Strategic Report 2009

Group 10A
Candidates: 706523 , 412805, 802050, 464929
Executive Summary

This report was produced for the purpose of providing British Airways Plc (British Airways) with a
strategic plan to implement over the next three years. British Airways is the UK market leader in
airline operations, however has faced increasing competition over the last decade resulting in erosion
in their market share.

The report begins by analysing the current internal and external environment of BA. Through strategic
evaluation we have recommended that BA focus on their fundamental service delivery to restore their
competitive advantage within the industry. This will require implementing a combination of two
strategies; a people processes strategy and a strategy focused on technological advancement.

The people processes strategy was derived from a number of industry sources outlining BA’s decline
in customer satisfaction. The technological advancement strategy coincides with the renewal of BA’s
aircraft fleet and will further improve the overall customer experience.

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Table of Contents
Table of Contents...........................................................................................................................................3
1.1 Report Objectives.....................................................................................................................................4
1.2 Company Overview..................................................................................................................................4
1.3 Current Strategies.....................................................................................................................................4
Figure 1 - Business Map (T-O £8.32bn)........................................................................................................5
........................................................................................................................................................................6
2.0 External Analysis.....................................................................................................................................7
2.1 PESTEL Analysis ................................................................................................................................7
2.2 Porter’s Five Forces ............................................................................................................................9
2.3 GE Matrix ..........................................................................................................................................10
3.0 Customer Analysis.................................................................................................................................11
4.0 Competitor Analysis ..............................................................................................................................12
4.1 Strategic Groups.................................................................................................................................12
4.2 Airline Quality Review (AQR)..........................................................................................................13
5.0 Internal Analysis....................................................................................................................................14
5.1 Value Chain Analysis (VCA).............................................................................................................14
5.2 Resource Based View (RBV).............................................................................................................16
5.3 Financial Analysis (Source: British Airways, 2008)..........................................................................17
6.0 Summary ...............................................................................................................................................18
6.1 SWOT Analysis .................................................................................................................................19
6.2 Key Strategic Issues ..........................................................................................................................19
......................................................................................................................................................................21
7.0 Strategy Formulation .............................................................................................................................22
7.1 TOWs Matrix ....................................................................................................................................22
Figure 11 - Preliminary Comparison of Strategies...................................................................................23
8.0 Analysis of Strategic Options.................................................................................................................24
8.1 Strategic Option 1 - Improvement to People Processes.....................................................................24
8.2 Strategic Option 2 - Improved Environmental Stance. .....................................................................25
8.3 Strategic Option 3 - Improved Technological Stance. ......................................................................26
8.4 Strategic Option 4 - Segment Focus...................................................................................................27
8.5 Strategic Option 5 - Broader Service Offering...................................................................................28
......................................................................................................................................................................30
9.0 Implementation.......................................................................................................................................31
9.1 Company Structure.............................................................................................................................32
9.2 Service Quality Gaps Model..............................................................................................................34
9.3 Managing the Change.........................................................................................................................35
9.4 Gantt Chart.........................................................................................................................................37
9.5 Stakeholder Map................................................................................................................................38
9.6 Control Systems.................................................................................................................................39
9.7 Balance Scorecard..............................................................................................................................40
10.0 Critique.................................................................................................................................................41

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1.1 Report Objectives

The objectives and structure of this report will consist of four main sections which will enable a
strategic direction to be recommended to BA:

1 To research in to the current strategic position of British Airways.

2 To critically analyse British Airways’ internal and external environment.
3 To design a selection of strategic options utilising the internal and external analysis.
4 To evaluate the most appropriate option for British Airways and discuss implementation.

1.2 Company Overview

British Airways Plc (BA) is the UK’s largest international scheduled airline. Alongside scheduled
services, BA is engaged in the operation of international and domestic carriage of freight and mail, and
the ancillary services (Datamonitor, 2008). In association with codeshare and franchise partners, BA
fly to more than 300 destinations, and carried more than 33 million passengers, earning over £8.7
billion in revenue in 2007/08 (British Airways, 2008). Employee headcount in March 2008 stood at
42,377 people (Datamonitor, 2008).

