British AirwayBritish AirwayBritish AirwayBritish Airway’’’’s s s s Dilemma Dilemma Dilemma Dilemma

Eliminate short-haul or not?Eliminate short-haul or not?Eliminate short-haul or not?Eliminate short-haul or not?

ContentsContentsContentsContents

Part 1Part 1Part 1Part 1 The Main Facts And IssuesThe Main Facts And IssuesThe Main Facts And IssuesThe Main Facts And Issues

The SWOT AnalysisThe SWOT AnalysisThe SWOT AnalysisThe SWOT Analysis OfOfOfOf BA BA BA BA’’’’s External and s External and s External and s External and Internal EnvironmentsInternal EnvironmentsInternal EnvironmentsInternal Environments

The BAThe BAThe BAThe BA’’’’s Stragetic Choices Stragetic Choices Stragetic Choices Stragetic Choice

Part 2Part 2Part 2Part 2

Part 3Part 3Part 3Part 3

The main facts and issuesThe main facts and issuesThe main facts and issuesThe main facts and issues

Here we goHere we goHere we goHere we goHere we goHere we goHere we goHere we go

The deregulation of European airline market

bring in many new entrants in 1997

Facts and issues

Low-cost business models have become the

driving force in the world airline

industy

Competition in the low-cost

carrier market in Europe is brutal

BA was faced with a loss of market share

and a financial failure in short had segament

1. 1. 1. 1. DeregulationDeregulationDeregulationDeregulation 2. 2. 2. 2. TrendTrendTrendTrend 3. 3. 3. 3. CompetitionCompetitionCompetitionCompetition 4. 4. 4. 4. PredicamentPredicamentPredicamentPredicament

SWOT analysisSWOT analysisSWOT analysisSWOT analysis

BA’s external and internal environment

StrengthsStrengthsStrengthsStrengths ThreatsThreatsThreatsThreatsWeaknessWeaknessWeaknessWeakness OpportunitiesOpportunitiesOpportunitiesOpportunities

StrengthsStrengthsStrengthsStrengths

Global Global Global Global brand brand brand brand

&network&network&network&network

High High High High profitablityprofitablityprofitablityprofitablity

Financial Financial Financial Financial superioritysuperioritysuperioritysuperiority

Making BA Making BA Making BA Making BA ““““the worldthe worldthe worldthe world’’’’s favourite airlines favourite airlines favourite airlines favourite airline””””

Creation of BACreation of BACreation of BACreation of BA’’’’s club world business classs club world business classs club world business classs club world business class

Estabishment of an extensive global networkEstabishment of an extensive global networkEstabishment of an extensive global networkEstabishment of an extensive global network

With more than 2000 million With more than 2000 million With more than 2000 million With more than 2000 million ￡ net assets and over net assets and over net assets and over net assets and over 7500 million 7500 million 7500 million 7500 million ￡ revenue every yearrevenue every yearrevenue every yearrevenue every year

With a nice asset-liability ratioWith a nice asset-liability ratioWith a nice asset-liability ratioWith a nice asset-liability ratio

ManagemManagemManagemManagement Skillsent Skillsent Skillsent Skills

Experienced in management and operationExperienced in management and operationExperienced in management and operationExperienced in management and operationOutstanding marketing skillsOutstanding marketing skillsOutstanding marketing skillsOutstanding marketing skillsHarmony realtionship with govermentHarmony realtionship with govermentHarmony realtionship with govermentHarmony realtionship with govermentWillie Waslh was highly-skilled in cost-cuttingWillie Waslh was highly-skilled in cost-cuttingWillie Waslh was highly-skilled in cost-cuttingWillie Waslh was highly-skilled in cost-cutting

StrengthsStrengthsStrengthsStrengths

BABABABA’’’’s profits per passenger is the highest s profits per passenger is the highest s profits per passenger is the highest s profits per passenger is the highest ————————————————(FIigure 1)(FIigure 1)(FIigure 1)(FIigure 1)

Figure 1: Profits per PassengerFigure 1: Profits per PassengerFigure 1: Profits per PassengerFigure 1: Profits per Passenger

