British Airways (BA) is UK’s biggest international airline company (Punzel 3). It flies to 148 destinations over the world to the best-situated airports. Its main place of business is Heathrow, one of the world’s leading airport locations, which also serves as a large client base from all around the globe. The airline also operates a world-wide air cargo business, mostly in conjunction with the planned passenger services. BA airline system generates economic worth by meeting the demand for business travel, presenting essential arteries for investment and trade, as well as providing leisure travel. In 2013, British Airways earned revenue of 9 billion, which was up 2.7% of the previous year. It carried 777,000 tons of cargo to other places in Europe, America, and the rest of the world. Towards the end of March in 2009, it had a total of 245 airplanes. In the year 2008 and 2009, BA won the award of being the best transatlantic airline in the Skytrax.
Company’s Vision and Roles
British Airways mission “One Destination Seeks To Ensure Our Customers Fly Confident That, Together, We Are Acting Responsibly To Take Care Of The World We Live In” describes the company’s essential function in a society in terms of goods and services to its consumers. The mission statement of British Airways makes the passengers believe that they will be safe in the air and on the ground on reading. The mission statement in BA helps to make the customer feel confident and safe when they are flying British Airways. The vision of BA is to become the most environmental friendly airline in the globe by bringing all the company duty actions jointly under the banner ‘one destination’ (Moyer 173). The organization has set some challenging goals in order to reduce carbon emission to the environment and atmosphere and recycling of wastes materials. The organization has also continuously invested in community relations program.
British Airways present five objectives that the company has set. The first objective is British airline to remain the airline of choice. The objective covers international premium for customers as well as shorter economy flights and transporting of cargo. The second objective is the airline to provide top quality services. The company plans to improve the quality by providing the best customer service in all routes and classes for all passengers and to improve online services (Jonathan 8). The next objective for British Airways is to become a key global city growth. This is planned to be achieved by continuing to expand its airline partnership. Expanding the leading position in London is the fourth pillar, which entails maintaining Heathrow airport as a world-class airport and influence government policies in their support. The last objective is meeting the customers’ needs. The organization projects to achieve this by exploring the latest products through the use of innovative technological platforms and options to enhance customer loyalty.
Stakeholders in the British Airlines
Stakeholders have an interest in an organization or business, for example, benefit from it. In British Airways, there are many stakeholders in the business. The first stakeholders are the customers. Customers help the business by buying products and service; this may include flying British Airways or sending cargo. Customers are the most important element in British Airways because they are the ones makes the business run. The second type of stakeholders is the employees (Piga and Gaggero 273). They are the key players in British airlines; they are the company’s image and have the greatest influence on the customers. The employees need a conducive atmosphere and culture within the company, while the shareholders and stakeholders of the company also need the company to perform well because they own it and want to see their investment yield in value. The suppliers and creditors are also stakeholders in the company; creditors want the company to do fine for them to get their money back. Conversely, the suppliers also want the company to prosper to get market for their products.
Effects of the Prevailing Economic and Market Conditions in Major Markets
The economic conditions that prevailed in British airlines throughout 2009/2010 are the most severe challenge that it has ever encountered. As a result of the depression, the corporation faced a set of permanent structural changes that has significantly reduced the company’s revenue. At the same time, the business experienced some of its internal problems happening. The combination of all these challenges in the company meant that some of the activities in the company needed to be changed. These activities included the need to; raise finance even at the time of crisis to keep the company going, and this presented a great problem to the shareholders. In addition, working practices were changed, and it greatly affected the employees of the company (Brueckner and Flores 165).
The recession made British Airways raise finance even in the time of crisis in the debt markets. In august 2009, the company had successfully raised £350 million through a convertible bond issue. The money provided BA with the much-needed finance to keep investing in the business and maintaining its excellent service. The shareholders were spared the blushes of having to get more money to run the company and to make the customers, and all the stakeholders satisfied. Premeditated alliances have turn out to be the main feature in numerous sectors of the economy and especially in the airline industry (Laurence 304). British airlines is jointly operating with Iberia airlines that will bring real benefits to both the two airlines (Data Monitor Research). Such business strategies have a greater potential of offering more products and give more choice for travelers in these areas. Airlines would become lucrative if they were managed like a just as a tactical global industry (Bisignani 22)
Recently, there have been clashes between the airlines authority and the employees. The airline was unable to pay its employees’ salaries. The cause of this clash and was that British airlines suffered huge revenue falls such that it could not pay all the staff. The shortage of revenue came about because of the Euro zone crisis, which severely affected the airlines economic performance due to a reduction in the number of both cargo and passengers, primarily due to a poor economic outlook. Due to British airlines being luxurious and expensive, many people during this time opted for cheaper airlines causing a fall in revenue. The situation worsened for British airlines when the internal management system disrupted. The strike continued, and even staffs were asked in the month of June 2012 to offer free services. These are issues that face an organization every day and tarnish its brand (Grundy and Moxon 56). A tarnished brand affects the reputation of the airline.