Since privatisation in 1987, BA has continued to grow as competition in the market has risen
worldwide. In recent times, BA has successfully been labelled the world’s first airline to take part in a
scheme to reduce greenhouse gas emissions (2002) and to allow passengers to print online boarding
passes (2004) (British Airways, 2008). In 2005, the company saw Willie Walsh become Chief
Executive of BA (Flight Global, 2008), who to date has driven the company through the completion of
Terminal 5 at Heathrow, amongst other new initiatives.

Despite reported and imminent industry hits due to the global economic downturn, BA’s future looks
promising. As BA announces its aim of becoming the ‘world’s most responsible airline’ in the latest
annual report (British Airways, 2008), great importance lies in developing guiding principles and
careful strategic direction to allow the achievement of this goal.

1.3 Current Strategies

The report will be designed in consideration of BA’s current strategies (British Airways, 2008):

1 Upgrade customer experience via the introduction of text and mobile services for business class
customers.
2 Modernise aircraft fleet and offer new services.
3 Manage cost base.
4 Increase corporate responsibility through environmental performance and partnerships.

Although BA does operate in a number of areas such as cargo, we are choosing to focus our report
on the scheduled passenger market due to the size and opportunities that BA has in this market
(Figure 1: BA Operations).

4
Figure 1 - Business Map (T-O £8.32bn)

Industry Regulators UK Government

And Influencers Research and Interest
Member of: AEA BAA, CAA, DFT
Groups

Component Suppliers Aircraft Suppliers: Airports:

Other Suppliers:
Boeing and Airbus SAS Heathrow and Gatwick...
Food Suppliers…

Support Provider Subsidaries

BA Avionic Engineering, BA Interior Engineering, BA Maintenance Cardiff Cargo = 7.0% Passenger = 86.2%*
BA Leasing, BA Capital, BA Holdings, BA Cash Management, Speedbird
Cash Management, Speedbird Insurance Company, Air Miles Travel Mail +freight Scheduled Non-scheduled services
Promotions diplomatic bags BA Cityflyer, Openskies
BA Holidays

Other = 6.8%
BA Service Portfolio
Cargo Handling, Airframe Maintenance, Computer and
Other Airline Operators: Communication Services and Consulting Services
Ryanair, Easyjet, Virgin
Alliances:
Atlantic, Lufthansa,
Quantas, AA,
Air France KLM, Aer Investments (equity owned)
Iberia, Continental
Lingus… Associates: Iberia S.A. 13.15%
Avaliable for sale: Flybe Group Ltd 15%, Comair Ltd 10.9%

