Swot and Pestel Analysis of an Organisation of Your Choice. British Airways Plc

HAMILTON COLLEGE LONDON Association of Business Practitioners (ABP) Assignment In Strategic Management & Business Planning (SMBP) Assignment Assignment Topic: SWOT and PESTEL Analysis of an organisation of your choice. Submitted by: Jon Jon Villanueva 18786/PGD/110786 Submitted to: Mr. Fayyaz Alam Instructor Submission date 17th of June 2011 Table of Contents Table of Contents …………………………………………………………………….. 1 Executive Summary …………………………………………………………………. Introduction …………………………………………………………………………… 3 Companys Overview ………………………………………………………………… 4 SWOT Analysis ………………………………………………………………………. 6 Strengths …………………………………………………………………….. 6 Weaknesses ………………………………………………………………….. 7 Opportunities ………………………………………………………………… Threats ………………………………………………………………………… 8 PESTEL Analysis …………………………………………………………………….. 9 Political ……………………………………………………………………….. 9 Economical …………………………………………………………………… 10 Social ………………………………………………………………………….. 10 Technological ………………………………………………………………… 1 Environmental ……………………………………………………………….. 12 Legal …………………………………………………………………………… 13 Porter’s Five Forces Analysis Model ……………………………………………… 13 Diagram of Porter’s 5 Forces …………………………………………….. 13 Rivalry ………………………………………………………………………… 14 Competitive Rivalry ………………………………………………………… 14 Threats of New Entrants …………………………………………………… 5 Threat of Substitutes ……………………………………………………….. 15 Buyer Power …………………………………………………………………. 16 Conclusion ……………………………………………………………………………… 17 References ………………………………………………………………….. ………….. 18 Executive Summary This report was produced for the purpose of analysing the internal and external analysis which affects British Airways plc (British Airways) strategy.

British Airways is a fast growing airline company applying the innovative approach of their strategic process, however they have experienced conflicts dealing the market for the reason of increase of competition in the market. The report begins about the history of British Airways which started after the end of World War I. Describing the company’s objectives and long term vision. Analysing the internal and external analysis of the company using, the SWOT analysis. The report explains the external factor that affects British Airways strategy by using PESTEL analysis.

Lastly, explaining about the Porters five forces diamond mode about rivalry, supplier power, buyer power, threats of new entrants and substitutes. British Airways must maintain and improve the innovative approach to customer’s service, which serves as their competitive advantage to their rivals. They must convert their weaknesses into strengths to have a successful strategic plan. INTRODUCTION British Airways started after the end of World War I. They launch the first day international scheduled flight from London to Paris on 25th of August 1919 with its forerunner company, Aircraft Transport and Travel Limited (AT&T).

In 1924, this was the time that AT&T merged with four fledgling British Airlines to form Imperial Airways Limited. (Curtis, et al. 2003) In 1935, It was formed and privatised owned British Airways limited which few small air transport companies started flights and been merged. In 1939, Imperial Airways and British Airways were handled by the British government to form as British Overseas Airways Corporation (BOAC). In 1950’s BOAC first introduced a direct flight from United Kingdom to Johannesburg, South Africa. In 1958, BOAC introduced a first transatlantic ransport service, using two airplanes named Comet simultaneously flying between London and New York. In 1960’s, other different British transport airlines started competing and having the same services as British Airways do. In 1970’s, BOAC and British European Airways (BEA) joined forces to provide more route service to the customers. In 1974, BOAC and BEA merged to form British Airways. In February 1987, British Airways was privatised and many people have bought the shares for investment. In February 1999, because of the success, BA made an Oneworld® alliance and maximises the connection to airline companies around the world.

