This is a St Patrick college Business Environment British Airways Assignment in which we discuss British Airways case study and its business environment.
British Airways was established by the government of UK in the year 1972 as a government operated organization having presence solely in UK with the aim to manage and operate two of the national airlines organization namely, British Overseas Airways Corporation and British European Airways. However on, 31st March 1974 all these companies were merged together to form a giant British Airways.
Later British Airways was privatized in 1987 as a privatization and liberalization plan of the then existing government. Today’s British Airways is one of the largest airline corporations in terms of fleet size, and international destinations. However British Airways ranks second in terms of passengers only next to Easy jet.
Task 1 - Answer the following questions using the information provided on BA
LO 1.1 Compare the purpose of British Airways (BA) with either the Red Cross or National health authority
British Airways: - British Airways being a private organization with the stakeholders looking for profits and increase in revenue they have the purpose of making more money and then using the money for expansion of the whole organization.
British Airways does not have public welfare as its sole goal, however the main goal is to ear and grow in the competitive world like today. British Airways is a company held by shareholders and managing directors who have sole aim to grow themselves and then grow the organization. However being a private organization British Airways also have to give it back to the society at large through corporate social programmers which are designed for the public welfare however they are secondly only.
Red Cross Society: - Red Cross is a society formed by public and for the benefit of the public at large, here the importance is not laid on profits and growth however the importance is on how many people are serviced and how much are the people and general public gets benefited from the actions taken by the society which works for the people and their benefit at large.
Red Cross Society considers the amount of public service and how many gets benefited from its actives as its profits and thus what is secondly purpose for an organization like British Airways becomes the sole and the most important purpose for an organization like Red Cross.
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LO 1, 2 & 1.3 - Explain the responsibilities of BA and why and how they meet these responsibilities. Has BA fulfilled any of these responsibilities? Justify your answer with examples. Your answer should focus on key stakeholders and their needs
For British Airways stakeholders include shareholders, managing directors, employees, government, consumer, supplier, public etc if one has to rate on the basis of their importance as the shareholders are the actual investors and public and social responsibilities are least important and organizations mostly carry them out because they are mandatory to be performed, (FREEMAN, R. Edward et al., 2007)
For Red Cross on the other hand stakeholders include public, donors, government agencies, employees, activists, suppliers etc. Here we see the contrast as for Red Cross public is the most important stakeholder followed by all the others and at last comes the suppliers which are not even needed in many cases as the donors or the ones who gives funds many times gives them in the form of supplies like amenities needed etc.
Responsibilities towards Stakeholders
|Stakeholder||Responsibility Of British Airways|
No British Airways have followed these responsibilities like they have incurred losses and have resulted in reduction of business shareholders capital for the year, the reasons can be endless but the ultimate outcomes is loss which is not following the responsibility towards the shareholders. (FREEMAN, R. Edward et al., 2007)
1(A) - LO 2.1 Explain the three economic systems (Free market, command and mixed) and discuss why you think one of them allocates resources more effectively than the others
Free Market Economy - A free market is that market where there is no regulation and interference by the state economy except for the property ownership and enforcement of private contracts. Therefore, in a free market economy, there is no regulation by the parties. In the legislation and the administration of the economic activity, the role of the government is neutral. It does not regulate the industries or protects them from neither the market’s pressure nor does it promotes it actively. This theory explains that, in an ideal free market, where the buyers and the sellers fix a price by their mutual consent, there is a voluntary exchange by the rights of the property at this fixed price. The buyers and the sellers do not acquire their property rights without imposing any threat or physical violence nor do they involve any third party like government in between for obtaining the property rights. This is because they believe that what they are getting is fair enough and they are fully satisfied with the price that has been agreed upon. The free market is just the opposite of controlled markets or regulated markets, wherein the role of the government is very active unlike in a free market. In a controlled or regulated market, the prices and the supplies are regulated by the government. This brings inefficiency in the markets according to the free market economy.
Mixed Market a mixed market economy is that economy which has different types of controls by the private and the government sector. It has the features of both socialism as well as capitalism. The mixed market can be explained by a number of definitions as it does not have one definition. Different economists have explained it differently. But a definition must have a degree of both private economic freedom as well as the market regulation by the government. In the economy of a nation, the advantages and disadvantages of both the factors can differ country to country. Some states do not bother whether they have mixed economies, socialist economy or a capitalist economy, while others do. From the United Stated to Cuba, there is a mixed economy. The industries owned privately are included in the economic freedom side. Because of the reason that they include economic efficiency, individual freedom and the incentives for the innovation offered by competition, issues such as , inefficiency of the private sectors on the protection of environment , maintenance of competition and the standard of employment are addressed by the government regulation side . State ownership of various means of production also comes under mixed economies. People belonging to various political backgrounds specially Christian and social democrats support mixed markets economies. They believe that the mixed market economies between a fully laissez faire capitalism and classic socialism.