The Influence of Government Economic Policies on the British Airlines’ Operations
Fiscal policy is an act where government exercises spending policies that influence macroeconomic conditions, while monetary policy is the action of central bank or any other regulatory committee that determine the size and the growth rate of money supply which results in affecting interest rates. In the airline industry, many fiscal policies have been directed which has profound effects. An example of a fiscal policy is the amount of air taxes levied on carriers. According to the European Union’s state, the fees are allocated by the government to support the development of the airports, airport securities and other related work in the airport (European Union 195). The air transport association argues that such fiscal policy during these times hinders the airlines ability to right themselves from the bad economic times through self-help policy. Airline transport association also argues that such policy can result in the loss of 129 000 jobs and force many carriers into bankruptcy.
Steps Taken To Deal with the Effects of Competition
The introduction of cheap airlines, for example, Easy Jet and Ryanair amplified the airline industry’s competition (Piga and Gaggero 271). The new airlines have made a mark in the market by offering lower prices for their services; they afford to offer such prices and still remain profitable by increasing passenger numbers in order to benefit from volumes. For instance, the airlines have had to work without intermediaries, board value, and augmented products, and concentrated on offering basic flights between different destinations. The airlines have strategized on pricing models which grow their passenger volumes. The airline carriers are using low-cost pricing strategy, which is a critical market penetration strategy and gaining a larger market share. This triggers a demand which enables to company to remain viable due to a stable and constant flow of passengers travelling with the airline.
The increase in competition as a result of the emergence of rival airlines has made British airways to incur a reduction in passenger numbers. With many other airline companies adopting this strategy, British Airways is also picking up the strategy for its low-cost travels to prevent an interference with the quality of travel service it offers. Competing companies such as Virgin Atlantic and Lufthansa have also adopted the strategies (Flores 1095). This is due to the prevailing market forces such as increased competition, changes in regulatory requirements, oil prices which are the causing factors.
The Effect of Legal Issues in the Business Environment on BA
Apart from competition, there are other legal factors that affect the British airlines in regard to the airline industry in general. For example, the legislations to reduce carbon emissions and noise pollution. Many airlines have to make these changes as long as one of its routes passes through the EU. For the phase between 2013 and 2016, the legislations regarding carbon emissions within the European Union only allowed a percentage of carbon emissions within the EU zone (Schare, 1). Some exemptions have been introduced with airlines with low emissions. BA has also made this as one of its objectives to reduce the amount of emission into the atmosphere. Such changes result in increasing the cost of production for BA and hence reducing the revenue of the company.
Market Factors That Influence the Cost of Services Offered By the British Airlines
Lo 2.1(contains some edited areas)
Price is the worth, which is assigned to a product during exchange. The customer exchanges donation or money for the return of utility or fulfillment. Quality is the first factor, which should be considered in setting the price of a commodity. Prices must be set taking into consideration the product’s worth and customers’ perception. The setting of an inappropriate price for a product is detrimental to the company (201). For instance, if the price is set at lower than the perceived value, the company loses potential profits. The market structure under which British airlines operates in is oligopolistic in nature, meaning that only a few companies operate and compete within the industry. Oligopolies are more competitive than monopoly where there is only one seller of the product, but it is less competitive than industries that experience near perfect competition. One of the characteristics of oligopoly is that they engage in price wars often.
There are different players in the airline industry who can determine the price of seats. Considering that the airline industry is oligopoly, the price of other airlines should be of much concern than any other factor. The factors that can determine the pricing of a seat in the British airlines include prices of other airlines, the prices of train fares, competition, advertising just to name a few (Banister and Givoni 386). When other airlines increase the prices of seats during flights, British airlines are set to benefit from such a scenario. People will opt to go for the cheaper one considering that there are only few airlines in the market. That is one favor, which can affect the prices of a seat in British airlines or increase the demand of seats.
