Analysis of the Macro and Micro Environment at British Airways
British Airways
British Airways is the largest international scheduled airline in the UK. The company was founded in 1919, and has continued to grow and expand since privatisation in 1987, until the global recession hit in 2008. On 23rd January 2009 the UK was officially declared to be in recession following two consecutive quarters in 2008 during which economic growth dropped (BBC, 2009). Many businesses, including British Airways, have found it increasingly difficult to survive in the resulting testing macroeconomic environment.
The Recession
A recession will often occur when inflation grows rapidly; goods become more expensive at a time when consumers have less money to spend. As consumers spend less money, supply begins to exceed demand within the markets. This causes businesses to produce less of their goods, and so require less staff. The unemployment that results from this creates a situation whereby people do not trust the markets and have less money, so stop spending, thus creating a vicious circle. UK unemployment figures up to March 2010 show that unemployment has risen to 8%, the highest figure since 1996.
For many people, air travel is a luxury good. This means that in times of hardship, where the consumer is reducing their spending, air travel will be an area that is very hard hit, as many people are not taking holidays. For some consumers, air travel is for business purposes, as opposed to recreational. This area of the market has not been hit as hard, although many people are now flying in economy class, where they might previously have flown in business or first class. Business and first class passengers have played a large part in BA’s profitability, as they account for a large proportion of the company’s profit. Low-cost, budget airlines such as Ryan Air have done comparatively well, producing profits in a market where very few businesses have been able to. Budget airlines are supplying an “inferior good”. This means that as consumer income
British Airways is the largest international scheduled airline in the UK. The company was founded in 1919, and has continued to grow and expand since privatisation in 1987, until the global recession hit in 2008. On 23rd January 2009 the UK was officially declared to be in recession following two consecutive quarters in 2008 during which economic growth dropped (BBC, 2009). Many businesses, including British Airways, have found it increasingly difficult to survive in the resulting testing macroeconomic environment.
The Recession
A recession will often occur when inflation grows rapidly; goods become more expensive at a time when consumers have less money to spend. As consumers spend less money, supply begins to exceed demand within the markets. This causes businesses to produce less of their goods, and so require less staff. The unemployment that results from this creates a situation whereby people do not trust the markets and have less money, so stop spending, thus creating a vicious circle. UK unemployment figures up to March 2010 show that unemployment has risen to 8%, the highest figure since 1996.
For many people, air travel is a luxury good. This means that in times of hardship, where the consumer is reducing their spending, air travel will be an area that is very hard hit, as many people are not taking holidays. For some consumers, air travel is for business purposes, as opposed to recreational. This area of the market has not been hit as hard, although many people are now flying in economy class, where they might previously have flown in business or first class. Business and first class passengers have played a large part in BA’s profitability, as they account for a large proportion of the company’s profit. Low-cost, budget airlines such as Ryan Air have done comparatively well, producing profits in a market where very few businesses have been able to. Budget airlines are supplying an “inferior good”. This means that as consumer income