British Airways is a renowned airline company, which has gained success as well as faced some issues which have resulted in a decline in the airline’s popularity and prestige among the target market. This report has offered an overview of the external environment of the company, using PESTLE analysis for macro-environment analysis and Porter’s five forces model for micro environment analysis. The internal analysis of British Airways was carried out through Resource Based View, which indicated that there are tangible and intangible resources that British Airways is using, however, the component of human resources is in need of improvement which would enable the company to use its resources for gaining an edge over competitors. The value chain analysis shows that the company is handling most of its primary functions and support activities in an effective manner. The management of human resources remain an area of concern, as depicted in the value chain analysis. The emergence of PR crisis at Terminal 5 can be attributed to the lack of competence in the management and employees to handle the issue of the customers. Moreover, the adoption of unsuitable PR tactics for crisis communication has made the situation worse. The report further presents analysis of the business and corporate level strategies of British Airways, outlining the recommendations that can be followed to achieve organizational success. Furthermore, the implementation plan and evaluation of the applied strategy has been discussed.

1. Introduction

British Airways (BA) is one of the leading airline companies operating in UK, with a rich history of over 95 years of working in the airline industry. From the first flight in 1919, the company has moved towards significant growth, reaching the current scope of operations in the form of different subsidiaries and joint ventures (British Airways Plc, 2014). BA is managing its operations through the large scale fleet comprising of numerous models of Airbus, Boeing and Embraer aircrafts to run the scheduled flights in the domestic and international arena catering to the needs of travelers in 400 different regions (British Airways, n.d). In 2014, the company was able to illustrate a stronger financial position in the airline industry as evident through the operating profit of £975 million, which shows a significant increase from the profit of £708 million a year earlier.
This report aims to provide an overview of the macro and micro environment of the industry, identifying the key dynamics in the external market through suitable strategic analysis tools. Moreover the internal environment of the company constitutes a part of the discussion. Another area that has been a focus of the report is the public relations crisis that British Airways has been facing, evaluating the implications of the crisis on the company. Lastly, strategic analysis for British Airways will provide insight into the current business and corporate strategies, along with identification of strategic course of action that can be adopted to further strengthen the company’s position in the airline industry.

2. Analysis of the External Environment

The industry in which a firm operates is seen as comprising the macro-environment as well as the micro-environment. PESTLE analysis is a commonly used tool focusing on evaluating the broader external forces that can have an effect on the operations of a business entity. In case of micro-environment, Porter’s five forces model offers information about the dynamics of a specific industry.

2.1 PESTLE Analysis

The following section provides the implementation of the framework of PESTLE analysis to evaluate the environment of the airline industry, which tends to effect the business operations and strategic direction of British Airways.

Political

The political factors hold a great deal of importance for the airline sector as the operations of the airlines and management of flights to different destinations are dependent on the political climate of a region. In cases where a country is experiencing political turmoil, the operations of the industry and its players can be negatively affected (Nataraja & Al-Aali, 2011). British Airways, is effected by the political environment in the UK as well as the other locations which are included in the flight coverage. It has been further observed that threat related to terrorism can have a negative impact on the scale of operations of the organization, reducing the number of travelers, thus becoming a source of low profitability for the organization (Kim & Gu, 2004). Moreover, the decision to include a destination in the airline operations is heavily dependent on the political stability, as reflected through the decision of BA management to exclude the option of managing Iraq as a travel destination for its flights (Sullivan-Taylor & Wilson, 2009).

Another way through which the political factors influence British Airways is the degree of control a government has on different markets and the mechanisms adopted by the governmental institutions to intervene in the business operations. The taxation implemented by the government is central in this regard as taxes such as Air Passenger Duty brings changes in the air fare which alters the demand of the air travel services, while the revenue generated from the airline services is also effected (British Airways Plc, 2014).

Economic

The economic position of a country can shape the growth or decline of an organization. In case of the airline industry, BA was even though a leading organization, the financial crisis had a significant effect on the profitability. As mentioned by Milmo (2009), the company had to bear a loss of £401 million, due to the lower number of corporate passengers engaging in air travel. The financial position of the international markets created an unfavorable business environment for the company. The increase in fuel prices was another notable variable that had a strong impact on the financial output of British Airways during the financial crisis. However, the recent decline in fuel cost has created a positive economic environment for the organization, assisting it in attaining a higher level of profitability (Wall, 2016).

Social

The changes occurring in population trends carry implications for the airline industry. According to Shaw (2011), the rising number of older people in the population indicates a greater number of air passengers. Along with that, the company operations needs to be adjusted in accordance to the population needs as the increase in senior passengers would necessitate the inclusion of assistance that these passengers would need. Other social factors that can affect the degree of sales generated by British Airways are the social preferences and taste of people as reflected through the higher demand for low cost air travel. Moreover, security issues need to be managed effectively to maintain the trust of the consumers and retain a positive brand reputation in the industry which can result in higher demand for the company services (British Airways Plc, 2014). The duration near the holiday season is likely to result in higher demand of air travel, which reflects the role played by the seasonal influences on airline travel, and the number of passengers for inbound and outbound destinations.

