SM II Project

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Project Report

Strategic Management- II

Prateek Gupta- 10DM-103Manasvi Singh- 10DM-191Neerav Harsh- 10DM-192Mohit Bhambri- 10FN-061Rahul Kumar- 10IB-049



Executive Summary

This report was produced for the purpose of providing British Airways Plc (British Airways) with a

strategic plan to implement over the next three years. British Airways is the UK market leader inairline operations, however has faced increasing competition over the last decade resulting in erosionin their market share.

The report begins by analysing the current internal and external environment of BA. Through strategicevaluation we have recommended that BA focus on their fundamental service delivery to restore their

competitive advantage within the industry. This will require implementing a combination of twostrategies; a people processes strategy and a strategy focused on technological advancement.

The people processes strategy was derived from a number of industry sources outlining BA’s declinein customer satisfaction. The technological advancement strategy coincides with the renewal of BA’saircraft fleet and will further improve the overall customer experience.

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Table of Contents

Table of Contents ...........................................................................................................................................31.1 Report Objectives .....................................................................................................................................4

1.2 Company Overview ..................................................................................................................................4

1.3 Current Strategies .....................................................................................................................................4

Figure 1 - Business Map (T-O £8.32bn) ........................................................................................................5

........................................................................................................................................................................6

2.0 External Analysis .....................................................................................................................................7

2.1 PESTEL Analysis ................................................................................................................................7

2.2 Porter’s Five Forces ............................................................................................................................9

2.3 GE Matrix ..........................................................................................................................................10

3.0 Customer Analysis ................................................................................................................................. 11

4.0 Competitor Analysis ..............................................................................................................................124.1 Strategic Groups ................................................................................................................................. 12

4.2 Airline Quality Review (AQR) .......................................................................................................... 13

5.0 Internal Analysis .................................................................................................................................... 14

5.1 Value Chain Analysis (VCA) .............................................................................................................14

5.2 Resource Based View (RBV) .............................................................................................................16

5.3 Financial Analysis (Source: British Airways, 2008)..........................................................................17

6.0 Summary ............................................................................................................................................... 18

6.1 SWOT Analysis .................................................................................................................................19

6.2 Key Strategic Issues .......................................................................................................................... 19

...................................................................................................................................................................... 21

7.0 Strategy Formulation .............................................................................................................................22

7.1 TOWS Matrix ....................................................................................................................................22

Figure 11 - Preliminary Comparison of Strategies ...................................................................................23

8.0 Analysis of Strategic Options .................................................................................................................24

8.1 Strategic Option 1 - Improvement to People Processes ..................................................................... 24

8.2 Strategic Option 2 - Improved Environmental Stance. ..................................................................... 25

8.3 Strategic Option 3 - Improved Technological Stance. ...................................................................... 26

8.4 Strategic Option 4 - Segment Focus ...................................................................................................27

8.5 Strategic Option 5 - Broader Service Offering ...................................................................................28

...................................................................................................................................................................... 30

9.0 Implementation .......................................................................................................................................319.1 Company Structure .............................................................................................................................32

9.2 Service Quality Gaps Model .............................................................................................................. 33

9.3 Managing the Change .........................................................................................................................34

9.4 Stakeholder Map ................................................................................................................................ 36

9.5 Control Systems ................................................................................................................................. 37

9.6 Balance Scorecard .............................................................................................................................. 38

10.0 Critique .................................................................................................................................................39

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1.1 Report Objectives

The objectives and structure of this report will consist of four main sections which will enable a

strategic direction to be recommended to BA:

1 To research in to the current strategic position of British Airways.

2 To critically analyse British Airways’ internal and external environment.

3 To design a selection of strategic options utilising the internal and external analysis.

4 To evaluate the most appropriate option for British Airways and discuss implementation.

1.2 Company Overview

British Airways Plc (BA) is the UK’s largest international scheduled airline. Alongside scheduled

services, BA is engaged in the operation of international and domestic carriage of freight and mail, andthe ancillary services (Datamonitor, 2010). In association with codeshare and franchise partners, BAfly to more than 300 destinations, and carried more than 33 million passengers, earning over £8.7

billion in revenue in 2007/08 (British Airways, 2010). Employee headcount in March 2010 stood at42,377 people (Datamonitor, 2010).

Since privatisation in 1987, BA has continued to grow as competition in the market has risen

worldwide. In recent times, BA has successfully been labelled the world’s first airline to take part in ascheme to reduce greenhouse gas emissions (2002) and to allow passengers to print online boardingpasses (2004) (British Airways, 2010). In 2005, the company saw Willie Walsh become Chief Executive of BA (Flight Global, 2010), who to date has driven the company through the completion of Terminal 5 at Heathrow, amongst other new initiatives.

Despite reported and imminent industry hits due to the global economic downturn, BA’s future lookspromising. As BA announces its aim of becoming the ‘world’s most responsible airline’ in the latest

annual report (British Airways, 2010), great importance lies in developing guiding principles andcareful strategic direction to allow the achievement of this goal.

1.3 Current Strategies

The report will be designed in consideration of BA’s current strategies (British Airways, 2010):

1 Upgrade customer experience via the introduction of text and mobile services for business class

customers.

2 Modernise aircraft fleet and offer new services.

3 Manage cost base.

4 Increase corporate responsibility through environmental performance and partnerships.

Although BA does operate in a number of areas such as cargo, we are choosing to focus our report

on the scheduled passenger market due to the size and opportunities that BA has in this market(Figure 1: BA Operations).

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Figure 1 - Business Map (T-O £8.32bn)

BA Service Portfolio

Component Suppliers

Support Provider SubsidariesBA Avionic Engineering, BA Interior Engineering, BA Maintenance Cardiff

BA Leasing, BA Capital, BA Holdings, BA Cash Management, SpeedbirdCash Management, Speedbird Insurance Company, Air Miles Travel

PromotionsScheduled

BA Cityflyer, Openskies

Customers International Travellers: (by sales)Continental Europe = £1,219 mlThe Americas = £1,697 mlAfrica, Middle East & Indian subcontinent = £821 mlFar East and Australisia = £659 ml

DomesticTravellers: (by sales)UK = £4,357 ml

Intermediaries

Travel AgentsOnline websites

Adapted from: British Airways (2010) (* percent of operations)

Direct SalesBA.com

Mail +freightdiplomatic bags

Aircraft Suppliers:Boeing and Airbus SAS

Airports:

Heathrow and Gatwick...Other Suppliers:

Food Suppliers…

Industry Regulators

And InfluencersUK GovernmentBAA, CAA, DFTMember of: AEA

Research and InterestGroups

Independent CustomerReview: Skytrax ratesBA as a 4* airline.

