Icon College Unit 1 Business Environment

This Icon College Business environment assignment describes the British Airways as an organization and its impact over the UK's overall business environment.

Task 1

Identify the key stakeholders of BA?

Groups of Stakeholders Inter-relationship with BA Influences of the Stakeholders
Customer   Buy product or services Customers are those, who buy products or services and generally look for a wide range, while choosing any products or services. They also desire easy accessibility and hope to buy good quality products and services at a competitive price. Customers are said to be the single most important stakeholders as they provide money for the businesses in order to be successful.
Suppliers   Rely on business for orders Suppliers stock the business with any kind of supplies or raw materials, the business requires. For Suppliers, it is vital that all the business supplies are on time, so as to ensure smooth operations. Suppliers are considered to be the third most important aspect in a business, since they provide the products/services and if they are not in time it becomes a threat to the financial state of the business (Sholes, 1998).
Employees   Rely on business for employment   Employees are the biggest asset of any organization; sometimes they may want an increase in pay rise. Staffs are generally concerned with employment benefits, which at British Airways, are the best. Be it in the form of wages, bonuses, discounts, and holiday pension.
Owner's/Investor’s   Have invested money in the business   In contrast an owner/promoter/investor may want a decrease in pay rise for their employees, so as to save any additional cost. The investors are probably one of the most important people in any business.
Local and national communities   Directly affected by the actions and operations of the business.   Rules, Regulations, Legal and Environmental Frameworks. Give planning permission depending on the businesses (Alamdari, 2006).

How BA did respond to fulfill its responsibilities to its stakeholders?

  • Employees – British Airways has always enjoyed huge patronization by its employees which is visible through their huge commitment to the success of British Airways right across the Company, despite the tough business environment (economic) prevalent, and challenging industrial relations. British Airways has also endorsed this by ensuring high participation levels to support the operation through disruption. In 2010/11 they build on this in a number of ways, by boosting the engagement right across the Company and hence rallying their employees with a drive towards giving ever greater customer service. BA always strives and ensures for targeted investments to improve the way, talent is being managed, with the focus on the development of their front-line leaders. They has also embedded their customer-centric outlook into a reward framework, and increasingly use performance-related pay (Airways, 2013).
  • Customers – It has been a constant endeavor at BA to evolve their products, for instance through the roll-out of the restyled First cabin, and through the development of products fit for the Boeing 787s and Airbus 380s, which were recently ordered. There was also a project undertaken to refine the Terminal 5 experience for premium passengers, as well as making targeted investments in overseas lounges. With the launch of a new in-flight entertainment system, on the new long-haul aircraft, starting with Boeing 777- 300ERs in 2010, it was impediment of their huge international success, which was continued through the targeted development of ba.com that has made it such an important part of the way their customers interact with them. BA has also been striving to reaffirm their brand in a changing and fiercely competitive marketplace, too.
  • Shareholders – BA has been really careful in monitoring opportunities to adjust capacity as economic conditions allowed and anticipated less need to reduce flying outside the peak periods. By ensuring structural changes in the cost base, which are maintained by keeping controllable costs flat even as business conditions improve. They always have competed for new slots and intended to grow their mileage and holiday businesses, and boost revenues from third-party engineering, retailing and the development of non-air partnerships. Bringing new Boeing 777-300ERs, with improved fuel efficiency and environmental performance and which will begin to arrive in 2010 has been some of the steps in that direction. We can ascertain all these as steps for financial performance improvements which help in delivering Shareholder’s value.
  • Rest All – If regulatory approval arrives, BA is also planning to implement a Joint Business Agreement with American Airlines and Iberia, which will deliver a range of customer benefits. This agreement has potential to significantly extend the connections offered, improve flight schedules, and deliver enhanced frequent flyer benefits, improved customer service and better disruption management. BA has always focused on developing partnerships, such as those announced this year with India’s Kingfisher Airlines and the Russian carrier S7 that will improve their position in the global cities of today and tomorrow (Airways, 2011).

How have economic resources allocation effectively impacted the various stakeholders of BA?