Ryanair

Southwest

British AirwaysBritish AirwaysBritish AirwaysBritish Airways

Air France

Lufthansa

EasyJet

0000 4 4 4 4 8888 12 12 12 12 16161616 20202020

9999

6666

19191919

13131313

11111111

2222

Profits per Passenger=Revenue per Passenger – Costs per Passenger

Jetblue -1-1-1-1

WeaknessesWeaknessesWeaknessesWeaknesses

The aging The aging The aging The aging of fleetof fleetof fleetof fleet

Poor Poor Poor Poor consumer consumer consumer consumer

ServiceServiceServiceService

Cost Cost Cost Cost disadvantagesdisadvantagesdisadvantagesdisadvantages

The average age of the fleet is 9.5years,so it The average age of the fleet is 9.5years,so it The average age of the fleet is 9.5years,so it The average age of the fleet is 9.5years,so it need to invest in infrastructure.need to invest in infrastructure.need to invest in infrastructure.need to invest in infrastructure.

The lowest The lowest The lowest The lowest ““““% on time% on time% on time% on time””””-----74%-----74%-----74%-----74%

Poor performance in cost-controlPoor performance in cost-controlPoor performance in cost-controlPoor performance in cost-control

Half-heartedHalf-heartedHalf-heartedHalf-hearted

StrategiesStrategiesStrategiesStrategiesNO contunity of strategies in short-haul bussinessNO contunity of strategies in short-haul bussinessNO contunity of strategies in short-haul bussinessNO contunity of strategies in short-haul bussiness

WeaknessesWeaknessesWeaknessesWeaknesses

The lowest The lowest The lowest The lowest ““““% completions% completions% completions% completions””””-----98.5%-----98.5%-----98.5%-----98.5%

The highest The highest The highest The highest ““““Lost bags per 1000 PAXLost bags per 1000 PAXLost bags per 1000 PAXLost bags per 1000 PAX””””-----17.7-----17.7-----17.7-----17.7

OpportunitiesOpportunitiesOpportunitiesOpportunities

The integration of Europe market

Price wars among low-cost airlines

OpportunitiesOpportunitiesOpportunitiesOpportunities Airway became more and more popular

ThreatsThreatsThreatsThreats

The influx of new entrants which were fast growing (Figure 2)

The privilege in UK began to lose

The competition in the airline market grew intense day by day

ThreatsThreatsThreatsThreats

00002001200120012001 2002200220022002 2003200320032003 2004200420042004 2005200520052005 2001200120012001 2002200220022002 2003200320032003 2004200420042004 2005200520052005

MillionsMillionsMillionsMillionsUnit:Unit:Unit:Unit:Millions Millions Millions Millions ￡ Millions Millions Millions Millions ￡

RyanairRyanairRyanairRyanair EasyJetEasyJetEasyJetEasyJet

Figure 2:Key Statistics of Ryanair and easyJetFigure 2:Key Statistics of Ryanair and easyJetFigure 2:Key Statistics of Ryanair and easyJetFigure 2:Key Statistics of Ryanair and easyJet

BA was confronted with the heavy pressure fromRyanair and EasyJet’s rapid growth.

-20 -200-20 -200-20 -200-20 -200

-10 -100-10 -100-10 -100-10 -100

0000

10 10010 10010 10010 100

20 20020 20020 20020 200

30 30030 30030 30030 300

40 40040 40040 40040 400

50 50050 50050 50050 500

60 60060 60060 60060 600

70 70070 70070 70070 700

1997199719971997 1999199919991999 2001200120012001 2002200220022002 2003200320032003 2004200420042004 2005200520052005 2005200520052005IFFGIFFGIFFGIFFG

1998199819981998 2000200020002000 2006200620062006IFFGIFFGIFFGIFFG

Profit befor taxProfit befor taxProfit befor taxProfit befor tax

Basic EPS per shareBasic EPS per shareBasic EPS per shareBasic EPS per share

Figure 3:BAFigure 3:BAFigure 3:BAFigure 3:BA’’’’s Profit befor tax and Basic EPS per shares Profit befor tax and Basic EPS per shares Profit befor tax and Basic EPS per shares Profit befor tax and Basic EPS per share

British Airway’s poor financial performance during 1998 to 2002.