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Commands Economy System There is a control by the government in a command economic system which is also known as planned economy. How the resources should be used and distributed is decided by the state. The wages and the prices are regulated by the government. The government may also decide the roles of the people. Socialism is a kind of command economy. The different extents of controlling the economy in countries that have socialist economy were assumed by the government long back. In some countries, the management of the government has only the major industries under it while in other countries the government plays an extensive role over the economy. The perfect example of a command economic system is the communist Soviet Union. The communist bloc failed in the year 1980 which led to the deflation of many command economies across the globe. Cuba still holds on to its planned economy even today.
1 (B) - LO 2.2 Taking into consideration the current economic problems facing UK and BA mentioned above, explain how the expansionary fiscal and monetary policies that has been introduced by the current UK government has impacted on the activities of BA
- ITISH Airways:- 1) Falling profits,
2) Rising Operation Costs there by leading to operation losses,
3) Increasing interest rates on the borrowings thereby leading to further
Expenditure and losses.
- UK:- 1) Rising Unemployment Rates
2) Reduction in Income of public
3) Rising Cost of Borrowing for the country from international organizations etc.
Now UK as an economy after falling a prey to so many issues mentioned above has come up with expansionary policies, where in the economy tries to expand and increase the business and speed up the growth process by lowering interest rates and increase in public give always so that people have extra income to spend, thus the basic aim here is to increase the consumption level of the people and to increase the spending power of the people.
Now with these expansionary policies British Airways will also be impacted as UK; s regulatory body can come up with a view to give employment to large number of people increasing pressure on British Airways as well. Also there may be a positive impact as well as the interest rates may fall in order to increase the buying power of the people, hence this falling interest rates may be another added advantage for British Airways as an organization as large.
1(C) - LO 2.3 - Assess how the EU/UK competition and regulatory policies can or have impacted on the activities of the British airways
The competitive policies in UK are a summation of 4 major pillars namely: - (POWELL, Mike, 2013)
- Antitrust And Cartel:- This policy is aimed at controlling the business and varieties of activities undertaken by the firms in UK who have a market share in excess of 40%, in this policy the UK regulatory look deeply into every action taken by large corporations and see to it that there is no cartel formation or grouping by the top corporations for taking undue advantage of the public at large like price changes etc.
- Market Liberalization:- Market Liberalization is a process of opening up of sectors of the economy which were previously limited to monopolistic competition some of the major sectors under this are railways, energy etc. By opening up the market here we mean that the regulatory and the government bodies have to look into it that there is no entry barrier imposed in any sector for any organization.
- Merger Control:- Here the government bodies and regulatory authorities have to look deeply into various mergers and how will the merger impact the current market and also the public at large.
- State Aid Control:- Also the bodies to regulate looks that in case any of the above mentioned control leads to any harm to the state or the general public or not before giving a clean chit to any control measure.
In case of British Airways the UK government will have a close look at the merger of British Airlines with the Spanish Airline, Iberia and does this meager leads to price changes or forming of any kind of cartels or leads to any problem for the public at large,
- Also UK’s regulatory bodies will also look if there is any entry barrier being imposed by the group for new entrants in the region where the airlines company operate at,
- Lastly according to the case it is noticed that the merged organization is incurring losses however revenue is increasing thus for stakeholders and people at large there will be financial audits and look into the financial of the group so as to ascertain where is the money flowing and is there anything which is hidden from the investor group or the state at large.
LO 3.1 - Explain how market structures (Perfect competitive market, Monopoly, Oligopoly and monopolistic competition) determine the output and pricing decisions of businesses
Price and Output Determination under Perfect Competition
Perfect competition is that competition where there are a large number of buyers and sellers and the products are homogeneous. In a perfect competition, there is a free entry and exit and free mobility of resources. A perfect knowledge of the resources is present. There was a fight among various economists on the importance of the demand force and the supply force in the determination of price, before Marshall. For Marshall both the demand force and the supply force were equally important in determining the price. The equilibrium price is decided at the point where there is the same quantity demanded and the quantity supplied. The desire of the buyer and the seller becomes inconsistent, if this equality does not hold for some price. If the buyer demands more quantity than the quantity supplied by the seller or if the quantity supplied by the seller becomes more than the quantity demanded by the buyer , in both the cases , the price will change for bringing equality between the quantity demanded and the quantity supplied .
