Nowadays strategic planning comes more than ever to the fore. In the course of an onward globalisation and with an increasing stress of competition, it becomes more and more difficult for entrepreneurs to keep or to improve their market position.
For this account, strategic planning comes into the main focus to choose the best strategy for a business.
However, every business man knows that there are always chances and risks in economic life.
For this reason, risks cannot be eliminated, but they can be managed.
Especially in the airline industry, the competition is on a very high level. Since 2001 more and more low cost carriers have been competing with the big well known national airline companies like Lufthansa or British Airways.
That’s why a well thought out strategic management, strategic planning and of course risk management are essential to overcome the stress of competition.
This report will analyse why risk management is so important in strategic planning. By evaluating different models and techniques, the best method to analyse the internal and external environment will be elaborated.
By using a current business paper, in that case the annual report of British Airways Plc 2007, different kinds of risks will be analysed and strategies will be given, to overcome and mitigate those risks.
Table of Contents
1. Introduction
2. Company Background
3. Airline Industry Analysis
3.1 External Environment Analysis
3.1.1 The Operating Environment
3.1.2 The Remote Environment
3.2 Internal Environment Analysis
4. Risks and Uncertainties British Airway`s is facing
4.1 Internal Risks
4.2 External Risks
5. Mitigating Risk in the Airline Industry
Research Objective and Key Themes
This report investigates the critical importance of risk management within the strategic planning process of the airline industry, specifically utilizing British Airways as a case study to evaluate internal and external environmental factors and develop effective mitigation strategies.
- Strategic risk management in the aviation sector
- Application of environmental analysis models (Porter's 5 Forces, PESTE)
- Internal and external risk classification for airlines
- Crisis management and infrastructure risk assessment
- Strategic planning for operational and financial stability
Excerpt from the Book
3.1.1 The Operating Environment
Industries and sectors which are parts of the operating environment could be analysed by using Porter`s five forces, which allow an analysis of its competitive position (Oelsnitz, 2000, p. 46).
This model is based on the essential knowledge that a company strategy has to be geared to its environment. In this context, Porter identified five different competitive strengths, which appear in every branch and market.
These are according to Johnson et al. (2008, p. 83), “barriers to entry, substitutes, buyer power, supplier power and rivalry”. The characteristics of these strengths specify the intensity of competition in a branch and therefore its profitability and attractiveness (Johnson et al., 2008, p. 83).
For new entrants it is quite difficult to enter the airline industry. The comparison of bank loans and credits is essential. If borrowing is cheap, “… the likelihood of more airlines entering the market is much higher” (Investopedia, 2008). In case of a new competitor, the well established airlines will try everything to crowd out that competitor. Nevertheless, the airline business is as well a business of confidence. Airlines with a strong brand name are more reliable than new ones.
Boeing and Airbus are the biggest suppliers in the airline business and play a predominant role. That’s why the competition between them and the airline supplier business is very small (Investopedia, 2008). However, with new products and innovations, new suppliers could find a gap to enter this market.
The customers are very important for every business. The competition about customers has increased in the last few years. A lot of airlines, especially the low-cost carriers offer lower fares by taking out some service features. Nevertheless, “The bargaining power of buyers in the airline industry is quite low” (Investopedia, 2008). The costs of switching planes is quiet high, anyway, there is still the possibility to compete on service (Investopedia, 2008).
Summary of Chapters
1. Introduction: Outlines the necessity of strategic risk management in a globalized, highly competitive airline market.
2. Company Background: Provides an overview of British Airways' history, business segments, fleet modernization, and strategic alliances.
3. Airline Industry Analysis: Examines the broader aviation sector using Porter's Five Forces and PESTE analysis to evaluate external environmental dynamics.
4. Risks and Uncertainties British Airway`s is facing: Identifies and categorizes specific internal and external risks impacting the company's performance.
5. Mitigating Risk in the Airline Industry: Discusses the mechanisms and tools required for identifying, assessing, and managing risks to ensure corporate sustainability.
Keywords
Strategic Risk Management, British Airways, Aviation Industry, PESTE Analysis, Porter’s Five Forces, SWOT Analysis, Operational Risk, Financial Risk, Airline Alliances, Competitive Strategy, Crisis Mitigation, Infrastructure Risk, Market Dynamics, Risk Assessment, Corporate Governance.
Frequently Asked Questions
What is the primary focus of this report?
The report focuses on the importance of risk management within the strategic planning framework of the airline industry, using British Airways as the primary case study.
What are the main thematic areas covered?
Key themes include external environment analysis (Porter’s 5 Forces, PESTE), internal environment analysis (SWOT), categorization of business risks, and strategies for risk mitigation.
What is the core research objective?
The objective is to elaborate on the best methods for analyzing the internal and external environment to overcome the high level of competition and associated industry risks.
Which scientific methodologies are applied?
The report utilizes established strategic management models such as Porter's Five Forces, PESTE analysis, and SWOT analysis, alongside a review of the annual report of British Airways Plc 2007.
What does the main body of the report cover?
It covers industry analysis, the identification of internal and external risks such as fuel price volatility and infrastructure challenges, and detailed risk management processes.
Which keywords best describe this research?
Strategic Risk Management, Aviation Industry, Competitive Strategy, SWOT, PESTE, and Risk Mitigation are central to this work.
What does the report suggest regarding British Airways' Terminal 5 project?
It highlights the terminal project as an example of inefficient risk management, specifically pointing to infrastructure and migration failures that led to significant financial impact.
How does the report categorize risks?
Risks are categorized into internal risks (financial, operational, technological) and external risks (economic, legal, political, social, environmental).
What role does the 'Acertus' software play according to the report?
It is used for risk assessment to calculate total costs of ownership, return on investment, and annual lost expectancy, helping to merge internal data with international databases.
Why is the PESTE analysis considered useful by the author?
The author views it as a powerful strategic tool for understanding the external environment and its components—Political, Economic, Social, Technological, and Environmental—which influence airline operations.
- Quote paper
- Thomas Punzel (Author), 2008, Risks and Decision Making, Munich, GRIN Verlag, https://www.grin.com/document/122109