Non-scheduled services

BA Holidays

Cargo = 7.0% Passenger = 86.2%*

Investments (equity owned)

Associates: Iberia S.A. 13.15%

Avaliable for sale: Flybe Group Ltd 15%, Comair Ltd 10.9%

Other Airline Operators:Ryanair, Easyjet, VirginAtlantic, Lufthansa,Air France KLM, AerLingus…

Alliances:Quantas, AA,

Iberia, Continental

Cargo Handling, Airframe Maintenance, Computer and

Communication Services and Consulting Services

Other = 6.8%




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2.0 External Analysis

For success within the airline industry, an awareness of the external environment is essential. This

section aims to highlight the position of the industry, in particular looking at competitors andassessing BA’s capability to meet current and future challenges.

2.1 PESTEL Analysis

(Source: Johnson et al., 2010, p56)

An analysis of the macro-environment has been carried out using PESTEL (Figure 2).

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Figure 2 – PESTEL Analysis

PESTEL Factor Key Points Implications for BA

Political Heavy regulation (AEA, 2009). Compliance is essential if BA wants to continue

operations.

Increased security due to past terrorist

threats (DFT, 2010).

Sufficient security measures should be in place to

ensure consumer confidence and competitive

advantage is maintained.Economic Global economic crisis: World growth is

projected to just over 2 percent in 2009(IMF, 2010). Pound weakens especiallyagainst the Euro.

Possible reduction in the amount of businesstravel as companies are cutting costs and usingalternative means of communication such asteleconferencing. BA is vulnerable as a UKoperating airline to a poor exchange rate.

Oil prices: declined by >50 % since theirpeak retreating to 2007 levels. Decline infuel price = strengthening of the dollar(IMF, 2010)

Fluctuations in oil prices and exchange rates willdirectly affect BA’s cost base.

UK consumer spending saw its sharpestdecline for 13 years between July andSeptember 2010 (Channel 4, 2010).

More intense competition

Social The UK has an aging population (seeappendix 3) (National Statistics Online,

2010).

Potential opportunity for growth as oldergenerations have more time to spend on leisure

activities such as international travel.

Increasing unemployment (Kollewe and

Sager, 2010).

Increased bargaining power as an employer.

Technological A recent survey revealed that 34% of online consumers plan to use price-comparison sites more in 2009 (NMA,2009).

Increased consumer awareness and thereforebargaining power.

Online booking services and check-in isbecoming increasingly used by the airlineindustry.

BA must ensure that they remain up to date withthese technological advances whilst avoidingbecoming overly reliant, as this may isolatecertain consumer markets (i.e the elderly) whodon’t feel comfortable using such technology.

Environmental/Ethical

Noise pollution controls, and energyconsumption controls (DFT, 2010).

New legislation (e.g. Climate Change Bill)enforcing tighter environmental regulation may

increase operational costs each year.

Limited land and for growing airports –Expansion is difficult at Heathrow as it

would result in a loss in the London’sGreen belt area. (BBC News 2006)

Limited capacity=> utilisation of capacity.

Consumers are becoming increasingly ‘green’ and more aware of theenvironmental impact of their actions.

Failure to adopt an integrated environmentalstrategy could lead to a detrimental effect on theBA’s reputation and income.

Cancellations of flights and loss of

baggage (Channel 4, 2010).

Such ethical issues could have a detrimental

effect on reputation if left unresolved.Legal Collusion and price fixing. Restriction on mergers will have an impact on

BA’s proposed alliance with American Airlines.

Recognition of trade unions and industrialaction e.g. Cabin Crew strikes.

Good employee relations are essential if BA wantsto avoid industrial action and interrupted

operations.

Open Skies Agreement (AEA, 2009) Opportunity for BA and its competitors to freely

transport aircraft between the EU and US.




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2.2 Porter’s Five Forces

(Source: Johnson et al., 2010, p60)

It is important to analyse the competitive nature of the airline industry in order to assess theposition of BA. The ‘Five Forces’ tool will enable BA to make strategic decisions in order to increase

profitability.

Force Strength

Competitive Rivalry

• BA caters for both long haul and short haul flights. Within long haul

there is little differentiation between BA and their competitors, interms of price and service offering.

• The short haul market is more fragmented with many small players.

•Direct competitive rivalry is fierce, e.g. Virgin has a websiteopposing the proposed strategic alliance between BA and AA - ‘NoWay BA/AA’ (Virgin Atlantic, 2010).

• Consolidation of competitors has increased competition.

HIGH

Power of Suppliers

• Two aircraft manufacturers = High bargaining power.

• BA restricted by sole supplier of fuel to the airport.

• Priority of landing slots is given to historic rights of existing users(IATA, 2010).

• BA employees use collective bargaining through trade unions in

order to increase their bargaining power

HIGH

Power of Buyers

• Low concentration of buyers to suppliers means they have littlebargaining power.

• Increased internet usage has amplified awareness and interaction of

customers (Keynote, 2010c).

MEDIUM

Threat of New Entrants

• Significant barriers to entry: such as the competitive environment,

high regularity requirements and high capital cost requirements.

• Barriers to exit are in place which deters new entrants.

• The failure of recent airlines such as XL and Zoom is likely to deter

new entrants (Times Online, 2010).

LOW

Threat of Substitutes

• There are few direct substitutes:

o Short haul flights: the Eurostar or a ferry.

o Long haul flights: no notable substitutes.

LOW

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2.3 GE Matrix

(Source: Johnson et al., 2010, p280.)

The GE Matrix (Figure 5) provides evidence of opportunities for growth through market developmentin new markets and market penetration in existing.

Figure 5 – GE Matrix

C o m p e

t i t i v e S t r e n g t h Market Attractiveness

High Medium Low

High

Medium

Low

From the analysis above, it is evident that if a market development strategy was to be pursued by

BA, Asia Pacific and Eastern Europe would be prime markets for profitability due to high growth

(Appendix 5/6). It may also be a requirement to build defence strategies in BA’s core market,Western Europe, due to low growth and intense competition.

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Asia PacificBA=1.1%

AustralasiaBA=4.0%

Middle Eastand AfricaBA=2.3%

Eastern EuropeBA=2.2%

Latin AmericaBA=1.9%

North AmericaBA=1.7%

Western EuropeBA=6.9%

Size of Circle = size of market (British Airwayssed on 2006 data)

Width of Circle = CAGR Forecast Growth (2006 – 2010)Source: Euromonitor (2010)




3.0 Customer Analysis

Over the past decade there has been increasing complexity in customer needs, as the customer has

become more educated and demanding. Particularly, the following changes have occurred:

• A shift in demographics to older passengers (Keynote, 2010c).

• Increased global connectivity allowing the usage of internet and search mediums (e.g.comparison and review websites).

• Increased requirement for convenience (e.g. new destinations, quick check-in).