Stakeholders/Promoters – Following factors leading to poor business environment and hence erosion of forecasted sales or reduction in numbers.

  • Global economic crisis: world growth is projected to be just over 2 per cent in 2009 (IMF, 2008) (Steinwand, 2008). Pound weakening, especially against the Euro
  • Possible reduction in the amount of business travel as companies are cutting costs and using alternative means of communication such as telecom fencing.
  • British Airways is vulnerable as a United Kingdom operating airline to a poor exchange rate.

Employee/Customers – Some of the following activities will hamper, hikes in salaries for employees. Sentiments, like these, all across UK will lead to further customer ability to give business and reduced sales numbers and profits and hence lesser investments going in service up gradation, which means no probable improvements in services.

  • UK Consumer spending saw its sharpest decline for 13 years between July and September 2008 (Channel 4, 2008)
  • Increased inter competition for business in the UK markets.
  • The United Kingdom has an aging population and also increasing Unemployment.

Discuss some challenge faced due to fiscal and monetary policies by BA in the last one decade?

Fiscal and Monetary policy of a country are the Roadmaps and Strategies for that nation’s economy, which is being implemented by the government of that nation. Fiscal Policy is all about money, collected through taxation and then spent on the nation’s development & welfare. Whereas, Monetary Policy explains about the money which is in the system and is directly proportional to the supply and demand of that Nation (GDP). Both these policies impact big companies. Fiscal Policy and monetary policy are considered to be two tools used by any government to achieve its macroeconomic objectives. With this their main objective of fiscal policy is to increase the combined output of the entire economy, whereas with the monetary policies is to control the interest and inflation rates (Lucas, 1983).

Challenges –

  • At the start of the last decade, UK’s fiscal Policy was that of cutting down the inflation by increasing tax rates and cutting down the spending (Eshag, 1983).
  • Inflation was very high and hence reducing the Aggregate Demand in the economy was the first priority for UK governments.
  • Due to this AD reduction and Tax appreciation, BA was severely hit with,
  • Lower Sales
  • Higher Tax Rates and Surcharges
  • High input Costs
  • Lower Returns and Margins
  • Later, in 2007 – 08, due to recession hitting UK real bad, the economy went for a turmoil and the AD overall was severely reduced. Government and Banks came to power and tried to buoy out by decreasing Tax rates and providing sops and benefits.
  • This kind of Fiscal and Monetary policy followed by UK government, helped the UK economy and buoyed BA’s fortune also, amidst the slowdown (Meier, 2009).

How has BA been impacted by regulatory, competition policies and legal changes in the airline industry?

Regulations are the intricate part of Airline Industry and presents appalling challenges to the operators. British Airways faces and deals with regulations from,

  • United Kingdom Government agencies
  • UK corporate affairs and company affairs policies
  • Civil Aviation code of conducts in UK
  • European Union (EU) Aviation norms
  • EU corporate affairs norms
  • International Aviation and Travel Authority (IATA)
  • US Civil Aviation and Corporate affairs norms and regulation

Impact on BA –

  • Complying with certain flying zone restrictions
  • Seating arrangements as per the compliances
  • Price regulations and price banding
  • Greater customer responsibility (being responsible to customers in providing services)

Competition policies and Legal policies in UK, US and in EU heavily emphasize on (Lyon, 2006),

  • Antitrust & cartels
  • Market liberalization
  • State aid control
  • Merger control

Impact on BA –

  • Greater vigilance on M&As and purchases made by BA
  • Undue to subsidies and privilege to local players and competitive advantages
  • Highly close-door markets and state control (Barrett, 2001)
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Task 2

How has the market structure of the airline industry and the interplay of different players and forces in the market impacted the pricing and demand for airline seats?

Market Structure and interplay of different players and forces in the airline industry –

  • British Airways merged with Iberia of Spain to form International Airlines Group
  • Several domestic and international players in European market
  • Several big multinational airlines in world market
  • Alliances with multiple partners in various routes and Seat/Revenue sharing model implemented by BA
  • Partnership with various players all across the world for delivering effective and cost conscious services
  • Government and other institutional regulations
  • Economic factors, like purchasing power, fuel prices and political stability also affecting airline business players
  • Cut throat competition, due to various factors like, cost effectiveness (achieved due to economies of scale, government support and subsidies, market entry and expansion strategies and various other parameters adopted and practiced by players to gain control over market share.

