It could be of some benefit to look at porters five forces in order to try and gain some knowledge of the competition that BA face. It would not only be beneficial for us but would be beneficial for BA to take note of. It is important to bear in mind that the success of a business or a venture within a business is purely based on the direct competition. As can be seen from fig1 the business is also affected by buyers, supplier, substitute products and new entrants into the market.
While looking at the company from an external point of view it is useful to take porters five forces into account while trying to establish the threats and opportunities. As well as looking at porters five forces a SLEPT (social, legal, economical, political and technological) analysis of the actually airline industry could be undertaken in order to try and gain a deeper understanding of the industry as a whole. BA still faces its traditional threats. These traditional threats include factors such as other airlines, routes which they are unable to service and modern terrorism.
Virgin Airlines is BA’s main Trans Atlantic competitor. They offer the same Trans Atlantic service but provide a different range of pre flight services such as limo pick ups, and individual cinema screens during the flight. Although Virgin has not got the reputation that BA has but they seem to have a competitive advantage over many routes. BA has tried to respond to this threat by implementing its new upper-class sleeper seats. At the beginning of 2002 through to 2003 BA were offering very cheep weekends away as well as special family deals. These deals were aimed to compete with Virgin as well as the low cost carriers.
In order to try and compete with other airlines in other countries, BA has set up bases in other countries such as South Africa. This move was made in order to expand the routes which they are able to service. Terrorism is a very real threat which BA faces every day of the week. The threat was obviously there before September 11th however after the terrible events it was brought into the front of our minds. BA has been forced to spend a lot of money on upgrading the whole fleet of planes in order to cope with the threat of terrorism. As well as upgrading planes they have had to upgrade the ground facilities at the airports.
Although this has been very costly, it has been necessary in order to try and restore consumer confidence. Due to the events of September 11th the world economy has been slowing down. This has resulted in low consumer confidence. This is not just a problem for the airlines (microeconomic) but for the entire economy (macroeconomic). Customers are now more prepared to sit on their money rather than spend it on air travel and holidays. Those who still need to travel in order to conduct business are also looking for a cheaper more efficient way to travel. Low consumer confidence is a new threat which faces BA.
It is something that they have never had to deal with before so they are actually unsure as to what needs to be done in order to counter it. There is some good news for them, and that is that their competition is also facing the same difficulties in respect of the customer. BA has tried to make some headway in gaining back their customer and these have included previously mentioned items such as ticket deals. The old BA management team would never have noticed the opportunities that were available to them due to the fact they were using an obsolete management style.
One of the main opportunities that BA had available to it has already been tried and has been proven unsuccessful. This was the low cost airline. BA tried to compete with Ryanair and Easy Jet. Unfortunately this “GO” was sold soon after September 11th. Perhaps if this venture had been made at a different time it would have been more successful. BA’s other main opportunity is to expand on its knowledge of different areas of the world which enable them to understand different cultural needs for air travel.
While passenger numbers fall BA are currently expanding the route available to its passengers in order to try and maximise its market share. In order to examine BA’s internal strengths and weaknesses it is important to once again use one of Porters models. For internal analysis we can use the value chain analysis (fig2). This displays the companies main support activities which are infrastructure, HR department, Technological development and procurement. As you move towards the lower end of the scale the primary activities are introduced into the equation.
These activities are customer service, marketing and sales, outbound and inbound logistics and operations. This analysis looks at the company structure and relates the activities to the size of its profit margin. In the same way in which using the five forces model enabled us to gain an insight into the external environment of the company the value chain analysis will help us to gain and internal insight into BA as we will be able to see how each individual department adds to the profit of the company and if there is any way it can use its strengths to add to the profit.
One of BA’s main strengths is its reputation. Although reputation does not always provide the cheapest ticket prices, some of their more established customers as well and many potential new ones still want to travel with the world favourite airline. BA has in fact with their most recent strategic moves used their reputation. They have combined their reputation with the reputation of well known celebrities in order to promote their newest products.
The actually infrastructure of BA is a massive strength as it provides the company with a better ground structure in terms of office space and fleet size and variety over any of its main UK competitors. BA has an extremely versatile fleet of planes. This versatility has enabled them to change their strategy rapidly. On many of the more popular routes they have been able to simply change the aircraft used in order to maximise profitability as they can ensure full planes. As can be seen by share performance of BA, one of their most important strengths is the ability to weather the storm of September 11th.
Previously the share price was rising year on year last year it took a dramatic nose dive but over recent months the price of a BA share has started to rise again. This is due mainly to previous management of BA finances. The very fact that BA had the finances to enable them to loose as much money as they did was a credit to their past. Their new challenge now will be to re-build the stock pile that they once had. BA has taken advantage of new technology in terms of the internet and baggage handling systems.
This has improved efficiency within the company and has reduced costs which in turn result in lower prices for their customers. The fact that BA has now become involved with technological changes shows that they are finally changing their ways. All the technological changes that are taking place ensure that BA will maintain their current customer database due to the fact that customers will not loose bags as often and they can book their tickets on the internet and take advantage of air miles when they are sitting in their offices.
This not only cuts personnel costs within the airline but is much more convenient for their customers as they are not wasting time on the phone or in a travel agent booking their tickets. In business the famous phrase is that time is money. Other strengths that BA processes are all based upon the basic infrastructure that they already possess. If we refer back to the value chain and look at the primary activities there are such things as operations, customer service and marketing and sales.
They are good in all these areas, although it may not seem like it now they have been good at these areas for many years and now it has become so routine it seems as thought there is nothing special about them. The expertise that BA has in these primary activities is second to none throughout the rest of the industry. BA’s current customer database is possibly one of their main strengths and the way in which they have utilised them is commendable. They have used a club card and frequent flyer schemes in order to continue to attract customers and keep them away from other airlines.
BA tries to specialise in business flyers so therefore they are very corporate based. This concentration on business customers is also one of their weaknesses. BA does not spend enough time or recourses looking after the little people. The smaller occasional customers are the base for the whole airline. BA has however over recent months tried to relate with these customers by giving short distance deals for non club card holders. Apart from disregard for smaller customers BA’s reputation within the industry is also one of its main weaknesses.
BA is perceived to be much more expensive than many of it competitors. This perception comes from the early 90’s when BA was catering mainly for business customers and there was little competition in the market place. In recent years and especially since September 11th strategic changes have taken place and BA is now interested in the airline as a whole not just the upper end of the market. The reason for this change is due to the growth and changing impact of the smaller low cost airlines. BA has also found logistical weaknesses in their basses all over the world.
They have found that procedures have taken to long which has resulted in delays and cancellation of flights. This weakness has forced them to make strategic changes in order to improve efficiency throughout the company. It is clear to see that BA has many strengths, and in order to continue expanding the business they must continue to expand on their strengths. The company must continue to offer excellent customer service in order to maintain its worldwide reputation. Although their reputation does not directly sell tickets it goes a long way to ensure customers look at flying with them first.
In as far as the company’s infrastructure goes it is already at the top level however it is important to keep an eye on changing technology to ensure that they do not slip behind and miss and opportunity which would make their operations even more efficient. On the other side of the coin, BA needs to continue to work on improving their weaknesses. They have already made important headway on this by starting to look at the smaller customer more seriously but just starting is not enough, a continued effort needs to be made.
To conclude the strategy that BA is currently heading is will eventually be s success due to the fact that they are starting to take notice of the smaller customers and that they are realising that there is competition in the market place and they are no longer the rulers of the roost. For their new strategic approach to work BA must continue to look forward and continue to examine the options that are available to them. They have to be careful not to get to big headed again and slip back to how they were in the early 90’s.