• Price has become more of a priority

• Segments have become more defined within their needs.

Evidence that BA is failing to respond to the changing customer landscape includes:

• The amount of BA customers recommending their services reduced from 61% in 2008/09 to

59% in 2009/10 (British Airways, 2010).

• BA have been criticised for slow innovation (Doganis, 2006, Pg 165).

• Poor reliability and baggage handling (AQR)

• Failed attempts to target the price conscious consumer through low cost airline operation

(Eirma, 2010).

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4.0 Competitor Analysis

4.1 Strategic Groups

Figure 3 – Strategic Group Analysis (Source: Johnson et al., 2010, p73-77.)

Figure 3 illustrates that BA’s direct competitors are those who operate similar services and lie withinthe same strategic group. The competition is likely to be most intense within this group as they are

seeking similar strategies.

Lufthansa and KLM-Air France are the 2 leading European Airlines Member carriers in terms of passenger numbers, with 15.1% and 14.1% respectively of the total number of passengers carried.

BA comes in third with 9.3% of the total (Keynote, 2010c).

BA face competition from a small number of serious contenders in the UK, with the main contenders

being Virgin Atlantic, and United Airlines in the Star Alliance soon controlling BMI (Euromonitor,2010). Although they do not lie within the same strategic group as BA the advent of low-cost airtravel has changed the face of the airline industry. Airlines such as Ryanair and EasyJet have

established themselves among the leading carriers in Europe, whilst the more established long-haulcarriers such as BA have struggled to keep up with their counterparts’ growth rates.

Moreover the economic downturn and sharp fall in oil prices has caused a price war between

Emirates, BA and Virgin Atlantic on the London-Dubai route. Fares have dropped by 30% across theairlines. Thus competition still remains fierce.

Based on the strategic group analysis it could be argued that there is a gap in the market for a lowcost airline operating a high breadth of service however it is likely the reason no airlines haveadopted this strategy is due to the fact that it would be destined to fail. This assumption could besupported by BA’s failed attempt to enter this market in recent years (Telegraph, 2002).

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Mass ServiceProviders e.g.

BA, Virgin,Lufthansa,

AirFrance KLM

Specialiste.g.

PalmAir

Local e.g.BMI

Non-schedule

d e.g.Thomson

No-frillse.g. Ryan

Air, Easy Jet

LOW BREADTH OF SERVICE HIGH

PRICE FOCUSED MIDDLE MARKET FOCUS ON SERVICE OFFERINGS

LOW

PRICE

HIGH




4.2 Airline Quality Review (AQR)

Skytrax is an independent website and therefore gives an objective view of BA’s quality of service incomparison to its competitors and may highlight strategic issues that need to be addressed.

Figure 4 – Competitive Spider IndexCreated using data sourced from Skytrax, 2010.

0

1

2

3

4

5

Website

Check-In Services

Handling Delays/Cancellations

Assisting Families/Children

Cabin Safety

Seat Comfort

Inflight Entertainment

Quality of Meals

Service Efficiency

Interaction with Passengers

Responding to Requests

Overall Rating

British

Airways

Virgin Atlantic

Air France

KLM

Lufthansa

• The overall Airline Rating for BA was 4. Its major competitors all scored 4 apart from KLM, which

scored 3.

• BA and Virgin Atlantic are virtually identically marked in all categories with the rest less highly

rated.

• BA is not a Quality Approved Airline, whilst Virgin Atlantic is.

• BA needs to improve upon its interaction with its passengers across all classes in order to

outperform its nearest competitor Virgin Atlantic.

• BA needs to improve its baggage delivery service. ‘Slow baggage recovery at T5’ (SkyTrax,

2010).

• General customer reviews have shown a common theme: poor in-flight entertainment whichregularly breaks down.

• BA needs to look at improving its online services by providing additional services all with a more

personal touch.

• Six competitors hold a five-star rating with the independent evaluator.

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All ratings taken from the website are based on scale of 1 to 5 with 5 being the highest.




• For BA to become a 5 Star Airline emphasis needs to be placed on the quality of its customer

service delivery at all levels, which it has lacked in the past. This is what will differentiate itself between its main competitors.

5.0 Internal Analysis

It is now essential to analyse the internal environment in order to formulate appropriate strategies.

5.1 Value Chain Analysis (VCA)

BA have tried to control the system further by forward and backward mitigation. Through controllingmany component supplies in-house, and through BA Holidays Plc, BA increases their reach in thevalue system to the supplier and channel value chains.

Figure 6 – Value Chain (Adapted from: Johnson et al., 2010, p110)

Whilst the Value Chain highlights the primary and support activities that add value to BA, there are anumber of inefficiencies within these activities that arguably reduce the amount of value provided(see figure 7 and 8).

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S U P P O R T A C T I V I T I E S

FIRM INFRASTRUCTUREStructured hierarchy allows BA to make use of a multitude of specialist knowledge in order to gaincompetitive advantage over downsized firms.

HUMAN RESOURCE MANAGEMENTInvested in the development of customer service training in 2007 attracting the best employees. ‘Speak Up’ opinion survey encourages employees to provide feedback (British Airways, 2010).

TECHNOLOGY DEVELOPMENTBA has added value in this category over smaller companies due to slack resources that can beemployed to innovate the service (e.g. individual LCD screens).

PROCUREMENTDue to the size and historical business relationships and alliances, BA is able to leverage suppliersand through economies of scale make efficiencies where competitors may fail.

PRIMARY ACTIVITIESINBOUND

LOGISTICS

Stock Control

High qualitytraining accreditedby City & Guilds(British Airways,2010).

Ongoingrelationship with

suppliers (e.g.Gate Gourmet.

OPERATIONS

IncreasedBaggage Security.

Quick check-inservices andsecure onlinebookings withability to pre-bookadditionalservices.

OUTBOUNDLOGISTICS

Customer Service

Large database of airport slotsenable passengersto access themajority of destinations frompreferred airport.

MARKETING & SALES

Marketingcommunicationsto allstakeholders.

Brand allowing forlarge budget to bespent in this field.

POST SALESERVICE

Loyalty clubcard.

Updatecommunicationon other services




Figure 7 – Support Activities Value Loss

SUPPORT ACTIVITIES

Firm Infrastructure Large bureaucratic infrastructure decreases effectivecommunication and increases inertia.

HRM BA’s employee opinion surveys attracted a mere 35% response ratein 2007 (British Airways, 2010).

Due to high collective bargaining capabilities, BA has contended anumber of highly publicised employee relations issues (e.g. CabinCrew strike over pay, sickness absence, and staffing in 2007 (BBCNews, 2007).

Technology Development BA has failed to gain recognition for new innovation.