Intermediaries
Direct Sales
Online websites BA.com Travel Agents

Customers International Travellers: (by sales) Domestic

Continental Europe = £1,219 ml Independent Customer
Travellers: (by sales)
The Americas = £1,697 ml Review: Skytrax rates
UK = £4,357 ml BA as a 4* airline.
Africa, Middle East & Indian subcontinent = £821 ml
Far East and Australisia = £659 ml
5
Adapted from: British Airways (2008) (* percent of operations)
6
2.0 External Analysis
For success within the airline industry, an awareness of the external environment is essential. This
section aims to highlight the position of the industry, in particular looking at competitors and
assessing BA’s capability to meet current and future challenges.
2.1 PESTEL Analysis
(Source: Johnson et al., 2008, p56)
Figure 2 – PESTEL Analysis
An analysis of the macro-environment has been carried out using PESTEL (Figure 2).
PESTEL Factor Key Points
Political Heavy regulation (AEA, 2009).
Increased security due to past terrorist
threats (DFT, 2008).
Economic Global economic crisis: World growth is
projected to just over 2 percent in 2009
(IMF, 2008). Pound weakens especially
against the Euro.
Oil prices: declined by >50 % since their
peak retreating to 2007 levels. Decline in
fuel price = strengthening of the dollar
(IMF, 2008)
UK consumer spending saw its sharpest
decline for 13 years between July and
September 2008 (Channel 4, 2008).
Social The UK has an aging population (see
appendix 3) (National Statistics Online,
2008).
Increasing unemployment (Kollewe and
Sager, 2008).
Technological A recent survey revealed that 34% of
online consumers plan to use price-
comparison sites more in 2009 (NMA,
2009).
Online booking services and check-in is
becoming increasingly used by the airline
industry.
Environmental/ Noise pollution controls, and energy
Ethical consumption controls (DFT, 2008).
Limited land and for growing airports –
Expansion is difficult at Heathrow as it
would result in a loss in the London’s
Green belt area. (BBC News 2006)
Consumers are becoming increasingly
‘green’ and more aware of the
environmental impact of their actions.
Cancellations of flights and loss of
baggage (Channel 4, 2008).
Legal Collusion and price fixing.
Recognition of trade unions and industrial
action e.g. Cabin Crew strikes. 7 to avoid industrial action and interrupted
Open Skies Agreement (AEA, 2009)
Implications for BA
Compliance is essential if BA wants to continue
operations.
Sufficient security measures should be in place to
ensure consumer confidence and competitive
advantage is maintained.
Possible reduction in the amount of business
travel as companies are cutting costs and using
alternative means of communication such as
teleconferencing. BA is vulnerable as a UK
operating airline to a poor exchange rate.
Fluctuations in oil prices and exchange rates will
directly affect BA’s cost base.
More intense competition
Potential opportunity for growth as older
generations have more time to spend on leisure
activities such as international travel.
Increased bargaining power as an employer.
Increased consumer awareness and therefore
bargaining power.
BA must ensure that they remain up to date with
these technological advances whilst avoiding
becoming overly reliant, as this may isolate
certain consumer markets (i.e the elderly) who
don’t feel comfortable using such technology.
New legislation (e.g. Climate Change Bill)
enforcing tighter environmental regulation may
increase operational costs each year.
Limited capacity=> utilisation of capacity.
Failure to adopt an integrated environmental
strategy could lead to a detrimental effect on the
BA’s reputation and income.
Such ethical issues could have a detrimental
effect on reputation if left unresolved.
Restriction on mergers will have an impact on
BA’s proposed alliance with American Airlines.
Good employee relations are essential if BA wants
operations.
Opportunity for BA and its competitors to freely
transport aircraft between the EU and US.
8
2.2 Porter’s Five Forces
(Source: Johnson et al., 2008, p60)

It is important to analyse the competitive nature of the airline industry in order to assess the
position of BA. The ‘Five Forces’ tool will enable BA to make strategic decisions in order to increase
profitability.

Force Strength

Competitive Rivalry
• BA caters for both long haul and short haul flights. Within long haul
there is little differentiation between BA and their competitors, in
terms of price and service offering.
• The short haul market is more fragmented with many small players. HIGH
• Direct competitive rivalry is fierce, e.g. Virgin has a website
opposing the proposed strategic alliance between BA and AA - ‘No
Way BA/AA’ (Virgin Atlantic, 2008).
• Consolidation of competitors has increased competition.
Power of Suppliers
• Two aircraft manufacturers = High bargaining power.
• BA restricted by sole supplier of fuel to the airport.
• Priority of landing slots is given to historic rights of existing users HIGH
(IATA, 2008).
• BA employees use collective bargaining through trade unions in
order to increase their bargaining power
Power of Buyers
• Low concentration of buyers to suppliers means they have little
bargaining power. MEDIUM
• Increased internet usage has amplified awareness and interaction of
customers (Keynote, 2008c).
Threat of New Entrants
• Significant barriers to entry: such as the competitive environment,
high regularity requirements and high capital cost requirements. LOW
• Barriers to exit are in place which deters new entrants.
• The failure of recent airlines such as XL and Zoom is likely to deter
new entrants (Times Online, 2008).
Threat of Substitutes
• There are few direct substitutes:
o Short haul flights: the Eurostar or a ferry. LOW
o Long haul flights: no notable substitutes.

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 2.3 GE Matrix
(Source: Johnson et al., 2008, p280.)

The GE Matrix (Figure 5) provides evidence of opportunities for growth through market development
in new markets and market penetration in existing.