These are Aer Lingus, American Airlines, Cathay Pacific, Finnair, Iberia, and Lan Chile. (Curtis, et al. 2003) Company’s Overview This Strategy and objectives is based in British Airways annual report and accounts year 2008 – 2009 “In an incredibly tough trading in the market, British Airways have to focus hard on pulling themselves through the immediate crisis, while preparing the business for better economic times. This year British Airways have mapped out a long term vision for our business. “It is to be the world’s leading global premium airline. ” British Airways (2009)”

British Airways (2009) emphasised their long term vision statement which is “Global Premium Airline”. Global What British Airways offers, they will appeal to customers across the globe. Whenever they operate, individuals and business travellers similarly will want to fly with them whenever the customers can. Premium British Airways will ensure that all customers enjoy the unique premium service wherever and whenever a customer comes in contact with them. BA’s Customers will recognise that service they offer is worth paying for. Airline British Airways will continue serving its customers and focusing on aviation.

Transporting people and goods is their core business. BA will develop new quality products and good services for compliment. British Airways was the first airline who introduced flatbeds in the airplane which is the latest World Club Cabin Class. It is installed in a long haul aircraft 767. (British Airways, 2011) It was very successfully operated by BA. BA aims to provide good quality services with high standard of facilities for all its customers. There is overwhelming results and good feedback from business and leisure customers. SWOT Analysis (Source: Scribd, 2009)

To assess where British Airways stands in the market, they need to analyse the Strength, Weaknesses, Opportunities and Threats (SWOT Analysis). The SWOT Analysis can sometimes be called as the Internal Analysis and External Analysis as well. It is very effective way for a quick review to the company’s performance. Basically, the Strengths and Weaknesses can analyse internally which deals on the competitive advantages of the company and also to understand its weaknesses. The company can also determine the Opportunities offered through feedback from the customers and market research.

And lastly, it can identify the Threats of the organisation face from the competitors. (Mindtools, 2011) Every company has its own weakness. A major challenge for each and every company is to convert weaknesses into strengths. (tutor2u, 2011) SWOT Analysis of British Airways Strengths Costumer Oriented Customer’s service of BA is one of the competitive advantages which the innovation was tied up and made by IBM. Implementation of self check-in service is more convenient for the customer which also improves customer’s service.

It is much more reliable and faster to check in online rather than having a long queue check in process. This innovation also lessens BA’s expenses. (IBM, 2010) Brand Image BA established a brand image and has been very popular not only in Europe but also around the world having a good objective as a Global premium airline. (British Airways, 2010) BA has a reputation as a first class airline carrier due to its easy recognisable global brand image. Weaknesses Managing Employees Escalating strikes from BA employees have cost more than ? 150 million.

Good communication from management is essential to maintain good relationship between employer and employees to prevent further actions that could jeopardise the companies standing as well as its profit margins. (Daily mail reporter, 2010) Lack of management Based on the history of BA, they experienced poor employee relations which lead them to a terrible state. Experiencing many industrial strikes and loss of managers who offered voluntary redundancy as global downturn forces cut in wages bill. (Kisiel, 2008) Opportunities Expanding Aviation Market More and more opportunities for expanding aviation market, leisure and commercial use.

This also applies to international flights in particular. BA can significantly increase passenger capacity to link with other airlines. Through adjusting flight schedules and partner airlines can provide service through code-sharing agreement to the destination carrier partners like they did with the first transatlantic flights to the United State. (Fulton, 2011) Internet Access On-Board The technology can also lead to higher profits due to improvements in customer service environment such as internet access in flight and other value added products for which customer will pay extra.

Technological advances may result in savings or lessens BA’s cost, from more fuel efficient aircraft to more automated processes on the ground. (Sharma, 2010) Threats Oil Price Hike All airline companies are aiming to have a high profit and lessen the expenses for the success of the company. A serious threat is an incremental increase of oil prices because if the oil price increases, the expenses of the company will also increase. As I mentioned also in PESTEL Analysis under economic factors, it may also increase fare charges and this can cause problems to the company because the loyal customers might move to BA’s rivals. Guardian, 2011) PESTEL ANALYSIS (Sources: Johnson et al. , 2008, p56, cited in scribd, (2009) and BA Resources, (2010)) PESTEL stands for Political, Economical, Social, Technological, Environmental and Legal. PESTEL analysis deals with the external force that affects the strategy of the business. This can be used for business development and decision-making. It is a tool that is useful for understanding market growth or decline which helps businesses better understand their position or potential and direction. (Chapman, 2010) How does this factor affect the company?

