Corporate Strategy for British Airways Airlines Compete

Corporate Strategy for British Airways

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.

Internal Audit

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.

External Audit

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.

Competitive Environment

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 money. Another issue for any carrier foreign to the rich U.S. market is that the U.S. government blocks many carriers from routes that they reserve for their own national carriers. There was also the increased cost of integrating electronic methods of ticket taking, maintenance and other functions, but this has been mitigated by the savings the industry receives from increased technology.

The airline industry has been forced, because of external forces such as fewer people flying and increased costs, to find ways to cut costs. One of the methods that has become popular is to partner with others in the industry to give both parties a strategic advantage. British Airways was not a member of a consortium until 2008 when it renewed its partnership with American Airlines, but it has continued to increase that advantage. The goal of any airline is to fill as many of its seats as possible. Since the plane will be in the air anyway, airlines will even give extremely discounted fares to people who buy seats within the 24 hours of takeoff. The reason for this is that the company will still make some money for the seat, and this action further justifies the route that it is taking. Every airline has to constantly analyze the routes it is flying to determine if they are profitable enough to maintain. Sometimes a carrier will drop a route or even an entire hub because that area has become much less profitable.

Another issue for the airlines to look into is the types of aircraft that they are flying and the age of their fleet. Since an airline will generally have many planes that are roughly the same age (it is more economical to purchase a large number of any item because of discounts rather than just a few), they are forced to replace many at the same time also. British Airways is at the stage when they have to replace their fleet to make sure that they maintain their safety record and to reduce maintenance costs.

Strategic Choices

British Airways has put in place a specific strategic plan which began in 2008 and continued through 2011. The main goal of the program was to become the "world's leading global premium airline" (British Airways, 2011). To ensure that they achieve this goal in the coming years, the company has implemented several different programs that will make the process possible.

One of the issues that the airline's fleet is aging rapidly. One of the problems is that British Airways mainly operates out of Heathrow in London. The airport requires a certain decibel ceiling be maintained by the airplanes that fly into the airport to ensure the comfort of the people who live within the flight path of the airport. To accomplish this British Airways is going to complete a major overhaul of their fleet which will also have other benefits. The airline has purchased 12 Airbus A380s and 24 Boeing 787 Dreamliners. With this purchase, British airways will be the premier owner of the new Boeing product. This upgrade will place British Airways near the top of the industry as far as luxury aircraft. This accomplishes the company's plan to become a more responsible company in several tangible ways.

The company has also made plans to increase its presence throughout the world as a premium carrier. To accomplish this strategic goal, the airline has merged with Iberia but they have also increased their routes to some of the major airports in the world. British Airways has announced plans to increase non-stop flights to airports like Dubai, JFK in New York and Riyadh, Saudi Arabia. This will have the immediate effect of allowing customers to have more choices. The airline is also upgrading its personal facilities at all the airports its flights serve. This means that they will have new lounges, better traffic control in their terminals, and new employees specifically dedicated to serving their luxury clientele.

Another strategic plan that British Airways mentions in its annual report is that the company plans to make greater use of social media and the internet. This is a time in every industry when innovating business solutions with this new marketing tool is the best use of resources (Porter, 2004, 230). Of course, along with all other carriers, customers can buy their tickets online and use quicker check-in options. However, the company is beginning to use social media to attract customers by providing links to its services, allow customers to talk to other customers, and to provide up to the minute evaluations of services. The company is going to increase its internet footprint with a new retail site that can be accessed in flight. The internet initiative will also allow in-flight ticket sales and allow customers to make car hire and hotel decisions before they reach a destination. The strategic plan is to use their social network component to help them determine what customers want from their flying experience and then try to make those changes as quickly as possible.

Five Year Plan

British Airways has already been making plans for the next stage of the company's development for the past four years. The company has tried to extend the policies that they already have in place to make sure that they can maintain the success that they have had recently. The five-year plan elucidated here follows those projects.

The company has begun making changes to its hub at Heathrow. British Airways should increase the plans that they have for these spaces to include the Olympics in 2012. The British Airways website lists some plans that the airline has for the Olympics, but it would seem that they could use the inertia from this event to further their own interests. The goal of the company is to position itself as the global leader in premier air service, with the backing of a global event such as the Olympics they could further this goal with sponsorships, low cost travel for potential clients and partnership with the Olympic committee. British Airways needs to take every opportunity further its goal with clever marketing strategies, and the Olympics provides this opportunity.