Figure 5 – GE Matrix
Competitive Strength

Market Attractiveness

High Medium Low

High
North America
BA=1.7%

Latin America
BA=1.9%

Medium
Western Europe
Asia Pacific BA=6.9%
BA=1.1%

Middle East
and Africa
BA=2.3%

Eastern Europe
Low Australasia
BA=2.2%
BA=4.0%

Size of Circle = size of market (British Airwayssed on 2006 data)

Width of Circle = CAGR Forecast Growth (2006 – 2011)
Source: Euromonitor (2008)

From the analysis above, it is evident that if a market development strategy was to be pursued by
BA, Asia Pacific and Eastern Europe would be prime markets for profitability due to high growth
(Appendix 5/6). It may also be a requirement to build defence strategies in BA’s core market,
Western Europe, due to low growth and intense competition.

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3.0 Customer Analysis

Over the past decade there has been increasing complexity in customer needs, as the customer has
become more educated and demanding. Particularly, the following changes have occurred:

• A shift in demographics to older passengers (Keynote, 2008c).

• Increased global connectivity allowing the usage of internet and search mediums (e.g.
comparison and review websites).

• Increased requirement for convenience (e.g. new destinations, quick check-in).

• Price has become more of a priority

• Segments have become more defined within their needs.

Evidence that BA is failing to respond to the changing customer landscape includes:

• The amount of BA customers recommending their services reduced from 61% in 2006/07 to
59% in 2007/08 (British Airways, 2008).

• BA have been criticised for slow innovation (Doganis, 2006, Pg 165).

• Poor reliability and baggage handling (AQR)

• Failed attempts to target the price conscious consumer through low cost airline operation
(Eirma, 2008).

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 4.0 Competitor Analysis

4.1 Strategic Groups

Figure 3 – Strategic Group Analysis (Source: Johnson et al., 2008, p73-77.)

HIGH
PRICE
LOW

Specialist
e.g.
PalmAir

Mass Service
Providers e.g.
Figure 3 illustrates
Non- that BA’s direct
Localcompetitors
e.g. BA,operate
are those who Virgin, similar services and lie within
schedule
the same strategic group. The BMI Lufthansa,
competition is likely to be most intense within this group as they are
seeking similardstrategies.
e.g. AirFrance KLM
Thomson
Lufthansa and KLM-Air France
No-frillsare the 2 leading European Airlines Member carriers in terms of
passenger numbers, withe.g.15.1%
Ryanand 14.1% respectively of the total number of passengers carried.
BA comes in third with 9.3% of the
Air, Easy Jet total (Keynote, 2008c).

BA face competition from a small number of serious contenders in the UK, with the main contenders
being Virgin Atlantic, and United Airlines in the Star Alliance soon controlling BMI (Euromonitor,
2008). Although they do not lie within the same strategic group as BA the advent of low-cost air
LOW
travel has changed the faceBREADTH OF SERVICE
of the airline industry. Airlines such asHIGH
Ryanair and EasyJet have
established themselves among the leading carriers in Europe, whilst the more established long-haul
PRICEsuch
carriers FOCUSED MIDDLEto
as BA have struggled MARKET
keep up with FOCUS ON SERVICE OFFERINGS
their counterparts’ growth rates.

Moreover the economic downturn and sharp fall in oil prices has caused a price war between
Emirates, BA and Virgin Atlantic on the London-Dubai route. Fares have dropped by 30% across the
airlines. Thus competition still remains fierce.

Based on the strategic group analysis it could be argued that there is a gap in the market for a low
cost airline operating a high breadth of service however it is likely the reason no airlines have
adopted this strategy is due to the fact that it would be destined to fail. This assumption could be
supported by BA’s failed attempt to enter this market in recent years (Telegraph, 2002).

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4.2 Airline Quality Review (AQR)

Skytrax is an independent website and therefore gives an objective view of BA’s quality of service in
comparison to its competitors and may highlight strategic issues that need to be addressed.

Figure 4 – Competitive Spider Index

Created using data sourced from Skytrax, 2008.