Figure 8 – Primary Activities Value Loss

PRIMARY ACTIVITIESInbound Logistics High solidarity between supplier employees and BA employees has

created a history of negative industrial action. For example, in2005, BA employees walked out for two days when Gate Gourmetemployees were sacked (BBC News, 2005).

Operations/OutboundLogistics

TV documentary reported on Terminal Five operation difficulties, anemergency landing at LHR, poor baggage handling and flightcancellations (Channel Four, 2010).

Marketing & Sales A lack of innovation in their marketing communications (e.g. Virgingaining value over BA).

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5.2 Resource Based View (RBV)

It is suggested that an organisations competitive advantage and superior performance is resultedfrom its distinctive capabilities (Johnson et al., 2010 p95). The resource based view highlighting BA’sresources and competencies is outlined below.

RESOURCES COMPETENCIES

T H R E S H O L D C A P A B I L I T I E S

Threshold Resources

Tangible

• Fleet of 245 aircraft accessing over

550 destinations (British Airways,2010).

• Additional services (e.g. BA

Holidays & The London EyeCompany (Datamonitor, 2010)).

Intangible

• International Customer Database.

• Partnerships & Alliances with ‘oneworld’ (incl. American Airlines),codeshare/franchise partners, and

subsidiaries.

Threshold Competencies

• Training of ground school, flight

simulators, and cabin safety training(BAFT, 2009).

• Economies of Scale from ongoing

suppliers.

• Ability to fly and manage

passengers safely on various routes(Davies, 2000).

C A P A B I L I T I E S F O R C O M P E T I T I V E

A D V A N T A G E

Unique Resources

Tangible

• Sole access to LHR’s Terminal 5(BBC News, 2010).

Intangible

• Reputable brand image. BA isrecognised globally as a reputable

brand, reinforced by its long-standing existence within the

industry.

Core Competencies

• OpenSkies’ subsidiary’s aircraft never

have more than 64 passengers perflight, with one attendant per twelve

customers (British Airways, 2010).

• First UK airline recognised as atraining centre by the City & Guilds,

qualifying all cabin crew with NVQLevel 2 (British Airways, 2010).

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5.3 Financial Analysis (Source: British Airways, 2008).

In 2007/08, BA made post-tax profits of £694 million, an increase of 128% over the prior year. In2006/07 profits were £304 million. The difference is mainly caused by the loss from discontinued inoperations in 2006/07 of £134 million. However, the doubling in profits is also attributed to adecrease in operating costs and no credit arising on changes to the pension scheme or provisionsmade for settlement of completion investigations.

BA has performed well in managing and reducing costs. Operating costs have risen steadily over thepast 5 years and this is in-line with the increase in fuel prices and increase in landing fees/en-route

charges as the company expands. In 2007/08 BA had operating costs of £7,878 million which is a1% decrease over the prior year despite increase in fuel costs to £2,055 million and increasedlanding fees, handling/catering charges with Terminal 5. BA managed to reduce costs through areduction in the number of employees by approximately 3000 people. BA’ online

booking/reservation service helped reduce agency costs leading to a £77 million decrease in sellingcosts. BA efficient control of all these costs has helped put them into a strong position in relation toits competitors, especially with the current economic crisis.

BA gearing ratio was at 27% in 2007/08, which is a reduction from the prior year. This reductionshows that less debt is being taken on by the firm. This could also be due to the fact that they have

paid some of it back. Also, with increased liquidity to 21% from 19%, BA is a strong position in thecurrent economic crisis and is more likely to have better relations with its suppliers and financial

institutions going forward. BA’s earning per share increased, reaching 59p per share. This was dueto the increase in profit before tax and the reduced corporation tax rate.

Figure 9 – BA’S Turnover, PBT, PAT

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Figure 10 – BA’s Fuel and Operating Costs

Overall BA remains financially stronger than its competitors. At the end of the 2007/08 financialyear they were in a good position to withstand most shocks and this has been the case. They havestated that they expect an operational loss of £150 million for the 2010/09 year (IHT, 2010), due tothe trading conditions and fall in value of the pound. Despite a fall in oil prices, the cost of fuel for

BA will remain approximately the same due to the devaluation of the pound and the fact that fuel is

bought in dollars. However, compared to its competitors it still remains in the healthiest positionand will have to weather the difficult future ahead and may report losses in 2009.

6.0 Summary

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6.1 SWOT Analysis

(Source: Johnson et al., 2010, p81.)

It is important that strategic development is reflective of BA’s strengths and weaknesses relative tocompetitors and the opportunities and threats presented by its external environment (Pitts & Lei,2003):

Internal Strengths

• Brand Image

• Partnerships & Alliances

• Financial size and stability

• Terminal 5

Refer to:

RBV

Financial Analysis

Internal Weaknesses

• Poor employee relations history

• Reliability and trust

• Innovation & change

VCA

External Opportunities

•

SkyTrax Quality System

• Competitors forced exit

• Competitors failing on deliveringreliability

• Emergence of new markets

AQR

Porter’s Five Forces

GE Matrix

External Threats

• Open Skies Agreement

• Environmental awareness

• Global economic crisis

• Lower cost competition

PESTEL

Strategic Group Analysis

6.2 Key Strategic Issues

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Analysis Tool Key Findings Strategic Implications

PESTEL • Global economic crisis.

• Higher regulatory requirements.

• Increasing environmentalawareness.

• Decline in consumer spending.

• Increased use of the internet bycustomers.

Focus on technological andenvironmental issues.

Porters Five Forces • High competitive rivalry and

bargaining power of suppliers.

Defensive strategies needed toprotect market share.

Customer Analysis • Consumer trends in highconvenience and highexpectations of service.

Ensure changing customerneeds are understood and met

Strategic Group Analysis • Intense competition withinstrategic group and trend for

consolidation.• The biggest other threat comes

from low cost airlines.

Although low cost airlines arethe biggest threat to BA,

moving into low cost market isnot deemed appropriate basedon previous failed attempts.

Airline Quality Review • BA = poor baggage handling,poor on flight entertainmentand low customer satisfaction.

Service Quality needs to beimproved to gain a competitive

advantage

GE Matrix • Highest growth markets; AsiaPacific and Eastern Europe.

BA has a strong opportunity formarket development in Asia and

Eastern Europe.

The Value Chain • BA adds value; financial sizeand stability, brand image,

industry expertise, and

partnerships and alliances.• BA loses value to competition;

employee relations andperformance, marketing

delivery, reliability, and slowinnovation.

BA needs to address the areas

where value is being lost toavoid attacking competitor

strategies.

Resource Based View • Strong resources including sole

access to hub within largest UKAirport.

• Strong training competencies.

Utilise BA core competences togain competitive advantage.

Financial Analysis • Increased profits and lower

operating costs.

•Lower gearing ratios and higherliquidity.

