Friday, April 5, 2019
British Airways Essay Example for Free
British Airways EssayIn 1987, British Airways was privatised, and over the next ecstasy turned from a freeing-making nationalised company into The Worlds Favourite Airline a merchandise-leading and very profitable plc. The strategy that alter the company into a marketing-led and efficient operation was conceived and implemented by Lord powerfulness as Chairman, aided by Sir Colin (subsequently Lord) Marshall two tough stage businessmen who confronted staff inefficiencies and so improved receipts metier that BA was rated world(prenominal) business travellers favourite air duct for several years in the 1990s. Lord King having retired, Lord Marshall became Chairman and was succeeded as Chief Executive by Bob Ayling, a long-time BA manager.Ayling set in train a strategy to turn BA into a global respiratory tract transcending the flag-carrier status (the role of a nations leading airline) it shared with Air France, Lufthansa, Swissair, Alitalia, Iberia into an airline w ith no national firm operating throughout the world. The dropping of the overtly British heritage and associations was reflected in a changed brand strategy. forth went aeroplane liveries featuring the Union flag, to be replaced by tailfins bearing themed designs from around the world. This was to address the global traveller a savvy (mainly business) customer whose criteria for purchase were service levels, range of destinations, promptness not price. still the re-branding became a debacle. Customers, staff, conglutination checkmates, shareholders and retailers (travel agents) all liked the British heritage and imagery and rebelled against the turn to an anonymous, characterless new style.Ayling also focussed on cost-reduction programmes which antagonised and demotivated BAs staff and customers noticed the deterioration in behaviour of staff whose commitment to customer service suddenly plummeted.The upshot was that Ayling was ousted in a boardroom coup in prove 2000. Duri ng his reign, a dismissal of 244m in the year to March 31 2000 the offset since privatisation was recorded and the groups market value had fallenby half.A New Face.In May 2000, Rod Eddington joined BA as Chief Executive. He was previously Managing Directory of Cathay Pacific and Executive Chairman of Ansett, an Australian airline.Eddingtons immediate actions were designed to restore profitableness to BAs trading operations and to restore the Union Flag to BAs planes He set closely reducing the fleet, moving to littler aircraft, cutting clearly unprofitable routes. He also targeted spunky-yield customers, the traditional mainstay segment for BA. Matching furnish with demand was the overall concern, to restore positive cash flow.Strategically, BAs longtime search for a merger partner was resumed. A link with American Airlines, the first choice partner, was out of the question after US regulatory authorities squashed the idea. A proposed merger with KLM, the Dutch flag carrie r, was discussed in some depth, exactly that foundered on doubts over the long-term financial benefits, and arguments over the relative shares each airline would have in the unify company.Low-Cost Airlines.Meanwhile, the airline industry was under dismissal a seismic shift with the rise of low-cost no frills airlines. Ryanair and easyJet had, at first, demonstrated the existence of a new market for cheap airline travel which had not been tapped by traditional airlines. But then they began to expand and to compete for passengers that normally would have gone to BA hitherto business class customers couldnt see the reason to pay 100 for breakfast (the difference in price between BA and easyJet between London and Edinburgh.)BAs response (under Bob Ayling) was to form GO as a direct response to the no-frills competitor. Operating out of Stansted airport, GO was operatedentirely separately from BA, so none of the high-cost culture was inherited. Launched in the face of vociferous op s tain from easyJet, GO nevertheless established itself in the market though at what cost, no-one could guess.Rod Eddington soon decided that his focus on premium customers made GOs operations inconsistent with that of BA as a whole. GO was sold in May 2001 for 100m to 3i, a UK infer capital and private equity group.GO was subsequently sold on to easy Jet for 375m.However, the thrust of aggressive strategies from budget airlines is still forcing flag-carriers to re-assess their business models.The Outcome.For the year ended March 2001, Eddingtons steps had yielded a quadruple of operating profits. Market share on key routes had been lost as cuts in fleet and routes bit, however BA believed it had lost customers who paid deeply-discounted fares. BA continued its vigorous pursuit of high-yield passengers.September 11th.So, all seemed to be dismissal well. The brand was being restored, financial performance was improving and the only real problem was wish of progress on forming a pa rtnership with a US carrier, prevented by the regulators. Then came September 11th, and the airline market fell apart. The consequences were swift passenger rime fell 28%, US airports were closed for a week, Swissair, Sabena, US Airlines and nearly, Aer Lingus, went bust. Alitalia lost 570m, Lufthansa 400m. Altogether the