Impact on Pricing and Demands –

  • Low cost services to be provided with unified service levels across all sectors
  • Seasonal and fluctuating demands have to be mitigated with seat and yield management and planning
  • Services to be continued with all the service levels on low ROI (return on investment) routes due to political and competitive factors (Brueckner, 2004)

Provide suitable examples of BA’s response to pricing and demand for airline seats?

Examples of British Airway’s responses to pricing and demand scenario for airline seats –

  • Usage of high tech Schedule management and Yield management practices/planning (Software) (Piga, 2006)
  • Coalition with various regional players to deliver optimum service with maintaining low cost levels
  • Lobbying for extra benefits in markets like UK, EU and Us from the governments
  • Priority listing of repeat purchase customers and satisfying them with priority
  • Usage of Customer Relationship Management practices
  • Usage of technology, IT, Analytics and Mobility (Buhalis, 2004)

Identify with specific examples how BA has been impacted by the working practices and cultures of the countries where they predominantly operate?

British Airway’s Corporate Social Responsibility vision, “Our aim is to become the World’s Most Responsible Airline”, as we have discussed above encompasses all the points in one statement about its initiative of delivering a sustainable and environmentally sensitive business model. Apart from CSR, this statement also signifies their desire to be responsible for their existing customers and for the new ones also, which they desire to acquire. To achieve this vision, they have implemented quite a few business strategies, locally (countries of their operation) and globally too, some them are -

  • ‘One Destination’ program, which is a wide-ranging initiative and which brings together every element of their corporate responsibility activity under one banner.
  • A team known as, Diversity team launched a new Diversity and Inclusion Strategy.
  • Two simple aims of this team are, firstly, ensuring that everybody understand how and why diversity is important to each one of them and, secondly, that it is integrated into every part of their business.
  • BA has also been committed always in creating an inclusive working culture in which all their employees feel valued, respected and motivated.
  • Promoting different types of behavior, values and working practices which are able to recognize and support individuals and which also reflect the wide cultural diversity of their customers has been a trademark of British Airways and which also enables them delivering the best products and services to them.
  • They support communities in countries of their operations through their community investment program. At present they have been working with over 120 community and conservation organizations worldwide, like, young people at their Community Learning Centre at Heathrow and an extensive education program for children and all this has enrolled over 58,000 learners since 1999.
  • They partner with UNICEF and raised funds in excess of £27 million through the generous support of their colleagues and customers through the Change for Good program (Grugulis, 2002).

Some of the impacts created on British Airways due to working practices and cultures of the countries (Tushman, 1996), where they operate, due to which they launch above mentioned steps can be surmised as,

  • Huge cultural diversity such as, religion, cast, creed, beliefs and rituals
  • Ethnic diversity and racism issues
  • Different government regulations and labor laws
  • Standardization, unified and mixing of huge global workforce
  • Leadership development at local, national, international and as well as corporate levels
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Discuss the impact of global changes in trade regime caused by organizations such as WTO and other international civil aviation and tourism bodies on BA?

Global Changes in trade regimes caused by WTO and other agencies and its impact on BA–

  • There have been changes in airlines’ authorities’ and rights in flying over or making stops in foreign countries for technical reasons and having fully fledged operations are severely regulated by various agencies and lack of a unified & standardized process.
  • International Air Services Transit Agreement provides some clarity on rights to carry traffic between countries
  • Fares are agreed on a bilateral basis between governments, creating confusions
  • There has been a multilateral agreement signed covering air services between the EU and the US. This has removed all restrictions on transatlantic flights by EU and US airlines between the two.
  • This agreement will also grant rights for EU airlines to carry passengers and freight from the US to third countries of the world on services that originate in the EU, and also in turn, for US airlines to carry passengers and freight from EU to third countries (both within and beyond the EU) on services that originate in the US (Airways, 2012)
  • International Air Transport Association (IATA) regulatory framework gives priority to the historic rights of any existing users in parking allotment contentions in all the Airports across the world.
  • Biannual IATA Schedule Coordination Conference allocates the slots and the basis for slot negotiations with the Airport Coordinators and other airlines (Mowforth, 2008).