• Possibility of a loss in 2009 as aresult of the economicdownturn.

Investment resources available.Increased scrutiny on strategic

projects for risk assessment.

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7.0 Strategy Formulation

7.1 TOWS Matrix(Source: Johnson et al., 2010, p367.)

A range of strategic options will now be formulated using the TOWs matrix to resolve the strategic

issues highlighted from the analysis.

External

Opportunities Threats

Skytrax- star system of quality

Competitors forced exit

Competitors failing on delivering

reliability

Emergence of new markets

Open skies agreement

Environmental Awareness

(Climate change bill)

Global Economic Crisis

Lower cost competition

I n t e r n a l

S t r e n g t h s Brand Image

Partnerships andAlliances

Financial Size &

Stability

Terminal 5

Strategies for strengths tomeet opportunities:

• Segment focus.

• Supply chain migration.

• Introduction of complimentary services.

• Broader service offering.

Strategies for Strengths todefend threats:

• Renovation of brandimage.

• Diversify into othertransport markets.

W e a k n e s s e s Poor employee

relations history

Recent negativeattention on

reliability and

trust

Quick innovationand change

Strategies for opportunitiesto overcome weaknesses:

• Improved people

processes.

• Technologicaladvancement.

Strategies for Weaknessesnot to expose threats:

• Improved

environmental stance.

Figure 11 below gives a brief explanation of each strategic option and classifies them within Ansoff’smatrix. A preliminary analysis will be made, scoring each option using a number of definedperformance indicators. This will lead to the elimination of options that are not considered suitable

for BA, leaving the 5 most appropriate strategies to be further analysed for consideration.

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Figure 11 - Preliminary Comparison of Strategies

Strategy linked

to Ansoff Strategic Option Explanation

Do BA havethefinancialresources?

1 = No3 =Possibly5 = Yes

Effect onBrandImage.1 = Bad

3 = Nochange5 = Good

Effect oncompetence1 = Bad3 = No

change5 = Good

Inaccordancewithcurrent

strategy?1 = No5 = Yes

Level of riskinvolved?1 = High3 = Medium

5 = Low

Score Accept forfurtherconsideration?

1. MarketPenetration

1. Improvementto people

processes

Reduce current tension fromnegative employee and customer

relations.

5 5 5 5 5 20

2. Improvedenvironmentalstance.

Go above and beyond currentenvironmental requirements.

3 5 3 5 3 19

3. Renovation of brand image.

Renovation and modernisation of brand image in an attempt to gainmarket share.

3 5 3 1 3 15

4. Segment focus Focusing on business classcustomers as the most profitable

segment of the business.

5 5 3 1 5 19

2. ProductDevelopment

5. Technological

advancement.

Introduction of internet access on

flights to improve the overallquality of service.

3 5 5 5 3 21

6. Introduction of complimentary

services.

Offering of complimentary servicessuch as car rental or hotels.

3 5 3 1 1 13

3. Market

Development

7. Broader serviceoffering

Increase number of destinationsBA flies to, focusing areas of growth such as India and China.

3 5 3 5 3 19

4.

Diversification

8. Diversify intoother transportmarkets.

Diversify into substitute servicessuch as rail in an attempt tomaintain competitive advantage.

1 3 3 1 1 9

9. Supply chainmigration.

Vertical integration along thesupply chain. i.e. Gate Gourmet or

Boeing.

1 3 5 1 1 11

23




8.0 Analysis of Strategic Options

Based on the analysis performed in figure 11 the five most viable strategic options will now be

considered further in terms of suitability, acceptability and feasibility.

8.1 Strategic Option 1 - Improvement to People Processes

Brief Outline: The analysis highlighted recent negative attention both internally and externally. The

RBV and SWOT identified BA’s public criticisms for poor bag handling and delay management, and

disapproval following a number of negatively handled employment related cases. A people processes

strategy may rebuild brand image and stakeholder confidence.

SUITABILITY SUPPORTSSTRATEGY?

Poor employee relations history and recent negative attention on BA’sreliability and trust (SWOT).

Given the current economic environment, unemployment is increasing(PESTEL). Therefore, the threat of industrial action and resignations are lesslikely at this time.

BA’s current strategies are to motivate, engage, support and developemployees, alongside improving baggage handling and delay management attheir resident airports (British Airways, 2010).

Increase in internet usage, with more customers and independent servicesreviewing and sharing feedback (Porter’s five forces). Better customerrelations may improve such reviewing mechanisms.

ACCEPTABILITY SUPPORTSSTRATEGY?

Employees and customers are likely to invest high interest into thedevelopment of their relations with the organisation due to the negative past

experiences.

Skytrax highlights that customer relations is an important measure for

customers when selecting airlines for travel, increasing the potential of highreturns (Skytrax, 2010).

FEASIBILITY SUPPORTS

STRATEGY?The Resource Based View (RBV) illustrates an international customerdatabase holding. Access to such data could assist BA in market research andcustomer relation development based on findings.

The industry and organisation is highly unionised, and are likely to gainsupport from this external body when strategically developing employeerelations.

24




8.2 Strategic Option 2 - Improved Environmental Stance.

Brief outline: As identified within the PESTEL analysis, environmental issues are becoming

increasing important. A reactive strategy therefore could be to build an improved environmental

stance and go beyond the requirements of regulations such as the climate change bill.


BA benefits from a sound brand image (RBV) which would be further enforcedby this strategy.

This would ensure that BA remains a strong global competitor by ensuringthey are meeting changes in socio-economic behaviour. Consumers are

becoming more environmentally friendly and this strategy would at leastensure that BA’s market share is not compromised if competitors move in a

similar direction (PESTEL).


Changes in customer preferences indicate a heightened concern for theenvironment (PESTEL); therefore this strategy is low risk, especially whencoupled with a low degree of uncertainty. Furthermore, this strategy willensure that BA is identifying and meeting customer demands.

As the requirements of environmental regulations are frequently increasing

(PESTEL), it would be beneficial for BA to be the first mover in the industryand make changes before any of its competitors.

FEASIBILITY SUPPORTSSTRATEGY?

Resources may be better employed elsewhere, as investing in environmentalpolicies may not increase returns.

BA must be confident that it will be able to successfully pursue such astrategy as if it fails it would be open to public scrutiny which could damage

its currently strong brand image (RBV).

25




8.3 Strategic Option 3 - Improved Technological Stance.

Brief outline: The technological capabilities of an airline is increasingly affecting consumer choice of

airlines, from both leisure and business fliers. Greater improvement of the in-flight services will

enhance their overall service, increasing long-term revenues.


The in-flight entertainment facilities need to be greatly improved and become

more reliable. This will lead to a long-term growth in the number of

passengers (AQR).