This analysis is often used in every business establishment to evaluate the most important factors, which can affect the company not only now but also for the next few years. (Lawson, 2006) Through this processes, British Airways can evaluate the effects of external environment forces and reflect it to British Airways strategy. PESTEL Analysis of British Airways Political Heavy handed-regulation and structural deficiencies (Buyck, 2010) * British Airways must comply with the rules and regulations based on the standards of Association of European Aviation (AEA).

British Airways cannot compete with other global airline companies like Emirates, Etihad Airways and Qatar Airways if AEA will gradually increase the taxes and charges every year. AEA decided to end the heavy-handed regulation in Europe for them to compete on a worldwide scale. Willie Walsh, AEA 2010 Chairman and British Airways Chief Executive Officer (CEO) stated at the body’s President’ Assembly in London “Our success is Europe’s success,” (Buyck, 2010) Continuing more tight security * Sufficient security measure should be in place. Terrorism is unpredictably spreading worldwide.

Having an example, September 11, 2001 suicide bomber attack at World Trade Centre in New York. (September11news, 2001) * One employee from BA who is an Information Technology (IT) expert was found guilty, preparing terrorist attacks. If BA did not notice the insider, the terrorist might of blown up the complicated computer systems of BA and it would have caused a big loss for the company. (Dodd, 2011 ) Economical Economic growth * Based on the United Kingdom Office for National Statistic, the Gross Domestic Product (GDP) increased economic growth by . 05 percent in the first quarter of 2011 up 1. percent in the corresponding quarter of 2010. (Statistics, 2011) As the international economy grows, the demand of air travel can be expected to increase. Oil price * BA’s CEO stated that “we have had recent surcharge adjustment” additional fare charge of long haul flights for economy and business class costumers. If the price of oil increases, BA fares will be expected to increase. (Guardian, 2011) Social Culture change * Managing culture is very important in every organisation especially for BA because in 1980, BA experienced profit losses due to their culture and history of inefficiency.

Changing a military mentality culture which was mainly operationally focused towards a profitable commercial company. (Emerge, 2006) Ageing Population * Based on National Statistics, elderly population increased by 16 percent in 2009. National Statistics Online, (2009) Good opportunity for BA’s profitability because elderly people are travelling more due to a high disposable income. Technological Air Quality * BA’s new technology has put emphasis on upgrading and modifying engine combustions for long-haul aircraft. This has lessened the effect of harmful emissions on the environment. (British Airways, 2008)

Online Bookings * Nowadays people have more confidence booking online in a reputable company with confidentiality and security. Many customers prefer the convenience to book online compared to booking by phone or in person. BA must ensure a simple step by step procedure is easy to follow to persuade more customers to book online to reduce BA’s administrations costs. Although it cannot become over reliant on online bookings as it can alienate some customers (e. g. elderly people). Innovations * British Airways was the first airline who introduced flatbeds in the airplane which is the latest World Club Cabin Class.

