2011).

2. The internal environment

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2.1 British Airline’s Resource based view

An organization’s unique capabilities contribute to the overall competitive advantage as

well as quality performance. The tangible resources within the British Airlines include a fleet of

about 245 aircraft which fly to more than 550 destinations (The WritePass Journal, 2012). The

company, therefore, offers various services including British Holiday tours and the London Eye

Company. The Intangible resources are the International Customer Database and the ONE

WORLD program which operates through partnerships and alliances.

On the other hand, the threshold competencies, involving flight simulators, Cabin Safety

Training, Service Training on the Terminal 5, and Training of Ground School, have also been

part of the British Airlines (The WritePass Journal, 2012). Also, the company employs the

Economies of Scale from the current suppliers and the competency to flies as well as manages

the safety of passengers (Lawteacher.net. 2016).

British Airlines has unique services which are evidenced by the monopoly over the

Terminal 5 of the Heathrow Airport and being one of the premium and reputable brand

worldwide (Lawteacher.net. 2016). It has a long outstanding existence in the Airline Industry.

Furthermore, it portrays its core competencies as the first UK based airline with a training center,

in which professionals qualify for all Cabin crew NVQ level 2. It has an “Open Sky” (The

WritePass Journal, 2012) subsidiary that never boards more than 64 passengers per flight who

are attended to by one attendant in every twelve passengers.

2.2 The Value Chain Analysis

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British Airlines have a developed operational system through both forward and backward

mitigation. The company tends to control its component suppliers in-house and through the

British Airlines Holliday packs to reach its maximum levels within the value systems to its

providers and channel value chains. The support activities include the formulation of a strong

infrastructure that makes use of highly qualified specialists, ensuring quality human resource

management (Kazmi, 2008). Besides, there is enhanced technological development as well as

creating efficiencies in the business relationships and alliances.

Primarily, British Airlines has tried to control the stock, used superior training facilities

to educate the employees, and improved the operations with the suppliers. Concerning

operations, the company has improved baggage security, quick check-in services, and secures

online booking with pre-booking services. The outbound logistics in use are exemplary customer

services with the extensive database of the airport slots that enable the passengers to access

various destinations. In marketing, the company communicates efficiently to all the stakeholders,

use proper branding even if it means additional budgets, and gives out loyalty club cards (Ritson,

2008).

Both the resource based and the value chain analysis shows an integrated strategy. It is

through differentiating the products and services offered by the British Airlines company that the

company achieves a competitive advantage (Ritson, 2008). The superior performance results

from the distinctive capabilities, rather than the reflective costs of operations. It has been argued

that for the British Airlines to become a 5 Star Airline, the quality of its service delivery

surpasses all its main competitors, and that is what differentiates itself from them (Jenkins,

2013).
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3. Public Relations Analysis

British Airways is one of the Branded House. It is the best possible brand architecture

about employer and their services. However, one of its main failures is its vulnerability to future

crisis. For example, the British Airways flight 2276 encountered crisis when it was engulfed in

flames, just before it took off to London Gatwick from Las Vegas (The WritePass Journal,

2012). Through the eye witnesses, the company was able to learn the challenges that face airlines

in connection to the travelers. However, the management was quick to respond, a move that was

done in a professional way, leading to the safety of the passengers (Lawteacher.net. 2016).

One other notable crisis is the constant strikes by the curbing crew members. This is

normally due to the constant reviews in the salaries, where the members threaten to go for a

strike. Recently, more than a third of the crew voted for a strike in 2012, a move that threatened

the stability of the company (The WritePass Journal, 2012). The increased expenditure has seen

the airline’s cut on extra expenses as well as cutting down the salaries of the workers. An

example is the announcement of a strike on 24th of June, 2012 by the SNCTA and Unsa-ICNA

unions (The WritePass Journal, 2012).

Another eviscerating factor is the effect posted on the British Airline’s staff. Unlike T5

boss, named as Gareth Kirkwood, who stepped boldly before even the TV cameras could read a

statement, British Airline's terminal staff stayed out on duty as well as in the firing line. Gareth

then retreated to his office before any questions could be raised (Muller, 2011). The absence of

the very senior managers, or any suitable response from either of them, made service staff targets

the irate passengers, despite the issuance of a statement that pleaded with the public not to hurt
 INDUSRIAL ANALYSIS 15

the employees by the union officials (Ritson, 2008). The concepts of corporate governance CSR

were not observed in the process.

4. Strategic Analysis

4.1 The Business Level Strategy

To achieve high standards, the British Airlines has strategic planning for the

improvement of service from consumer level and management skills, including upgrading

services for Business customers through the introduction of mobile services (Anon, 2016).

Secondly, the modern Aircraft fleets as well as improved services cost control expansion of

terminals and encouraging corporate responsibilities that are done through performance and

partnerships (Anon, 2016). Also, the British Airline Industry is focused on fundamental service

delivery through the people process strategy as well as advancing in technology. The people

process can be traced from the sources outlining the decline in customer satisfaction, whereas the

technological advancement coincides with differentiating the company’s aircraft fleet, hence

improving the experience of the customer (Jenkins, 2013).

4.2 Corporate Strategy

The vision of the British Airline is to be the world’s most competitive airline. The company has

brought its corporate responsibilities under the banner ‘One Destination’. They have set very

challenging goals that would see the reduction of carbon emissions, recycling waste, and

minimizing both the air and noise pollution (Anon, 2016). The management has actively invested

in the community relations programs and boost of setting a record of raising money aimed at

charitable works, including business and the incredible energy in a move that shows its
 INDUSRIAL ANALYSIS 16

commitment to the public (Raisch, 2004). Also, the company has allowed passengers to board

using the print online boarding passes as from 2004, getting new cabin traveler plus which offers

more space and facilities, putting meals on short flights, and reducing the number of staff on

their planes as a cost reduction strategy.