Many of BA’s main competitors are beginning to introduce basic internet

capabilities on selected flights. Therefore it is in its interest to keep up with

the competition and exceed it by rolling out internet access on all flights. BA

is currently testing the service on one flight from London City Airport to JFK,

New York (Shephard, 2009).

BA also needs to compete with other modes of travel, e.g. Eurostar, which

already have internet capabilities (AQR).

By implementing the strategy, BA can modernise its image whilst maintaining

traditional values (AQR).

ACCEPTABILITY SUPPORTS

STRATEGY?

Extensive testing has found the internet connection to be reliable, with loss of

connection only occurring for a couple of seconds during adverse weather

conditions.

Delivery time of the project – Implementation takes only 1-3 days per plane

(Row 44, 2010).


STRATEGY?

Ownership of the operations is much less costly and more reliable than the

abandoned ‘Connexion’ service offered by Boeing (DailyWireless, 2007).

BA has the slack resources in the technology department needed to

implement this strategy (VCA).

BA must successfully deploy this technology first time; otherwise it will

receive serious criticism and could ruin its long-term image.

26




8.4 Strategic Option 4 - Segment Focus

Brief outline: Focus and tailor tactics to the business segment to combat Virgin Atlantic’s marketshare growth.

SUITABILITY SUPPORTS

STRATEGY?

The company overview shows this strategy aligns with the existing BA

strategy to improve the customer experience.

The recent 8.6% drop in BA’s business class passengers suggests a need to

address the current strategy (Milmo, 2010).

Although the business segment is not growing as significantly in long haul asin short haul, (Keynote, 2010c), the profitability and sustainability of the

customers demand provides incentive for market share growth.

Through focusing on one segment BA may lose their advantage in other

segments (see appendix 8).

Stakeholders may view this strategy as competitor narrow focus as BA would

be targeting their prime domestic competitor and challenging Virgin Atlantic

at their own core competence (Competitor Analysis).


In relation to other strategies the benefit to cost ratio may not be as great.

The development of database marketing in line with BA’s loyalty club card inorder to segment and target these business users will increase relationshipmarketing operations, increasing BA’s failing customer service (AQR).

The benefits should also be sustainable through increase brand image andpreference (RBV).


STRATEGY?

Competition such as Virgin, have made head way in segmentation

development, however with the brand reputation of BA and the expertise

within the firm can ensure success (RBV).

The time frame to implement the strategy is achievable through resourceallocation, as there is no immediate urgency or threat (Competitor Analysis).

BA may have already missed the first mover initiative with specialists such asVirgin being so successful, the imitation BA would offer may gain little credit(Competitor Analysis, SWOT).

27




8.5 Strategic Option 5 - Broader Service Offering

Brief outline: Extend flights and services to new destinations past that of BA’s current strategy.


Utilises the core capability of BA, their service portfolio, in their core long haul

market (British Airways business map).

There is an increasing demand for new destinations to be reached directly by

domestic and international travellers (Customer Analysis).

As the pound continues to fail against the Euro, the economic advantage to

travelling to other destinations is found (PESTEL).

To gain significant share in the most profitable markets in the short term it

may be worth focusing on a few markets as is outlined in BA’s current

strategy. Also the demand level of many markets is still unclear, and a

phrased approach to increased destinations may be the best (GE Matrix).

BA has just restarted services to some destinations in the middle east after a

decade of a turbulent political environment (Tradearabia.com). The risk to

some destinations is still present and BA may not wish to take on the security

risks.

ACCEPTABILITY SUPPORTS

STRATEGY?

Extending markets and their opportunities allows BA to capitalise on low

competition as the first mover advantage is gained (GE Matrix).

The benefits far outweigh the costs, although the difference in benefit to thecurrent strategy may be doubtful in relation to other strategic options.

FEASIBILITY SUPPORTSSTRATEGY?

Funding for the current strategy can be extended more easily for this aligned

strategy. The resources required for a successful strategy are within the

capabilities of BA (Financial Analysis).

BA’s brand strength accommodates globalisation and a higher probability of acceptability by new countries (RBV).

Against local competition BA’s brand strength may not be enough to achievethe demand needed (RBV).

28




Based on the analysis of the strategic options it has been decided that before growth strategies arepursued BA should focus on defending its current market position and achieving fundamental servicequality. Based on this the people processes and technological advancement strategies are deemed

most appropriate for implementation.

29




30




9.0 Implementation

Based on the analysis of strategic options it is proposed that two strategies are implemented

simultaneously. These strategies are a people processes focused strategy and technologicaladvancement. Figure 12 details the objectives and performance measures of these two strategies.

Figure 12 – Strategy Overview

Strategy Objectives Performance Measures

People processes

Aim: Improved stakeholder brand

image & profitability

• Utilise databases.

• Improve service deliveryefficiency.

•

Improve internalcommunication.

• Implement effective review

monitoring.

• Profit margin increaseof 2 – 3%.

• Increase repeatpurchasing by 25%.

• Increase customer

recommendation from

59% (2007/08) to70%.

• Improve employeesurvey rate from 35%

(2007/08) to 80%(Value Chain).

Technological advancement

Aim: Customer Loyalty & MarketShare

• Following succession with

test internetimplementation, roll out

internet on-board internetaccess.

•An appropriate pricingstrategy involvingcomplimentary service forfirst class whilst targetingbusiness class as the mostprofitable market.

• Continued market research

to ensure that this is avalued service and seek

opportunities for further

development.

• Install equipment on

remaining 244 aircraft.

• Increase business class

market share by 10%.• 80% of business class

customers purchasinginternet usage.

• Following R&Dimplement 1 new

technological service.

In order for the chosen strategies to be successful effective implementation is essential to organiseand enable success and to manage the changes that will impact BA.

31




9.1 Company Structure

When implementing strategy, people are crucial to the success (Johnson et al., 2010), therefore thestructure within BA will now be analysed to ensure successful implementation.

9.1.1 Corporate Level Structure

(Adapted from British Airways, 2010).

At a corporate level, BA has a good structure already in place. There is a new Acting CustomerDirector on an interim basis, Silla Maizey (British Airways, 2010). She has introduced a newcustomer service team working with Heathrow Customer Services, designed to put customers first.Using the current structure to implement our strategy, it is recommended that a permanent and notacting director to be recruited. In terms of the technological strategy, no amendments to the current

structure are necessary as BA already have systems in place to implement new technology.

9.1.2 Business Level StructureAt a business level each department will need to ensure all staff implements the strategies that havecome top-down from a corporate level and work within the organisation’s brand values. Eachdepartment must also tailor the corporate level objectives specifically to its own targets. This willhelp to build the brand, improve its customer relationship focus and achieve the stated objectives.

