British Airways Business Model
Political and Legal
Porter's Five Forces Model
Industry Rivalry: HIGH
The threat of substitutes: MEDIUM
The threat of new entrants: LOW
The bargaining power of buyers: MEDIUM
The bargaining power of suppliers: HIGH
British Airways is UK's largest international scheduled airline in terms of fleet size es with an operating profit of £975 million in 2014 (British Airways Plc, 2014) and around 40,000 employees (British Airways Careers (b), 2012). It flies to more than 170 destinations in almost 80 countries (British Airways (a), 2015) It is also the fifth largest international cargo airline carrying almost a million tons of mail, freight and courier shipments annually (British Airways Careers (a), 2012). Furthermore, the airline offers a range of ancillary services including aircraft and maintenance, training and ground handling (British Airways, 2012). It is also a founding member of Oneworld, the third largest airline alliance (Oneworld, 2014). Furthermore, BA is the biggest holder of slots at Heathrow airport, which is Britain’s most important airline hub (Capa, 2013).
Ever since the airline was privatized in 1987 it grew to become one of the global premium airlines. At the core of the brand lies the motto 'To Fly. To Serve.' “Always putting you at the heart of everything we engineer, innovate and pioneer.
Today and tomorrow” (British Airways, 2015). The airline is also known to be a pioneer in green technology with the goal to set standards in responsible aviation. Consequently, the company engages in fuel innovation, purchases fuel-saving aircrafts and supports community projects and appropriate government regulations (British Airways, n.d.).
To understand BA’s business model in detail, first a SWOT analysis with a PESTLE analysis is conducted and then Porter’s Five Forces Model is used.
The brand’s strength is reflected by winning a number of awards including being voted Consumer Superbrand. BA has an extensive international network together with its joint business agreements, code share and franchise partners, consisting of more than 400 destinations. The airline uses modern technologies to not only improve its performance, but also to improve the service and customer experience and to operate in a more environmentally friendly way. That is why the airline invested in the world’s first facility to convert landfill waste into jet fuel. The company constantly introduces new aircrafts, new routes and new airline partners. After all BA established a good market positioning, especially in the domestic market and has a lot of experience in the airline business with leadership in strategic markets (British Airways Plc, 2014).
While investing in technology is essential these days, the high dependency on technology can turn into a weakness if the systems fail. However, all airline companies face this risk. Another weakness is the fact that the airline industry is highly capital intensive. Therefore the company faces financial risks, including market risk, credit risk, capital risk and liquidity risk.
Furthermore, there is a risk factor given through the facility of Heathrow airport which “has no spare runway capacity and has operated on the same two main runways since it opened over 60 years ago. As a result, the Group is vulnerable to short-term operational disruption and there is little that can be done to mitigate this“ (British Airways Plc, 2014). Finally, BA has a large unionized workforce with collective bargaining taking place regularly. It can lead to disruption of operations and affect business performance negatively as it already did in the past (British Airways Plc, 2014).
Due to the competitiveness of the airline market, there might be airline failures and consolidation which leads to the opportunity for BA to capture market share, new acquisitions and consequently to expand the group. A further opportunity is to maintain a leading presence in alliance Oneworld and ensure that the alliance performs as expected by the members. To stay up-to-date, BA should constantly think about news markets, products and services.
The millennial generation will be the future target group for airlines. Their spending on business travel is forecasted to rise by 50 percent in 2020 and expected to remain strong for the next 15 years. Additionally, millennials spend 13 percent more than non-millennials per airline ticket for business travel (Cederholm, 2014).
The threats that the airline industry faces are partly identical with the result of the PESTLE analyzer. While the political environment is highly regulated and restricted, the industry also faces risks concerning international trade, tax policy, competition, war, terrorism, adverse weather conditions and the outbreak of pandemics. The competition in the airline industry is huge as there are plenty of airlines that operate in the low-cost segment by offering low prices with no frills (Cederholm, 2014).
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