The world oil market prices is another factor that determines the pricing and demand for seats. When the prices of oil increase, it means that the cost of production of the airliners increases too. With the increase in oil prices, most airlines are left with no alternative but to augment the seat price. The increase in seat prices discourages people who wanted to travel by air rather they find another alternative such as trains. Such factor combine with other factors and it ends up leading to reduced demand of no airplane seats. The flight distance is another factor that determines the pricing of seats and demand. The longer the journey, the higher the charging rate of the seats. Same distance but in different directions does not mean that the price would be the same, other factors combine for one to arrive at a certain price for a certain route.
In British airlines, there are different compartments with different pricing. The different compartments mean different prices, different class (Nicolini and Salini, 83). There is an executive class where the seats are of high quality and are high priced. Most people who hold higher offices or powerful people fly in this section. The second section is the middle class, which is at medium quality and medium price. It is in the middle, less than the executive and business class, but better than economy class. The last one is the economy class. During financial crisis, you will find that the demand for economy class is very high, many people during that time cannot afford executive or medium, so many people will be flying in economy class. Such factors help shape the pricing policy of British airlines.
Effect of the Economic Zone Where British Airlines Operate
Part of the edited areas containing objectives for Lo 2.1
British airline is an international airline that operates in more than 300 destinations. BA operates in America, Asia, Europe and many other countries. The company being of British origin, it has chosen Europe has it main global market. One of the reasons behind choosing Europe as its global market is because it is a European Union member. Working with some of these destinations has impacted British airlines positively. A good example is aircraft trade between BA and American airlines, there is free trade of aircraft and so they can upgrade the planes without paying duties (Mainzer 577). Despite the cost of land in Britain being very high, British airlines has managed to set up big factories, which they need for its operations. The airlines sources for other aircraft parts from the neighboring EU countries.
Part of LO 2.2
The EU is a group of countries from Europe, which participate in the world as one economic unit. The union’s aim is to enhance the economic wealth of the member countries by promoting market efficiency and creating a liberalized market zone. The effects of the Union on BA include increasing competition. Legislation has been introduced in the EU to make the aviation industry more competitive, which means that British Airways have more competitors than before. BA should maintain low prices to maintain a competitive edge and remain successful (Hunter 315). Another impact from European Union to aviation is bringing Specific restrictions on liquids. Airlines in the EU have been forced by the law to allow passengers to take gel or liquids in a measure of only 100ml. The law has improved the airlines because people will be more willing to travel in such a plane where they are not restricted to carry any liquid unlike before.
LO 2.3 (Part of the edited areas)
The European Union is a political -economic union between some EU members to set up a common currency. According to the IMF, the effects of the EMU on British Airways include promoting low inflation and stable low-interest rates. The company benefits from the arrangement since it can take credit, which it repays at low interest rates; this boosts the company’s profit. In addition, inflation would be little which benefits the company in that it remains sustainable despite a competitive airline industry. This means that passengers from EU countries would have to pay the same sum if the economic bloc would not have joined together; the pounds increasing against Euro might have made British Airways lose sales as people would be unwilling to spend more Euros than they previously had to spend. The UK joining EU is beneficial; it eliminates instances of inflation which is beneficial in the UK business. If the UK becomes an associate of EMU, BA suffers since it will be forced to pay higher taxes, which implies a reduction in the company’s profits.
In conclusion, British Airways has a critical role in the European and aviation market. It is correct to establish that the British Airways maintain to develop their systems and innovations as their stratagem of improving the organization. These are in agreement to their objective of increasing their earnings and for providing improved services to their clients. With superior services, the organization can continue on maintaining their already established status image and reputation. With the organizations strategies, such as the upgrading their goods, services, and mergers, the company can draw more customers and can assure higher quality in the services provided to airline staff and passengers. These would not only create more profit and reputation for the airline industry, but also they would encourage a harmonious global market where there is a stable and fair economic zone which supports fair competition hence increasing development in an efficient manner (Cullen 577). All these measures will go into seeing that the company remains in the market for as long as possible.
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