Website
5
Overall Rating Check-In Services
4

3
Responding to Requests Handling Delays/Cancellations
2
British
1 Airways
Virgin Atlantic
Interaction with Passengers 0 Assisting Families/Children

Air France

KLM

Service Efficiency Cabin Safety

Lufthansa

Quality of Meals Seat Comfort

Inflight Entertainment

All ratings taken from the website are based on scale of 1 to 5 with 5 being the highest.

• The overall Airline Rating for BA was 4. Its major competitors all scored 4 apart from KLM, which
scored 3.
• BA and Virgin Atlantic are virtually identically marked in all categories with the rest less highly
rated.
• BA is not a Quality Approved Airline, whilst Virgin Atlantic is.
• BA needs to improve upon its interaction with its passengers across all classes in order to
outperform its nearest competitor Virgin Atlantic.
• BA needs to improve its baggage delivery service. ‘Slow baggage recovery at T5’ (SkyTrax,
2008).
• General customer reviews have shown a common theme: poor in-flight entertainment which
regularly breaks down.
• BA needs to look at improving its online services by providing additional services all with a more
personal touch.
• Six competitors hold a five-star rating with the independent evaluator.

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 • For BA to become a 5 Star Airline emphasis needs to be placed on the quality of its customer
service delivery at all levels, which it has lacked in the past. This is what will differentiate itself
between its main competitors.

5.0 Internal Analysis

It is now essential to analyse the internal environment in order to formulate appropriate strategies.

5.1 Value Chain Analysis (VCA)

BA have tried to control the system further by forward and backward mitigation. Through controlling
many component supplies in-house, and through BA Holidays Plc, BA increases their reach in the
value system to the supplier and channel value chains.

Figure 6 – Value Chain (Adapted from: Johnson et al., 2008, p110)

FIRM INFRASTRUCTURE
Structured hierarchy allows BA to make use of a multitude of specialist knowledge in order to gain
SUPPORT ACTIVITIES

competitive advantage over downsized firms.

HUMAN RESOURCE MANAGEMENT
Invested in the development of customer service training in 2007 attracting the best employees.
‘Speak Up’ opinion survey encourages employees to provide feedback (British Airways, 2008).
TECHNOLOGY DEVELOPMENT
BA has added value in this category over smaller companies due to slack resources that can be
employed to innovate the service (e.g. individual LCD screens).
PROCUREMENT
Due to the size and historical business relationships and alliances, BA is able to leverage suppliers
and through economies of scale make efficiencies where competitors may fail.
PRIMARY ACTIVITIES
INBOUND OPERATIONS OUTBOUND MARKETING & POST SALE
LOGISTICS LOGISTICS SALES SERVICE

Stock Control Increased Customer Service Marketing Loyalty club

Baggage Security. communications card.
High quality Large database of to all
training accredited Quick check-in airport slots stakeholders. Update
by City & Guilds services and enable passengers communication
(British Airways, secure online to access the Brand allowing for on other services
2008). bookings with majority of large budget to be
ability to pre-book destinations from spent in this field.
Ongoing additional preferred airport.
relationship with services.
suppliers (e.g.
Gate Gourmet.

Whilst the Value Chain highlights the primary and support activities that add value to BA, there are a
number of inefficiencies within these activities that arguably reduce the amount of value provided
(see figure 7 and 8).

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Figure 7 – Support Activities Value Loss

SUPPORT ACTIVITIES
Firm Infrastructure Large bureaucratic infrastructure decreases effective
communication and increases inertia.
HRM BA’s employee opinion surveys attracted a mere 35% response rate
in 2007 (British Airways, 2008).
Due to high collective bargaining capabilities, BA has contended a
number of highly publicised employee relations issues (e.g. Cabin
Crew strike over pay, sickness absence, and staffing in 2007 (BBC
News, 2007).
Technology Development BA has failed to gain recognition for new innovation.

