Airlines compete for a finite amount of passengers worldwide with a growing number of local, national and international carriers. Some airlines are specifically termed discount because they cut their costs in extreme ways to allow passengers to fly at much reduced rates. It is difficult for a full service international airline to compete and turn a profit in the environment that has grown up in the last two decades for the airline industry.
British Airways knows the challenges that are inherent in the airline industry since the airline has been flying since 1971 (British Airways, 2011), but, as with most carriers, the airline has had to continuously reinvent itself to meet the demands of the industry. These shifts have been the impetus behind increased electronic ticketing and surveillance, a move toward mergers with other carriers to gain a greater share of the world market, and partnerships with other national and international carriers to further increase the population that the airline serves. At no other time in history has the airline industry been in the flux that is now occurring. Airlines such as British Airways need to try and anticipate what is going to happen in world financial markets, as well as what is going to happen on other parts of the industry so that they can survive the storms that threaten the company. This analysis focuses on how the company is dealing with internal compliance issues, external financial challenges, what the competitive environment is like, the strategic choices the company has made, and finally devising a five-year plan for the company that will provide it with a more stable future in the industry.
An internal audit can have many functions, but the primary goal of this type of activity is to determine whether a company is operating as efficiently as the governing board thinks it is. This is not a financial auditing process, but an audit of the processes that govern the company. In the case of British Airways, it is important to determine how recent activity has complied with the goals and mission of the company as a whole.
Many companies are implementing environmental guidelines that are concurrent with international goals to reduce carbon emissions, protect the environment from industrial impact in other ways, and assist the community at large through humanitarian efforts. British Airways is no different from other companies in that it has posted a missions statement and a list of goals on its website (and in paper form upon request) so that all of its passengers and stockholders can see how the company plans to become more ecologically responsible. The question is what does research indicate is the reality behind British Airways efforts to become more environmentally responsible?
The company has agreed to fund programs that help reduce its footprint and to begin seeking ways to improve its community. The Environmental Leader (2009) reported that the British Airways CEO reported that "We will make progress through investment in cleaner aircraft, use of alternative fuels, more efficient flight routings, and the spread of emissions trading from Europe to the whole world." This statement backs up the commitment that the company has made to the public. British Airways has also formed a partnership with Solena (an environmental services company) to build a biomass jet fuel plant somewhere in Europe. The company is investing externally to offer people both a more positive view of the company and to provide needed alternatives for people and industry.
One issue that British Airways has had some problems with is that they have joined with other partners for international flight preferences for customers. British Airways recently merged with Iberia and formed the International Airlines Group (IAG). The European Commission determined that this pairing did not violate antitrust statutes on the continent, but the airline has recently come under fire for other possible violations of that law. The charge is that IAG fixed cargo prices and would not allow some businesses to ship. A class action lawsuit has emerged from the fray (Larson, 2010), and British Airways may face large damages from the case. This disregard for collusion on one side and compliance on the other could mean that the company has decision makers in different areas of the company who are not complying with the company's stated mission.
The research seems to indicate that in most areas the company is responsible and visionary with regard to its dealings. However, there are some problem areas that need to be dealt with. If a class action settlement is allowed it could deeply effect the trust people have British Airways and also the financial standing of the company. Although British Airways is a multibillion dollar company, class action suits in the U.S. have ruined companies. Hopefully this one is not that serious.
British Airways also has many different means for making sure that it addresses any issues that arise within the company, hopefully before they become a problem. Employees have different helplines that they can access to ensure that they can receive help for issues such as substance abuse and sexual harassment. Customers are also given free lines of communication with the airline to either register complaints or provide compliments. The company also has an office that is constantly internally auditing the company to make sure that it is in compliance with all regulations that apply to British Airways regardless the country the airline is operating in.
An external audit is a look at the financial stance of a company. Primarily this means that an auditor, either from the company or, more likely, a consultant who works outside of the governance of the company, will look at the validity and reliability of the company's finances. In British Airway's case, it is necessary to look at the financial statements for the company from the last five years, so that the next five years can be predicted.
In 2008, for the first time ever, the company was able to operate in the black. The profit that British Airways posted was short lived though. Late in 2008 the economic downturn began and the company was not able to maintain the same level of profit for the 2009 calendar year. However, British Airways was able to recover in 2010 and show a profit (British Airways, 2011). The company did not run as many routes as it had in the past couple of years, but they had basically the same passenger volume. Thus, they were able to cut down on expenses such as fuel and taxes paid. This led to a significant profit. In 2011, the company (which has not released a 2011 annual report yet) had its first full year as a partner with Iberia in IAG. The financial statements for this complete period are not available, but the annual reports show that British Airways as an individual entity remains profitable, but that IAG is severely in the red. The problem seems to be that Iberia continues to operate unprofitable routes to South America. Although one of the reasons for the merger was that British Airways could have greater access to these routes, it may take some time before they are profitable. The merged company has talked about discontinuing some routes and also they have decided to have fewer direct flights to some destinations. The danger for British Airways financial standing is that the merger with Iberia may have the opposite effect that it was intended to. British Airways merged with Iberia to increase revenues and become the third largest carrier in the world. Although they have become the third largest carrier through IAG, they are in danger of losing money because of their association with an unprofitable partner.
The industry within which British Airways works is one of the most competitive in the world. There are many airlines that want to try and service a very finite amount of customers which creates an unstable environment (Kay, 1993, 229). This pool of customers can also change dramatically as the number of airlines either stays the same or increases. Since operating margins are extremely low, even in times when there are enough customers to fill all of the planes a carrier has in the air, an airline has to find ways to reduce overall losses so that it can remain viable. British Airways has tried to increase the number of places it flies, by adding South America in their merger with Iberia, but that also means that they increase the competition that they face.
The airline industry has gone through some very tough times in the past few decades because the costs of fuel, maintenance (many carriers have had to replace entire fleets including the overhaul that British Airways has been doing), increased screening due to the ever present terrorist threat, and increased regulations for safety purposes. In order to comply with the regulations imposed by the different countries through which British Airways flies, they have had to spend more…