What are other global factors, including policies/regulations of government players which may impact BA?

Some of the other Global factors affecting British Airways can be ascertained as,

  • Revenue measures of any organization and the economic conditions of the major economies of the world, UK and US, have always got a correlation
  • Economic status of these countries and subsequently market activities play a crucial role in deciding the fate of any multinational organization and similarly BA has also been affected.
  • Recession, slowdown and turmoil’s lead to erosion of revenues decreased sales and finally service delivery of the complete value chain for companies like BA.
  • Changes in policies and regulations of any existing framework by any agencies in these economies lead to severe consequences, like, The Bank of England had been trying to engineer the economic recovery, through higher interest rates and failed to materialize in 2007, which led to further pushing down of the economy and the business environment in to the reds.
  • The credit crunch during recessionary phases also evaporates the crucial liquidity and creates a crunch for conducting the day to day businesses, especially in Airlines industry.
  • Changes in any policies by The Federal Reserve, like, aggressive cuts in interest rates contributing to a further weakening of the US dollar, particularly against the euro and yen, gets responded heavily by companies like BA, because of their huge Forex transactions (Cole, 2005).

Can EU policies on travel, competition or aviation impact British Airways?

  • European Union influences UK economy in various ways. Among them the most important is its effects arise through the Single Market, the program of economic integration, which has ensured that EU’s ‘four freedoms’ are guaranteed.
  • The exclusive competence of EU in negotiating trade & investment agreements with any country outside the Union and a customs union with a common external tariff on imported goods are some of the examples of its impact on businesses of all its member countries’ companies.
  • EU Membership also affects the UK’s trade relations with all the non-EU members.
  • Common Agricultural Policy and common external tariffs levied on imports has also been creating impacts on consumer prices.
  • Decisions made by foreigners about whether to invest in the UK or not are also governed by EU membership status.
  • Community designation clause in place of the nationality clause allows any EU airline to apply for available traffic rights between that EU Member State and the third country on a non-discriminatory basis, which leads to severe traffic impact on BA’s airline seats and hence losses in sales numbers.
  • EU single market policies extend to the European Economic Area (EEA) comprising the EU, European Free Trade Area countries and Switzerland which at-least helps in unifying it as territory for BA while considerations during strategic planning (Kalisch, 2002).

Conclusion

BA’s organizational purpose and its complete track record is analyzed and understood. The internal and external environment in which BA operates gives us a clear picture and understanding of the Airlines business, globally. BA’s adaptability and approaches for conducting businesses in various economies and various states of economies clearly depicts the resilience and the procedures required to mitigate adverse scenarios in business. Impact of various, external and internal factors on BA are also very well understood.

References

Airways, B. (2011). For the Environment: British Airways Annual Environmental Report 2011.     British Airways. Airways, B. (2012). For the Environment: British Airways Annual Environmental Report 2011.     British Airways. Airways, B. (2013). For the Environment: British Airways Annual Environmental Report 2011.     British Airways. Alamdari, F., & Mason, K. (2006). The future of airline distribution. Journal of Air Transport             Management12(3), 122-134. Balmer, J. M., Stuart, H., & Greyser, S. A. (2009). Aligning identity and strategy: Corporate        branding at British Airways in the late 20th century. California Management     Review51(3), 6-23. Barrett, S. D. (2001). Market entry to the full-service airline market—a case study from the          deregulated European aviation sector. Journal of Air Transport Management7(3), 189-            193. Brueckner, J. K. (2004). Network structure and airline scheduling. The Journal of Industrial          Economics52(2), 291-312. Buhalis, D. (2004). eAirlines: strategic and tactical use of ICTs in the airline           industry. Information & Management41(7), 805-825. Cole, S. (2005). Applied transport economics: policy, management & decision making. Kogan       Page Publishers. BTEC HND Assignment Experts

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