It is installed in a long haul aircraft Boeing 747 with four class configuration including Club World and the new First Class. The First Class consists of 14 luxury seats for passengers. British Airways’ First Class cabin is compromised of individual suites allowing customers to have their personal space and luxury. It was very successfully operated by BA. BA aims to provide good quality services with high standard of facilities for all its customers. There is overwhelming results and good feedback from business and leisure customers. Environmental Expansion concerns There are objections from the local community to the expansion of Heathrow Airport’s third runway on environmental grounds. (British Airways, 2008) Many factors need to be considered (e. g. residents concerns regarding noise and pollution effects on the area). In 2009 the approval was given to the third runway expansion supported by Terminal 6 in the future. However, following the change of government, this decision has been reversed. (Airport International’s UK Correspondent, 2010) Legal Trade Unions * BA has suffered the worst strike action form BA’s cabin crew because of cost-cutting by the airline. Daily mail, 2010) Based on ATW Daily News, February 25 cited in website states that BA will experience more strike actions based on the result. 83% voted yes for industrial action from 6,981 members. (ATW, 2011) BA must have a good reputation to the employees to prevent losses and industrial strike actions. * BA has suffered many strike actions based on escalating strikes of staffs. Until late 2008, 1400 British Airways managers offered themselves voluntary redundancy as global downturn forces for the reason of cutting in wages bill. Kisiel, 2008) Porter’s five forces Analysis Model (Sources: Kurt et. al. , (2010), (Scribd, 2009) ; (QuickMBA, 2011) ) A few years ago, renowned business or one of the world’s best-known business academics Michael E. Porter characterized five competitive approach forces that influence on planning strategies in a model known as Porter’s Five Forces. Recently, offered his updated model for the effects of the new market entrants; bargaining power of buyers; bargaining power of suppliers, threat from substitute products; and the rivalry between the competitors.

Kurt et. al. , (2010) Figure 1. Factors to be consider upon implementing Porter’s Five Forces Diamond Model (Source: QuickMBA, 2010) Rivalry The industry is known to be disciplined, if rivalry between companies in an airline industry is low. The industries history of competition may result in this discipline, or an unwritten agreement, with a general code of conduct maybe entered into by a major firm. Collusion is not permitted as it is in most cases considered illegal. Therefore competition amongst low rivalry industries must be controlled informally.

However in a disciplined market is venerable to nonconformist firm’s intentions to gain a competitive benefit. Rivalry intensifies, when a counter response, is needed to offset a rivals increased aggressiveness to gain an advantage over its competitors. The levels of intense rivalry are known as cutthroat, intense moderate, or weak. In trying to gain an advantage over its rivals, firms use various competitive moves: Shifting prices – increasing or decreasing prices to gain a short-term advantage BA’s rivals like Easy Jet and Ryan Air having shifting prices strategy which gives them a short term advantage.

Getting better product – getting better characteristics, implementing innovations in the development process and in manufactured goods itself. The standards of products and services of BA is up to standards which they assure that company assure to meet a high expectation of customers. Competitive Rivalry BA operate flights through long haul and short haul flights which have a high competitive advantage through its rivals like Virgin Atlantic, Easy Jet and more. BA’s long haul flights have a little differentiation in terms of cheaper deals for business and leisure customers.

BA also gives a high quality service and offering high standard facilities to their luxurious and comfortable flight with its new features implementing flat beds cabin. Threat of New Entrants In making a business which is existing in the market is very risky, especially airline companies having a wide scope of management. There are many things to consider, such as capital of investment. Airline industry needs a very high amount of capital to run the business. Good location of airline business can help leading to success.

Like for example, British Airways have plenty of hubs locating in the city and tourist spots like London, Paris, Greece and more. Threat of Substitutes Substitute products in other industries are referred to in Porters model. The threat of substitutes is clear to the economist when the price change of a rival substitute product is due to product demand. Product price elasticity is when customers have more choice, due to more substitute products on the market; this makes the market more elastic, which makes it more difficult for a company to be able to increase prices.

While price competition is a major consideration, of the threat of substitutes, there are other considerations to be taken into account when assessing the threat of substitutes. The threat of substitute of British Airways is low. There are only few direct substitutes. In short haul flights, a direct substitute are by train or by ferry. Having these substitutes, it can save money but the time is longer to travel. There are no suggested substitutes. Most of the customers are not willing to find substitutes. One important point to consider is Time allocated for a short trip.

It takes a long time to travel to reach a specific destination. For me it is not reliable to have a substitute for short haul flights unless it is for leisure or relaxation. Buyer Power The producing industry is impacted on the buying power the customer has. Generally the buying power is robust thus the producing industries relationship is what an economist would call MONPSONY a market that has only one buyer but many suppliers. The buyer under these circumstances is able to fix the price. However in reality very few monopsonies exist. But quite often there is some irregularity between a producing industry and buyers

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