Price and Output Determination under Monopolistic Competition
The model of monopolistic competition was developed by Edward Chamberlin. He observed that in a market where there is large number of sellers, the products are not homogeneous. He believed that different brands have different peculiar features. It can be anything such as packaging, looks, fragrance etc, though the contents remain the same. Because of this reason each brand fixes its own price individually in the market. And thus the consumers have set ideas about different brands in their minds.
Price and Output Determination under Monopoly Competition
Monopoly is a state where there is generally one seller and many buyers the price and output is thus decided by that individual seller and the price charged and goods produced are thus at the will of the seller.
Price And Output Determination Under Oligopoly
Oligopoly is a market which is characterized with fewer sellers who have the complete control over the prices and production in the market. The businesses under this form of market forms collusions and comes together to charge premium from the consumers and earn added profits in the market and in this form.
Price under this form of market is determined by the sellers who ae mostly few and they follow a strategy of charging premium from the buyers, as the level of competition is lower in this form of market any chances of rice fluctuations or bargains are limited as every seller knows what the other sellers are selling and t what price thus the sellers comes together and charge a price defined by them for the products.
Level of production at a particular level is also decided by the businesses only they follow a strategy to produce just a bit lesser than the demand so that the demand continues in the market and the price of the goods they are selling can be risen to another level with the demand, thus this form of market practices a collusive pricing and production strategy.
1(D) - LO 3.2 Using a range of examples, explain how the forces of demand and supply can affect the pricing decisions and sales of BA
Here we can consider different cases for British Airways to understand the dynamics of demand and supply:-
If British Airways has demand in excess of supply:- In such a condition British Airways would have an shortage of supply as more will be demanded at the same price, thus from here in case British Airways knows if the demand is more than the supply British Airways would use premium pricing wherein it will charge a little more for the same distance, here in BA would choose routes which are very busy and where demand is very high and in those routes BA could fighter charge a bit premium from the customer to earn better revenues or can also increase the number of flights to cater to the increase demand.
Thus in this condition BA could charge premium pricing or can increase the number or flights for the bus routes.
If Supply is more than Demand: - In this condition when supply is more which means when the seats are more in the flights and the demand for them is lesser in such a case there will be excessive supply here in BA would either look to integrate the current route with other busy routes or offer tickets at a discount to the customers.
If the supply and demand just coincide: - This is a dream state to be where in everything produced is sold and converted to revenue, here in the number of flights and the seats in the flights are equal to the ones demanded, here in BA could use differential pricing strategy, where in BA would offer initial tickets at a lower rates and as the seats keep getting full price per ticket goes on increasing, finally reaching its peak for the last ticket or seat.
Thus the strategy followed here will be differential pricing and constants output as there is no excessive demand to cater to.
1(D) - LO 3.3 - With the aid of the management tool called PEST/PESTEL assess how the business environment shapes the behavior of British airways. Your answer must include the cultural environment
PESTLE analysis or the political, economic, social, technology, legal and environmental is a process of evaluating the external environment of organization. PESTLE analysis is a picture of how the organization performs in the competitive world and how does the six factors affect the organization and its style in long run. (ALLEN, Melanie, 2001)
PESTLE analysis of BA:-
- Political Analysis:- BA functions in UK and with political conditions in UK not being stable in recent times BA would have to face repercussion of the same, BA would also need to work upon political relations and strengthen them overtime to get there work done.
UK’s political scenario is under great pressure with unstable government, changing government policies etc.
Politically BA is also under pressure as it is also mentioned in the case that the trade unions and workers at the organizations which are merged in BA are showing resistance to BA and its culture.
- Economic Analysis: - UK’s economic positing is not very well at this point on time with rising interest rates; currency rates fluctuations etc being some of the characteristics of it.
Even British Airways and the integration Airlines Group also is under pressure on the economic position as the group is incurring huge losses and also the bottom line is under pressure, as well as rising air fuel prices are another nail in the coffin for British Airways economic position.
- Social Analysis: - British Airways has a well defined organization structure and culture with clear definition of roles and responsibilities for its employees and also a well developed relation with the stakeholders and public at large. The employees of British Airways have a sense of commitment to the organization and they are enthusiastic to the group as there are no rifts and issues in there functioning.
However the new organizations which are merged to BA are not socially very well developed as the employees are showing resistance for the mergers and are not ready to accept the Brutish Airways culture.
- Technology:- Technological advancements have become the need of the hour today, with mostly of the airlines companies using Social networking sites, Ip filtering, cookie content etc as the main aids to help track down the probable customers and let them make the purchases. Similarly BA also has a well defied use of technology also the customers can book the tickets on the go through the well integrated website. Technically British Airways is a sound organization; however more financial software’s and planning software’s should be used so that the problems of losses and ineffective planning can be reduced for British Airways.