9.1.3 Functional Level StructureEvery function must coordinate with each other to ensure objectives are met and an updated

operations manual must be developed. Specifically for the relations strategy, detailed targets must

32




be stated for both the marketing and HR functions with constant data capture and analysis to seewhether the targets are being met. Sufficient training on the new onboard technology will benecessary on an ongoing basis to ensure that employees are fully familiar with the service.

9.2 Service Quality Gaps Model

The Service Quality Gaps Model demonstrates the long-term strategy to improve service quality(Appendix 4).

Figure 13 – Application to BA

33

Service Gap Current

Priority

Strategy

status

Strategy in practise

The Knowledge

Gap

Low Current BA has completed extensive market

research into understanding the customer(British Airways, 2010), and ourassessment suggests in this fast changingenvironment, that it needs to besustained.

The Design andStandards Gap

Medium Current & recommended

BA will soon renew their fleet (BritishAirways, 2010). Our recommendation is toincorporate the latest technology. This willaddress the current service design’sfailure to meet customer needs in terms of

operational efficiency.

The Performance

Gap

High Recommended The issue with the service delivery is for

BA to maintain satisfied employees. Our

recommendation is for BA to invest inresearch to understand the employee’sneeds, responding with an adaptation inHR policy and internal marketing culture.

TheCommunicationsGap

Medium Future BA appears to be losing value in themarketing delivery over competitors suchas Virgin and EasyJet. A futurerecommendation and developmentstrategy would be to address the externalcommunication and ensure the promisesof delivery previously corrected reach and

penetrate the relevant target market.




9.3 Managing the Change

Figure 14 – Types of Change

Scope of Change

Realignment Transformation

Nature

of

Change

Incremental Adaptation Evolution

Big BangReconstruction Revolution

Source: Johnson et al., 2010, p520.

The shaded area of figure 14 reflects the nature and scope of change that the proposed strategies

will require of BA. Adaptation will be necessary; as this is done on an incremental basis it isrelatively low risk. The specific areas of change are looked at in more detail in figure 15.

34




35

Preservation

The traditional brand image of BA willbe maintained whilst also being

modernised by an improvedtechnological stance.

Measures will be taken to preservethe employees, e.g. revised pension

schemes.

DiversityAs the nature of change is incremental

and the scope of change is adaptationfor both strategies, the diversity risks

are minimal.

Capability

On a corporate level, the directors do havethe knowledge and skills to implement both

strategies. However, senior/middlemanagers and employees will need to be

further educated.

External consultants may be required for the

people processes strategy and will berequired for the improved technological

stance strategy.

CapacityAn Acting Customer director is

already in place at a corporatelevel, which feeds down into

customer relations team.

However, a permanent positionover the next 3 years is

recommended to ensuresuccessful implementation.

The capacity for the improved

technological stance already

exists.

ReadinessEmployees will need training and education on

the strategy to realise the importance of managing customer relationships and to

implement the new systems.

Certain employees within the flight

operations/general operations/cabin crewdepartment will have to be trained to be familiar

with the new technology if anything does gowrong mid-flight.

Power

The current top level management structure willprovide the power to implement these strategies.

Employees who have direct contact with customers

must be given the power to obtain direct feedback.Middle managers must be given enough power to

ensure some autonomy in the firm, and goodcommunications within the firm.

Time

The improvement of people processes will notbe immediate. Perceptions of the firm will take

time to change. Internal surveys across

employees will take time to design and analyseand be implemented. It will take longer than a

year.A customer orientated approach is needed

immediately to gain competitive advantage,however as this approach stems from an

internal marketing philosophy ful limplementation may take over a year. Data

capture and using this within the marketingactivities could take up to two years before the

full benefits are reached.

Refer to Gantt Chart for a full break down.

Adapted from: Johnson,G., Scholes, K., andWhittington, R., ‘Exploring Corporate

Strategy’, 2006, Prentice Hall, Page 508

Figure 15 – Contextual Features of Strategic Change

PeopleProcesses,

TechnologicalAdvancement.

Scope

A medium degree of change is needed in implementing a

people processes strategy. New systems will need to beimplemented and surveys will have to be performed to

assess satisfaction. Training is needed to improve customerrelations. A new/reinforced firm culture needs to be

implemented as a result of extensive employee satisfaction

research.

A low level of internal change is needed for the introduction

of full internet access across the fleet. A medium level of change maybe required when it comes to carrying outresearch to ensure it is a valued service and in seeking

opportunities for development.

Adapted from Johnson et al.,2010, p523.




9.4 Stakeholder Map

It is important to assess the expectations of different stakeholders and the extent to which they are

likely to seek influence over BA’s strategies.

Figure 16 – Stakeholder Map (Source: Johnson et al., 2010, p156.)

36




9.5 Control Systems

Strategy ReviewGuidelines

ExpectedCompetitorreactions

Contingency in place ResourceAllocation

Technology Review the Premium BA will partner with a People –

37

INTEREST

Low High

P O W

E R

L

o wMinimal Effort

CharitiesBA donates money to a number of registered charities in the UK (BritishAirways, 2010) - minimal impact on thestrategies.

Keep Informed

CreditorsMust be kept informed due to money owed however this would notimpact on the choices adopted at BA as they have a good creditrating (Financial Analysis).

OnAIr Internet ServiceBA is currently testing the use of the OnAir internet service(Inmarsat, 2009). By expanding and utilising their service acrossthe fleet would positively impact OnAir therefore they have a highinterest. However they have little power as BA could move to itscompetitors (Row 44/Air Cell), which have already shown positiveresults.

H i g hKeep Satisfied

Government/Regulators

New legislation if introduced can have agreat impact on the organisation but is not

individualised to BA specifically.

CustomersCustomers provide all of the sales but have

low interest in how the company ismanaged. They still have a high impact as

the goal is to attract more customers.

Key players

Employees

Due to service being a key part of BA’ image employees have thepower to influence customers. They have a vested interest as BA

provide their financial wellbeing. The workforce is heavilyunionised, this increases the power of the employees.

Competitors

BA’s main rivals within their strategic group have both a highinterest and power in influencing BA’s strategy. The oligopolistic

nature of the market will affect the decisions BA make.

Suppliers

Two airline suppliers, Boeing and Airbus. They have a high interestand power over BA as BA is a big source of income for them and BAin turn relies upon them. With only one supplier of fuel, they too

have a high interest and power over BA. This is also true for BAAthe airport operator.

Financial Institutions

Financial support maybe required from Financial Institutions to fundthese strategies and even though BA has lowered its gearing ratio

and increased its liquidity. With the current conditions theinstitutions have great power over BA and can refuse finance.

Shareholders

Shareholders have a high interest due to aspiring to gain

financially. They have high input into selecting board members andauthorising new strategies. The shareholders must be wellinformed of the risks of the strategies and length of time before

returns are expected and the size of those returns.