Technological

Airline industry is dependent upon technology which enables the airline operators to manage their operations in an effective manner while providing the travelers with a safe air traveling experience. The success of British Airways is heavily dependent on its up-to-date IT systems and integration of latest Boeing, Airbus and Embraer air crafts. Apart from that, the company has used technology to connect with its customers in a more effective manner. For instance, the development of BA app has made it easier for the travelers to receive updated information about the terminal for their specific flight (British Airways Plc, 2014).

Legal

The participation of organizations in trading entities such as European Union can affect the way airline contracts are managed. The Open skies agreement has created a relatively open market for the airline industry players, allowing them to expand the scope of operations and gain benefit from the exposure to a deregulated industry (Button, Neiva & Yuan, 2014). The governmental laws about passenger safety and the security protocols need to be followed by the organization to maintain the flow of organizational processes. The impact of unions on the handling of employee relations constitutes another important factor in the legal environment of British Airways. Moreover, there are some legal issues being faced by BA, which depict the way the laws influence the company operations. For instance, Reed (2015) has pointed out the litigation being faced by BA, which is related to the issue of toxic cabin air which is seen as compromising the degree of well-being of the airline staff.

Environmental

The influence of regulations related to the environment friendly business operations and reducing the carbon footprint of the airlines managed by the different industry players are important in this regard. The increased emphasis on integration of means for reducing the emission of toxic gases has resulted in the adoption of corporate social responsibility related initiatives by different airlines (Cowper-Smith & de Grosbois, 2011). Similar to other airlines, British Airways has been propelled to include the carbon emission reducing technology and implement the environment friendly business operations to indicate the support for the preservation of the environment.

2.2 Porter’s 5 Forces Model:

The Porter’s five forces model of the airline industry and its connection with British Airways is discussed as follows:

Threat of New Entrants

The airline industry requires a high degree of capital to be able to enter into the industry and gain success, thus creating high barriers to entry. This situation creates a positive force for British Airways as there is a low threat of new entrants. The existing airlines constitute the players in the industry, with reduced likelihood of new companies venturing into the airline industry (Bennett & Strydom, 2001).

Bargaining power of buyers

There is availability of airlines offering low cost traveling options. However, the changes in taxes bring alterations in airfare and the international and domestic travelers have to cope with these changes. Therefore, it can be seen that the buyers have low bargaining power in the airline industry.

Bargaining power of Suppliers

Boeing and Airbus being the leading suppliers of aircrafts retain a strong hold in the airline industry, resulting in dominant position of these two suppliers. The bargaining power of these suppliers is moderate as they need to maintain positive relations with the buyers of the aircrafts. British Airways has included different models of Boeing and Airbus in its fleet, indicating that it is a key purchaser of these aircrafts (British Airways, n.d).

Threat of Substitute Products

The substitute products are alternate means of traveling, however they do not offer the same ease of traveling as compared to the airline (Dyck & Neubert, 2008). For instance, travelers can choose to travel by road, but it will be more time consuming and hectic. However, the local airlines tend to face the threat from alternate means of traveling to a moderate level, while the international airlines are not significantly effected due to substitute options for traveling.

Threat of Competitive Rivalry

There is intense level of competition in the airline industry, resulting in high threat of competitive rivalry for British Airways. Competition in the airline industry arises out of the different modes of transportation, while the airlines in the industry also strive to gain a higher market share, thus constituting (British Airways Plc, 2014). The company faces intense competition from the airline rivals such as Virgin Atlantic, United airlines, Easyjet etc.

3. Analysis of the Internal Environment

The analysis of internal environment of a company can be carried out using the tools of resource based view and value chain analysis.

Resource Based View

The framework of resource based view (RBV) is based on the notion that the competencies and assets of one firm are different from the other, which results in the variation in the performance of different companies (Haberberg & Rieple, 2008). The resources possessed by the organization need to be able to support it in creating a differentiated position in the market as well as facilitate the effective implementation of the business strategy, which establishes the context of gaining a sustainable competitive advantage. The core ingredients which become a resource for gaining competitive advantage comprise resources that are valuable, rare, inimitable, and non-substitutable.

Valuable

The resources when contribute in creation of effectiveness and efficiency of a business entity, they are regarded as valuable. In case of British Airways, the value creating assets for the firm are technology, the aircrafts included in its fleet and the availability of financial capital to regulate the smooth flow of operations. The intangible resources that create value for the airline company is the experience and competence of the personnel (British Airways Plc, 2014).