industry lost 7bn and shed 120,000 jobs 13,000 at BA and passenger numbers are still running at 13% below normal on transatlantic routes.In contrast, passenger numbers and financial results at low-cost carriers easyJet and Ryanair were rising impressively.Then came Sars, the Iraq war and the continuing stoicism of the world economy, all deeply damaging to passenger numbers.Strategy at BA was thrown into disarray. modern Strategy.With the travel market is still subject to global economic and political uncertainty, BA has repeated its forecasts for write down revenues. However, the fundamentals of this business are stronger than they have been for four or fiv e years John Rishton, finance Director, says BA is generating cash, and is conserving that cash. (FT and D.Tel. 6.11.02).The operational imperatives to cope with the turbulent environment are expressed in BAs Future surface and Shape initiative which is intended to Achieve significant cost reductions. Originally targeted at 650m, the cost savings are now expected to save an annualised 1.1bn over 3 years (FT 19.3.03). Simplified operations and stripped overheads is the aim. Cut capacity, to match supply of aircraft and flights to the reduced demand. Cut staffing levels. A further 3,000 job cuts planned for March 2004 have been brought forward to September 2003. Change BAs business model. Aware that no-frills competition is not going to go away, but that BA possesses a positive service heritage, BA wants to create an offering that combines the lift out bits of BA and the no-frills model. Martin George, BAs director of marketing and commercial development, explains our customers lik e the BA product convenient airports, high frequency, good level of service but want it at the right price, and thats what well give them. Its about changing our business model to allow us to compete profitably (Management Today, September 2000). Rationalise BAs inner UK and short-haul business CitiExpress has been formed from the activities of subsidiaries Brymon, BRAL, Manx and BA Regional. To stem heavy losses on this short-haul network, some systematization has been done it has pulled out of Cardiff and Leeds-Bradford airports, and will cut its current fleet from 82 to 50 all-jet planes by end-2005. However, it is expanding operations from Manchester, and from London City airport to Paris and Frankfurt. (FT 18.12.02).It is recognised that BA started to take the bitter medicine of cost cuts and restructuring earlier and in bigger doses than rivals in Europe and North America, and that Rod Eddington has pushed through changes that were long overdue. But is this enough? can B A wrest back the short haul market from easyJet and Ryanair, while maintaining its position in the longhaul marketStrikeIn July 2003, just at the start of the busy holiday season, BA was hit by an unofficial strike by Heathrow check-in and sales staff who were objecting to a hurried introduction of a swipe-card automatic clocking system. 500 flights were cancelled, affecting 100,000 passengers. The damage to BAs service reputation was enormous. two management and union leaders were taken by surprise, and it brought to a head the existence of restrictive practices going back 40 or 50 years which both sides have to confront.Performance.Results for the year ending thirty-first March 2003 showed a pretax profit of 135 on turnover down 7.8% to 7.69bn, up from a loss of 335 in the year to March 2002. The results included a charge of 84m for the planned ending of Concorde flights in October, and a fourth-quarter loss (January to March) of 200m. These positive results were entirely down to cost reduction. Nodividend was paid a consequence of the indispensableness to conserve cash. Operating margin at 3.8% is way below Eddingtons target of 10%. (D.Tel, 20.5.03, FT, 21.5.03).In the first quarter of the 2003-04 year, a pretax loss of 45m was incurred the effect of the Heathrow strike was put at 30-40m.The business environment.However, Rod Eddington sees the furure business environment as very hard to read, but expects it to get tougher. 2003-04 was meant, according to analysts, to be BAs year of recovery, but it is not now expected to happen. (DTel, 11.2.03)A critical development is the start of talks between the EU and the USA to dismantle the web of regulations that have controlled the development of international aviation since the mid-1940s.Eddington, as chairman of the stand of European Airlines, insists that truly global airlines are impossible in the current regulatory environment. If it were left to the market, international airlines would undoubtedly follow in the footsteps of other industries and would seek the benefits of scale and scope that are currently denied them. A truly global airline..would be free to operate wherever its customers demanded, free to grow organically or through acquisition and free to charge whatever the market would bear.These talks are likely to be very long. However, it potentially offers the opportunity for an opening of the two biggest airline markets and lead to substantial consolidation of participants. (FT, 29.9.03).The coup detat of KLM, the Dutch flag carrier, by Air France, may be the precursor to the consolidation expected. BA sees no threat from what is now Europes largest airline. D.Tel, 1.01.03).