Local CommunitiesBA continues to show corporate social responsibility including

environmental issues and has a high power over its direction.BA must keep the local communities satisfied as they can severely

damage BA’s brand image.




progress of

thestrategy in

line withcompetitorintelligence,andcustomerfeedback

every 6months.

Competitors such

as Virgin arealready advanced

in this area,although manyother competitorsmay look toimitate, and formalliances with

either the samesupplier or a

cheapermanufacturer.

technology provider

ensuring that they are theleaders for quality, and

that BA’s relationship isexclusive. If imitationoccurs BA will take stepsto communicate thequality and take the earlyadopter advantage.

Introduce

technology team.

Technology –Combine existingand new hardware.

Finance – R&D,Installing and

maintenance,training.

Information –

Providing manualsto users and

promotion.PeopleProcesses

As the processes of implementing aninternal marketingculture arecomplex, imitationis unlikely, and theculture of BA will

remain unique.Although any

measurescompetitors willmake will be fasterand more effectiveto implement dueto their small size.

As competitors may takesteps to head hunt BAemployees, and offerbenefits. Internal research=> meet employee needs(strong pension/shareholder schemes and

internal marketing of thebrand). This will turn

internal customer ‘Mercenaries’ or even ‘terrorists’ into Advocates(Jones and Sasser, 1995).

People – Servicesecondments inthird parties

Technology – Useservice blueprintsto outline

processes.

Finance – Marketresearch

Information –Promotion, internalcommunications.

9.6 Balance Scorecard

The Balance Score Card (Appendix 7) is used as a tool to analyse the progress of the strategy in thereview occurring every six months (Johnson et al., 2010). Whilst it highlights the strategyachievements, it additionally focuses attention to areas which may be failing, and hence need further

resource allocation or a red flag to adapt the strategy. A traffic light system is utilised to categoriseareas of success, monitoring, and decision making.

38




10.0 Critique

Although strong and justified strategies have been created within the confines of the report there are

a number of issues which BA should take into consideration when implementing the proposedstrategies. These are considered briefly below.

10.1 Financial

BA should not have much trouble in implementing these strategies. With an increasingly lower

gearing ratio and better liquidity they should be able to secure some funding from financialinstitutions and obtain the rest from retained profits. However, with the current economic

conditions, it will still be difficult to obtain funding and BA will not want to increase its gearing toomuch.

10.2 People

The recommended strategy to improve relations will require full support from BA’s workforce. As a

highly unionised workforce, success in changing the employment relationship will be determined byBA’s ability to work efficiently with each recognised union. In regards to implementing change, due

to BA’s history and size the company may experience organisational inertia or myopia. Again,improvements to customer relations may be hindered by an uncooperative workforce, highlighting

the importance of ongoing training and support. Similarly, a technological stance will require BA’semployees to develop service knowledge, and it is imperative for the organisation to support them indoing so on a continual basis.

10.3 Legal

The use of Wi-Fi on planes is already allowed by the aviation regulators in the UK, Europe and Rest

of the World. However, regulatory approval must be achieved before it can be implemented onplanes flying to/from USA (Wlanbook, 2010; Row 44, 2010). The use of external legal consultantsshould be used when implementing both strategies to ensure that legal requirements are met,

especially when performing internal and external surveys and the confidentiality of data.

39




11.0 Conclusion

As a result of the external and internal analysis a number of strategic options were proposed. It was

concluded that a combined strategy approach to improve service quality was deemed most suitable.Due to the current industry climate we have chosen a strategy to consolidate BA’s position asmarket leader.

Due to the scale and scope of BA’s operations it was decided that the focus of this report would beon scheduled passenger flights. We would recommend further strategic analysis to implement SBUlevel strategies.

Due to lack of primary research and restricted access to company information there may be

limitations in our findings and recommended strategy, however we believe that if the generaldirection of our suggested strategic intent is followed it will lead to lead to success.

40




Appendices

Appendix 1 – Real GDP Growth and Trend

Appendix 2 – Jet Fuel and Crude Oil Price Trends

Source: IMF, 2010

41




Appendix 3 – Ageing Population (Source: National Statistics Online, 2009)

42




Appendix 4 – Service Gaps Model

Zeithaml, V, A. & Bitner, M, J. (2003)

Appendix 5 – Tourist Arrivals (Source: Datamonitor, 2009)

43

EXPECTED SERVICE

PERCEIVED SERVICE

GAP 5: Service Gap

Closing Gaps 1 - 4 will help meetcustomers expectations and close gap 5

TRANSLATION OFPERCEPTIONS INTOSERVICE DESIGN &

PRECOEDURES

GAP 3: Delivery GapTo close this gap:

Internal ResearchHR PoliciesMatch supply and demand

EXTERNALCOMMUNICATIONS

TO CUSTOMERS

GAP 4: CommunicationsGap

To close this gap:

Horizontal Communications

Integrated marketing

communications

Management of Customer

Expectaions

MANAGEMENTPERCEPTIONS OF

CUSTOMER EXPECTATIONS

SERVICE DELIVERY

GAP 2 Standards Gap

To close gap:

Customer defined standards

Approved service design.

Appropriate physical evidence and servicescape

GAP 1 - Knowledge Gap

Closing this gap requires:

Understanding and listening to customers

(Market Research)

Building relationships with customers

Filtering feedback through vertical channels of

communications

External Environment

Internal Environment




Appendix 6 - Travel expenditure by region (Source: Datamonitor, 2009)

44




45




Appendix 7 – Balance Score Card (Source: Garrison et al., 2003.)

Financial Perspective Customer PerspectiveCSF Measures CSF Measures

Improvedfinancialperformance

- Sales growth

Quality of airlineservice

- Quality control- End of yearfinancialaccounts

- Customerfeedback

- Profitability andliquidity ratios

Customer service - Customerquestionnairesand feedback

Shareholdervalue - Share price

- Dividends pershare

Increased brandawareness

- Customerfeedback- Increasedpassengervolumes

Internal Perspective

Innovation and learning

perspectiveCSF Measures CSF Measures

Security andspeed of check-inservices

- Positivefeedback Integration of UK

and emergingmarket cultures

- Staff motivation

- Time efficiencyof check-inservice

Investment intotechnologicalinnovation

- Increasespending inR&D

Customerorientated

- Increased salesvolumes

Expansion intonew markets

- Profitability of airlinecompetitors inthe new markets

Highly skilled staff - Spending onstaff training

46




Appendix 8 – Airline Segmentation Matrix

Price

Focus of Service Provided

Domestic Short-Medium Haul Long Haul

Medium

Premium

Low

Ryan

Air, Easy

Jet

BA

Virgin

First Choice,

ThomasCook…


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