British Airways's Environment

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1.0Introduction
British Airways (BA) is the UK’s largest international scheduled airline, operating international and domestic scheduled and charter air services for the carriage of passengers, freight and mail and the provision of ancillary services. The airline flies to over 550 destinations globally and is considered to be a leader in the industry. In order to profitably satisfy customer needs, an organisation must understand its external and internal situation including the customer, the market and its own capabilities. Furthermore, it needs to understand and adapt to the dynamic and uncontrollable factors of the environment in which it operates. 2005 saw a new Chief Executive being appointed in BA; Willie Walsh, former head of Aer Lingus. The man with an excellent reputation for driving down costs has stressed his determination to realise his predecessors, Sir Rod Erdington’s, goal of a 10% operating margin.

2.0External Analysis
2.1 Micro Environment
2.1.1 Market Analysis
The first thing that needs to be done is to identify which market BA operate in to be able to carryout an accurate analysis. BA operates in the airline industry. Their main market is hence transportation but they also work in other areas such as communication, leisure and logistics. During the last 10 years the airline industry in the UK has changed out of almost all recognition. Today, according to the International Air Transport Association (IATA), the airline industry is going through ‘the worst crisis in history’ (BBC, 2006) British Airways operates within the highly competitive airline market. The UK market for airlines grew by 1.2% since 2003 to reach a value of £8.7 billion in 2004. The number of passengers flying from UK airports alone has increased from 70 million in 2000, to 86 million. The development of a fifth terminal at London Heathrow testifies this growth. However, against this expanding consumer market, the airline industry continues to struggle with the continuous threat of terrorism, high fuel prices and increased competition. The two main sectors of the market are long-haul and short-haul, both of which BA operate in.

2.1.2 Competitor Analysis
The airline sector is more competitive today than it has been at any time in the past, providing consumers with more choice and cheaper fares than ever before due to the emergence of low-cost airlines British Airways operates within two strategic groups within the airline sector – the short-haul and the long-haul. Each of these sectors has different competitors (see fig 1). One group consists of airlines with regional operations offering scheduled flights and competing on costs. The second group offer long haul flights, with quality environments and services to a range of destinations. Therefore, BA competes on a global, European, national and regional scale. Within the UK, BA is the largest carrier in the market accounting for 45.1% of passengers in 2004 (Euro monitor) with Virgin Atlantic being the second largest carrier in the market with 9.2% market share. It is also likely that long-haul licenses will be granted to low-cost airlines which will enable them to compete in both strategic groups increasing its influence on BA’s strategy (see appendix 6). In Europe, the UK’s EasyJet and Ryanair were the pioneers of budget airline travel. Their initial business model was based upon offering low fares through outstanding cost management. Lufthansa’s change in strategy will have direct affect on BA as they continue to attract customers for their high quality standards. Another strategy that seems to be emerging amongst traditional carriers is to reduce fares in order to become more competitive with the low-cost airlines. New planes, new routes, additional flights and management changes are all factors that impinge a business. Such changes made by a competitor need constant monitoring in order for BA to examine its current position and develop future strategies....
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