Rare

The rarity of a resource makes it a tool for gaining an edge in the industry as the possessor of the resource can exploit it to increase the effectiveness and efficiency of its operations. In case of British Airways, there is no significant resource that can be identified as uncommon. The technology adopted by BA has been integrated in other airlines, the price advantage also doesn’t offer any rare asset.

Inimitable

The competitive advantage in the long run can only be gained if the resources of an organization are difficult to duplicate by other firms. The adoption of technology, introduction of new aircrafts, pricing packages and features of air craft can be replicated by other firms. However the human assets and the capabilities that they bring for British Airways can’t be imitated by the rival firms. According to Prokesch (1995), British Airways has been able to create a loyalty among its customers by providing them with a high quality of service, which was a reflection of the use of innovation by the management and employees. But the issues of mismanagement has decline company image.

Non-substitutable

According to Henry (2008), a resource can contribute to the competitive position of a firm if it can’t be substituted by other sources. The human resources can’t be imitated, however close substitutes can be achieved by the organizations by recruitment and selection of personnel who can bring similar innovative ideas to their respective organizations. British Airways can use its human resources as a means of gaining competitive edge, but the rival firms can employ workers with similar level of abilities and creativity, thus reducing the effectiveness of this resource as a Non-substitutable advantage.

Value Chain Analysis

Value chain analysis includes the evaluation of primary and support activities of an organization and play role in the creation of value for the firm.

Primary Activities

Inbound logistics

The inbound logistics for British Airways involve the input from suppliers that maintain the flow of goods used for preparing the refreshment items for the passengers (British Airways Plc, 2014).  The management of these raw materials is important as the quality of final meals is dependent on this process.

Operations

The company operations include the handling of the travelers in terms of their baggage handling and the convenience and comfort that they are offered from the time of check out to reaching the destination. The key component here is the use of technology which helps in the efficient handling of these operations.

Outbound Logistics

The outbound logistics for British Airways involve providing the customers ease of booking for the seat in the airline and facilitating the travelers through providing them with good quality customer care services.

Marketing and Sales

Another area included in primary activities is marketing and sales, which enables an organization to connect with the external stakeholders of the organization including shareholders and customers. British Airways, has used technological tools to gain insight into the needs of the customers and shape the marketing tactics accordingly (British Airways Plc, 2014). The company has invested a substantial amount of capital in the development and management of a marketing campaign aiming to emphasize the slogan of “To Fly. To Serve” (Sweney, 2011).

Service

The after sales services is practiced by BA through offering the travelers Executive Club membership cards, digital cards and the BA application to facilitate the customers in an effective manner.

Support Activities

Company infrastructure

The infrastructure of BA serves as a strength for the organization as it enables the management and employees to carry out the operations in an effective manner. The availability of technology, financial support and human resources reflects the company infrastructure which facilitates in the handing of company operations.

Human Resource Activities

HR activities determine the ability of an organization to take benefit from the human assets and use their competence as a means of gaining a stronger position in the market. The airline staff is trained to implement the quality standard which define the safety and security protocols of the airline industry (British Airways Plc, 2014). The company has focused on including people from diverse backgrounds and stresses the notion of respect in all interaction carried out in the organization. However the organization has been facing issues in the domain of management of its resources as evident from the conflict between the management and employees at BA (Milmo, 2009).

Technology development

Technology has been an important component for BA management as it is regarded as the main tool for achieving growth and success. The digital membership cards is one example of the use of technology to make traveling with BA a better experience for the customers.

Procurement:

The procurement in BA is managed by contracts with the suppliers of aircrafts such as Boeing and Airbus, as well as the delivery of raw material for the preparation of meals provided to the customers during the flight.

4. Analysis of PR crisis

British Airways has gained negative publicity due to the public relation crisis it has faced in the domain of Terminal 5 mismanagement and miscommunication with the travelers in 2008 (Brady & Davies, 2010). More recent PR issues have arisen out of the ineffective customer relationship management and poor handling of customer concerns, which is creating a negative perception about the brand in the public. In both of these instances, the communication issues are at the core of the problems.
The PR crisis related to Terminal 5 is a significant example of how lack of effective communication can cause harm to the brand image, and the implications it carries on the profitability of the firm (Mills, Mills, Bratton & Forshaw, 2006). Terminal 5 crisis was an amalgamation of poor employee relations and lack of focus on providing positive experience to the customers. The opening of the terminal required presence of adequate staff members to handle the inflow of passengers. However, the cancellation of flights and low number of baggage handling personnel resulted in mismanagement of the customers and their baggage (Butterick, 2011).