- Legal and Environment Analysis:- UK’s legal business environment is a strict and well defined one where in competition laws, Companies law etc age levied on the organizations functioning in the purview of UK. These laws and acts make the life difficult for organization functioning, British Airways also will have to go under scanner for all the mergers they enter and the functioning they have in the normal course of business. Environmental Analysis takes into purview the impact of the3 organization and it’s functioning on the environment at large, where in British Airways will also have to look at carbon emission level and also how to control the ecology of the environment so as to keep functioning in UK and not to face any problems at large.
- Cultural analysis:- UK is a land to many culture with people from many parts of the world come and work together in harmony, culturally UK is a mixed economy and British Airways gallows the multi culture with the employees from various castes and creeds work together and respect each other, this is evident from the successful merger of British airways a British organization with Iberia, a Swiss organization. Thus culturally British Airways culture is well developed and very strong as well.
1(F) - L0 4.1 - Discuss the importance of international trade to BA
International trade or cross boundary trade is a special kind of trade where in business is done with organizations or customers in living in countries except the home country where the organization deals in, the payments and proceeds are also made in currency other than home currency, thus business between two different countries with foreign currency being exchanged is international trade. (PHILLIPS, Annie, 2002)
As British Airways has a local market where in economic crisis is finding its way and where income level of the people are on the lower side, unemployment is rising etc, hence British Airways has to move for international trade to balance the fall in demand and losses with the rising demands and profits in other parts of the world.
Some important aspects of International Trade for British Airways are:-
- Match the local falling demands and fall in income with the growing demands and rising income flows in other countries like Asian or Australian etc,
- Also as UK’s regulation is rising on the business and the business organizations are finding it very difficult to cope up with it, hence British Airways can move to newer countries where the regulations ar3 lower and the assistance for business like easy available of loans etc are available for the business to flourish,
Lastly, British Airways is also facing HR related issues like rising cost of human resources and resistance to change in the human resources, hence British Airways if expands and moves to newer markets the cost of Human resources will be lowered and human resources issues like resistance etc will also be less depending on the culture and society they move to.
1 (G) - LO 4.2 - Assess the global factors that can or are affecting the activities of British airways. You may use the management tool called PEST/PESTEL to help you answer this question
In addition to local factors like rising interest rates, rising human resources demands etc, there are many global factors or factors not a part of UK’s local environment, these factors may also effect the performance of British Airways prominent factors are:- (SVENDSEN, Ann, 1998)
- As oil wars are heating up between countries and as cartels are being formed in the international oil markets, thus rising oil cost may be a deteriorating factor for British Airways performance even in local market,
- Secondly factors like licenses in flying in various zones can be expensive or difficult to get through and many a times it becomes less economical in flying without the prescribed zone, thus licensing issues can be another one,
- Thirdly, there may be conditions that many Airplane producing companies may not be ready to trade in UK due to any business shortcoming in the cross country trade, thus British Airways may not be able to buy planes from those companies even if they are beneficial for British Airways, thus economic pacts and relations between countries are another factor effecting the performance of British Airways in the local market.
- Also PESTLE factors mentioned above can be other issues which can be deterrent in the way for British Airways performance like environmental factors may change with the change in counters and these environmental factors are very important to be followed like global carbon emission rates etc.
1 (H) - LO 4.3 - Evaluate how the policies of the European Union can or have impacted on the activities of BA
- European Unions have banned the use of many items on the flights like liquid in the form of soaps etc, this can be irritating and at the same time may not go well with the passengers, thereby passengers may not want to travel with British Airways,
- Strong, well defined and lengthy competition policy leave no room for any change or trails or exploring newer business for organizations like British Airways,
- Also giving preferential treatments to employees and workforce from the European Union is another short coming which businesses like British Airways have to face as talent gets restricted,
- Signing of bilateral treaties and multilateral treaties with countries nod economies of the world are another issue to which British Airways have to find answers to as BA as an organization has to obey and practice what is mentioned in the treaties even if these rules or prescribed work may be deteriorating the organizations financial or economic health as a whole.
British Airways, which is one of the most important player in the Airlines industry in UK. The external and internal environment and strategies used and the effect of the strategies on the structure of British Airways is analysed in this assignment. Also price determination which is one of most important concern in travelling is also considered here.
UK’s analysis as an economy is also made. Thus this assignment gives a complete picture and complete information about British Airways and also UK which is the place where British Airways functions also how the policies given by the regulatory bodies in UK effect British Airways is also considered in this assignment.