10101010

20202020

30303030

40404040

50505050

60606060

70707070

80808080

90909090

100100100100

0000

-10-10-10-101997199719971997 1998199819981998 1999199919991999 2000200020002000 2001200120012001 2002200220022002 2003200320032003 2004200420042004 2005200520052005 2005200520052005

IFFGIFFGIFFGIFFG2006200620062006IFFGIFFGIFFGIFFG

Passenger load factorPassenger load factorPassenger load factorPassenger load factor

Operating marginOperating marginOperating marginOperating margin

Cost efficiencyCost efficiencyCost efficiencyCost efficiency

Unit: %: %: %: %

Figure 4:BAFigure 4:BAFigure 4:BAFigure 4:BA’’’’s Cost efficiencys Cost efficiencys Cost efficiencys Cost efficiency、Operating margins and Passenger load factorOperating margins and Passenger load factorOperating margins and Passenger load factorOperating margins and Passenger load factor

Figure 5:Boston matrixFigure 5:Boston matrixFigure 5:Boston matrixFigure 5:Boston matrix

Long-Long-Long-Long-haulhaulhaulhaul

CargoCargoCargoCargo

ShortShortShortShort-haul-haul-haul-haul

GOGOGOGO

StarsStarsStarsStars Qestions marksQestions marksQestions marksQestions marks

Cash cowsCash cowsCash cowsCash cows DogsDogsDogsDogs

lowlowlowlowhighhighhighhigh

highhighhighhigh

lowlowlowlow

Prelative market short

Inud

stry

gro

wth

rate

Focus on “stars”-------Long-haul business

From the boston matrix and the three figures above(Figure 2 Figure 3 Figure 4),we can clearly draw a conclusion that “Go” was in the unprofitable route,and the facts further proved it was a failure. So we consider that BA had no competitive advantage in low-cost business.

Figure 6:BowmanFigure 6:BowmanFigure 6:BowmanFigure 6:Bowman’’’’s Strategy Clocks Strategy Clocks Strategy Clocks Strategy Clock

3,Hybird3,Hybird3,Hybird3,Hybird————————BABABABA’’’’s two class operations two class operations two class operations two class operation

5,Focused differentiation5,Focused differentiation5,Focused differentiation5,Focused differentiation————————Long-haulLong-haulLong-haulLong-haul

1,Low price/ low added value1,Low price/ low added value1,Low price/ low added value1,Low price/ low added value————————Low-costLow-costLow-costLow-cost

1,Low price/low 1,Low price/low 1,Low price/low 1,Low price/low added valueadded valueadded valueadded value

2,Low 2,Low 2,Low 2,Low pricepricepriceprice

3,Hybrid3,Hybrid3,Hybrid3,Hybrid 4,Differentiation4,Differentiation4,Differentiation4,Differentiation

Low cost base and Low cost base and Low cost base and Low cost base and reinvestment inreinvestment inreinvestment inreinvestment inlow price and low price and low price and low price and differentiationdifferentiationdifferentiationdifferentiation

Likely to be Likely to be Likely to be Likely to be segment specificsegment specificsegment specificsegment specific

Risk of price war Risk of price war Risk of price war Risk of price war and lowand lowand lowand lowmargins/need to margins/need to margins/need to margins/need to be cost leaderbe cost leaderbe cost leaderbe cost leader

a)a)a)a) Without price Without price Without price Without price premiumpremiumpremiumpremium

b)b)b)b) With price With price With price With price premiumpremiumpremiumpremium

ThemeGallery is a Design Digital Content & Contents mall developed by Guild Design Inc.