The officials from British Airways have made efforts to use crisis communication to connect with the travelers who have faced issues due to the lost baggage, assuring them about the baggage delivery while hinting at the possible delays (Tophm, 2014). It has been further mentioned that in case of the occurrence of a negative event, companies tend to engage in various methods of responding to the crisis event. The management from British Airways has initially adopted denial while handling the issue which proved to be ineffective and generated negative perception among the passengers. Afterwards, mortification was adopted as a crisis handling technique, which involved acceptance of the mismanagement at Terminal 5 and issuing apology (Grundy & Moxon, 2013). Despite these PR management techniques, BA has faced considerable damage to the brand name and brand image, as these tactics were not effective for handling the broad scope of the problem.

5. Strategic Analysis

Business Level Strategy

The business level strategy for an organization provides the strategic direction to the different activities and processes which formulate a part of the company operations. One of the common means of identifying the business level strategy is the generic strategy framework (Harrison & John, 2013). British Airways focuses on the customers that are seeking quality of air travel experience, therefore it can be stated that the business level strategy pursued by the organization reflects differentiation. The key characteristic of differentiation is that an organization uses its quality of service as a means of gaining an edge over the rival companies in the industry. According to Balmer, Stuart and Greyser (2009) BA has used this generic strategy with the aim to bring improvement in the position of the company in the airline industry. Despite the claim of offering the passengers with a good quality service and charging a higher fare than the other low cost airlines, BA has been known for its issues in the domain of customer service. There have been frequent reporting of cases where the customers have not been managed appropriately and the persistent issue of lost baggage (Luckerson, 2013).

Corporate Strategy

There are different corporate strategies that can be adopted by an organization, ranging from diversification to integration. One of the commonly used firm level strategy is growth related corporate strategy, which involves the use of external resources and aligning them with the company’s internal assets to create a means of gaining competitive advantage (Lussier, 2011).

The corporate strategy at BA reflects the use of growth centered strategies for creating value for the organization and expanding its market share. In order to achieve expansion into the different areas of the international market and to increase the capacity to manage the passengers, the company has formed partnerships with other organizations. For instance, the coalition with Japan Airlines and Finnair aims to facilitate the passengers traveling to the destinations of Japan and Finland. Along with that, the company is managing its franchises and subsidiaries, which is aligned with the corporate strategy of growth (British Airways, 2016).
Recommended Strategy for Future and Evaluation:

There are some strategic changes that are recommended for the organization to bring improvement in its market position. British Airways should consider offering low cost travel options to the travelers, along with the premium quality and higher fare service, thus using a blend of cost leadership and differentiation strategy. Focusing on differentiation strategy alone can create issues for the company in case of financial crisis, as people’s preference shifts from premium quality to affordable airfare. The changes in consumer preference and population trends need to be considered while deciding about the strategy. In order to meet the increasing older population and their traveling needs, the company needs to offer training to the staff to be capable of handling the elderly passengers in an effective manner. Moreover, the communication process needs to be improved to ensure that the passengers are able to access the required information and guidance. The company can carry on with the growth related corporate strategy as it seems to be a necessary tool for managing the competitive pressure in the airline industry. The alliances it has formed need to be used as a means of asserting the business level strategy.

The evaluation of the effectiveness of the strategy can be conducted through using the financial indicator in terms of increase in sales and profitability that is not driven by the seasonal or other external factors. Moreover, customer surveys can be used as a means of gaining insight into the effectiveness of the blend of cost leadership and differentiation strategy. An increase in customer satisfaction and positive perception towards the company indicates the success of the strategy. Furthermore, the evaluation of the effect of these changes can be used to understand any flaws and changes can be made in the strategy to address those weaknesses in the company strategy.
Implementation and Final Suggestions:

The implementation of cost leadership strategy along with differentiation would require the management to identify the availability of resources to successfully apply these strategies. The organizational structure and processes will need to be changed to match with the business strategy. Another area that need to be a focal point for the management during the phase of implementation is the competence of the employees to understand and become an active part in the implement of business strategy.

In order to successful apply the recommended business strategy, British Airways will need to offer training to its staff members. The training can focus on the expected changes that the employees need to make to pursue the recommended strategy. In addition, the training sessions can focus on developing the customer management skills of the employees which can help BA in gaining a positive image among the target market and avoid any further PR disasters.

6. Conclusion

The internal and external environment of an organization create the context which can support an organization to achieve its business objectives. However, failure to respond to the needs of the external environment, inability to identify the consumer needs and poor handling of consumer related issues can result in loss for an organization. The case of BA depicts how the airline has declined and is facing a negative image in the market due to the inability to maintain the quality of its services. The PR issue related to the mismanagement at Terminal 5 is a notable event in the airline industry as the negligence from the management has resulted in passenger distress, lost baggage and delayed flights, which wasn’t appropriately tackled by the management. It can be concluded that an organization needs to align its business strategy with the internal and external environment dynamics, along with focusing on the means of gaining an edge over the rival companies. Since human resources are a rare and un-imitable assets for an organization British Airways should use the potential of its employees to direct the company towards growth and success in the airline industry.

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