4.3 Future evaluation strategies

In spite of the downturn, British Airlines has continued to mark growth in making

economic stability and meeting the needs of the customers. The company launched new routes

that would run from London towards Hyderabad and the St Kitts (Warner, 2010). It has also

launched Open Skies, as a subsidiary flying from Europe to North America from June 2008.

Subsequently, the organization purchased L’Avion from July 2008 and has introduced the first

London City into New York’s JFK service (Anon, 2016). It is the company’s belief that

investing in an efficient and flexible aircraft makes business prosperity. With the coming of the

new Boeing 787s, the firm has contracted other six Boeing 777-300ER aircraft, with options for

another four similar aircraft (Anon, 2016). The aviation regulators have allowed the

implementation of technology such as the use of WIFI on planes, as in the Fly Emirates.

4.4 Implementation techniques

In implementing the above, British Airlines had Strategic analysis within the organization

and strategic evolution. The strategic analysis shows the clear and many relevant goals,

including, improvising in quality decisions and safe future options. The external environment is
 INDUSRIAL ANALYSIS 17

important in determining the strategic approach (Hillary, 1995). In the external analysis, British

Airlines found out that the increase in the security measurement will ensure the maintenance of

the consumers’ confidence. Reduced the cost of business class travel will encourage more users

to use this service and the introduction of the latest technological elements. The development of

Terminal 5 was considered as a method of transforming the operational performances as well as

consumer service (Hillary, 1995). Training colleagues on the ground as well as in the air have

been a critical factor to improve performance. The other vital strategy of British Airline is to

grow its presence in all the key global towns.

In using the STAIR Strategic Model (Strategy, Targets, Assessment, Implementations

and Results), the British Airlines has been able to position itself strategically into a competitive

advantage (Anon, 2016). The company has targeted the customers’ most intended destinations in

which the travelers move around the airports not served by direct flights. This moves hand in

hand with the focus on the main cities where there is a good catchment area (Hillary, 1995).

Regarding of assessment, the company has identified the middle routes which are more useful in

connecting the traffic, a higher number of commercial passengers, and position their

headquarters in most appropriate hubs. An example is the Jackson Atlanta International Airport’s

Hartsfield, which is the base for the Delta Air Lines. The results have been a tremendous success

that makes the British Airlines the leading air services providers in the world.

Concerning implementations, the company has used the secondary and regional airports

which are cheaper and the strict use of point-to-point service to reduce the passenger transfer

costs. There is also internet booking services, the no-frills approach, short turnaround time, and

the adaptation of the Freedoms of Air.

 INDUSRIAL ANALYSIS 18

Similarly, the use of the RACE model has helped in the realization of the British Airlines

goals. There are four aspects of the design, the Research, Analysis Communication, and

Evaluation. Some of the researches are done by the company involved liberalization and the

macro-environment in the entire Europe. The analysis indicated the need for a liberal

environment and allocating slots of airports across Europe to foster competition (Warner, 2010).

Internet accessibility was also observed as another vital approach to moving with technology.

The move has helped in easing communication and evaluation of the desired results. The desired

end result for the British Airline Company is better operations regarding of scheduled passenger

flights, improved customer service, improved technological applications, and competitive prices

(Warner, 2010).

5. Conclusion

The overall principles behind the business model are low costs of operation with an

efficient aircraft utilization that maximizes profits. First, the European airline industry has

become more liberalized over the recent years resulting in the “freedom of the air,” and the

subsequent opening of the field for new entrants. Secondly, the relationship between the demand

for air travel and the world’s GDP gas put in a lot of pressure on full-service airlines. Though

there is a little request for the aircraft due to the high costs, their services have continuously been

in high demand, resulting in the need for strategic planning by the stakeholders to meet the

requirements. In its part, the British Airlines has seen tremendous success through the

evaluations in the PESTEL and the Porter’s models of analysis, hence, making it a global airline

service.
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References
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Appendix

Below is an analysis involving a case study of the leading airports in Europe as at the year 2010:
 INDUSRIAL ANALYSIS 23

Key figures as on four major LFA ́s and FSA ́s from the annual records of 2010. Profit/losses are

expressed in million € ́s and the passengers numbers are expressed in millions

Revenue Profits Passengers Employees Load BELF

Ryanair 1064 206 23.3 2301 82% 63

easyJet 1637 33 24.3 3343 84.5% 77.75%

Sterling 217 -17 1.7 612 n/a(3) n/a(3)

Maersk Air 258 -66 2.0 5 201 n/a(3) n/a(3)

SAS 6360 -98 32.8 32491 62.7% 65.1%

Lufthansa 16963 405 50.8 92643 73% 81.6 %(5)

BA(3) 11087 190 36.7 50939 72% 68%

Aer Lingus 908 2 6 3806 73 n/a(5)

(1) Passengers per every employee

(2) The Passenger break-even load

(3) British Airways

(4) Data for calculating load

(5) When the BELF is higher than the actual load factor, the Lufthansa should make a loss;

however, they make a profit because of the better performance in cargo services as not all

airlines do have cargo operations.

(6) Data used in calculating the BELF is not used

Sourced from, (Anon, 2016)