1111

The Strategy Clock: BowmanThe Strategy Clock: BowmanThe Strategy Clock: BowmanThe Strategy Clock: Bowman’’’’s Competitive Strategy Optionss Competitive Strategy Optionss Competitive Strategy Optionss Competitive Strategy Options

5,Focused 5,Focused 5,Focused 5,Focused differentiationdifferentiationdifferentiationdifferentiation

6,Increased 6,Increased 6,Increased 6,Increased price/standardprice/standardprice/standardprice/standard

7, Increased 7, Increased 7, Increased 7, Increased price/low valueprice/low valueprice/low valueprice/low value

8, Low 8, Low 8, Low 8, Low value/standard pricevalue/standard pricevalue/standard pricevalue/standard price

Only feasible in Only feasible in Only feasible in Only feasible in monopoly situationmonopoly situationmonopoly situationmonopoly situation

Perceived added Perceived added Perceived added Perceived added value to a particular value to a particular value to a particular value to a particular segment,warranting segment,warranting segment,warranting segment,warranting price premiumprice premiumprice premiumprice premium

Higher margins if Higher margins if Higher margins if Higher margins if competitors competitors competitors competitors do not value do not value do not value do not value follow/risk of losing follow/risk of losing follow/risk of losing follow/risk of losing market sharemarket sharemarket sharemarket share

Loss of marketLoss of marketLoss of marketLoss of marketshareshareshareshare

ThemeGallery is a Design Digital Content & Contents mall developed by Guild Design Inc.

2222

The Strategy Clock: BowmanThe Strategy Clock: BowmanThe Strategy Clock: BowmanThe Strategy Clock: Bowman’’’’s Competitive Strategy Optionss Competitive Strategy Optionss Competitive Strategy Optionss Competitive Strategy Options

Realistic alternatives strategyRealistic alternatives strategyRealistic alternatives strategyRealistic alternatives strategy

Elimate short-haul business throughly and immediately.Elimate short-haul business throughly and immediately.Elimate short-haul business throughly and immediately.Elimate short-haul business throughly and immediately.Retreat to long-haul business.Retreat to long-haul business.Retreat to long-haul business.Retreat to long-haul business.

Compete with EasyJet and Ryanair at all reapect.Compete with EasyJet and Ryanair at all reapect.Compete with EasyJet and Ryanair at all reapect.Compete with EasyJet and Ryanair at all reapect.Set up subsidiary to strethen its short-haul net.Set up subsidiary to strethen its short-haul net.Set up subsidiary to strethen its short-haul net.Set up subsidiary to strethen its short-haul net.

Strategy 1:Downsize short-haul businessStrategy 1:Downsize short-haul businessStrategy 1:Downsize short-haul businessStrategy 1:Downsize short-haul business

Strategy2:Cut off short-haulStrategy2:Cut off short-haulStrategy2:Cut off short-haulStrategy2:Cut off short-haul

Strategy 3:Stay in short-haulStrategy 3:Stay in short-haulStrategy 3:Stay in short-haulStrategy 3:Stay in short-haul

Retreat from low-cost airlines ,focus on long-haul business Retreat from low-cost airlines ,focus on long-haul business Retreat from low-cost airlines ,focus on long-haul business Retreat from low-cost airlines ,focus on long-haul business and downsize short-haul business.and downsize short-haul business.and downsize short-haul business.and downsize short-haul business.

FirstFirstFirstFirst

ThirdThirdThirdThird

SecondSecondSecondSecond

Based on SWOT analysis,the best stragetic for Based on SWOT analysis,the best stragetic for Based on SWOT analysis,the best stragetic for Based on SWOT analysis,the best stragetic for British Airway is to utilize its strengths and avoid British Airway is to utilize its strengths and avoid British Airway is to utilize its strengths and avoid British Airway is to utilize its strengths and avoid the threats as much as possible.The following two the threats as much as possible.The following two the threats as much as possible.The following two the threats as much as possible.The following two models prove that the first stragetic is the most models prove that the first stragetic is the most models prove that the first stragetic is the most models prove that the first stragetic is the most suitable and deliverable choicesuitable and deliverable choicesuitable and deliverable choicesuitable and deliverable choice ————————Retreat from low-cost airlines ,focus on Retreat from low-cost airlines ,focus on Retreat from low-cost airlines ,focus on Retreat from low-cost airlines ,focus on long-haul business and downsize short-haul long-haul business and downsize short-haul long-haul business and downsize short-haul long-haul business and downsize short-haul business.business.business.business.

ConclusionConclusionConclusionConclusion

BABABABA’’’’s final choices final choices final choices final choice