Figure 8 – Primary Activities Value Loss

PRIMARY ACTIVITIES
Inbound Logistics High solidarity between supplier employees and BA employees has
created a history of negative industrial action. For example, in
2005, BA employees walked out for two days when Gate Gourmet
employees were sacked (BBC News, 2005).
Operations/Outbound TV documentary reported on Terminal Five operation difficulties, an
Logistics emergency landing at LHR, poor baggage handling and flight
cancellations (Channel Four, 2008).
Marketing & Sales A lack of innovation in their marketing communications (e.g. Virgin
gaining value over BA).

15
5.2 Resource Based View (RBV)

It is suggested that an organisations competitive advantage and superior performance is resulted

from its distinctive capabilities (Johnson et al., 2008 p95). The resource based view highlighting BA’s
resources and competencies is outlined below.

RESOURCES COMPETENCIES

Threshold Resources Threshold Competencies

THRESHOLD CAPABILITIES

Tangible • Training of ground school, flight

• Fleet of 245 aircraft accessing over simulators, and cabin safety training
550 destinations (British Airways, (BAFT, 2009).
2008).
• Additional services (e.g. BA • Economies of Scale from ongoing
Holidays & The London Eye suppliers.
Company (Datamonitor, 2008)).
• Ability to fly and manage
Intangible passengers safely on various routes
• International Customer Database. (Davies, 2000).
• Partnerships & Alliances with
‘oneworld’ (incl. American Airlines),
codeshare/franchise partners, and
subsidiaries.
ADVANTAGECAPABILITIES FOR COMPETITIVE

Unique Resources Core Competencies

Tangible • OpenSkies’ subsidiary’s aircraft never

• Sole access to LHR’s Terminal 5 have more than 64 passengers per
(BBC News, 2008). flight, with one attendant per twelve
customers (British Airways, 2008).
Intangible
• Reputable brand image. BA is • First UK airline recognised as a
recognised globally as a reputable training centre by the City & Guilds,
brand, reinforced by its long- qualifying all cabin crew with NVQ
standing existence within the Level 2 (British Airways, 2008).
industry.

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5.3 Financial Analysis (Source: British Airways, 2008).

In 2007/08, BA made post-tax profits of £694 million, an increase of 128% over the prior year. In
2006/07 profits were £304 million. The difference is mainly caused by the loss from discontinued in
operations in 2006/07 of £134 million. However, the doubling in profits is also attributed to a
decrease in operating costs and no credit arising on changes to the pension scheme or provisions
made for settlement of completion investigations.

BA has performed well in managing and reducing costs. Operating costs have risen steadily over the
past 5 years and this is in-line with the increase in fuel prices and increase in landing fees/en-route
charges as the company expands. In 2007/08 BA had operating costs of £7,878 million which is a
1% decrease over the prior year despite increase in fuel costs to £2,055 million and increased
landing fees, handling/catering charges with Terminal 5. BA managed to reduce costs through a
reduction in the number of employees by approximately 3000 people. BA’ online
booking/reservation service helped reduce agency costs leading to a £77 million decrease in selling
costs. BA efficient control of all these costs has helped put them into a strong position in relation to
its competitors, especially with the current economic crisis.

BA gearing ratio was at 27% in 2007/08, which is a reduction from the prior year. This reduction
shows that less debt is being taken on by the firm. This could also be due to the fact that they have
paid some of it back. Also, with increased liquidity to 21% from 19%, BA is a strong position in the
current economic crisis and is more likely to have better relations with its suppliers and financial
institutions going forward. BA’s earning per share increased, reaching 59p per share. This was due
to the increase in profit before tax and the reduced corporation tax rate.

Figure 9 – BA’S Turnover, PBT, PAT

17
 Figure 10 – BA’s Fuel and Operating Costs

Overall BA remains financially stronger than its competitors. At the end of the 2007/08 financial
year they were in a good position to withstand most shocks and this has been the case. They have
stated that they expect an operational loss of £150 million for the 2008/09 year (IHT, 2008), due to
the trading conditions and fall in value of the pound. Despite a fall in oil prices, the cost of fuel for
BA will remain approximately the same due to the devaluation of the pound and the fact that fuel is
bought in dollars. However, compared to its competitors it still remains in the healthiest position
and will have to weather the difficult future ahead and may report losses in 2009.

6.0 Summary

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6.1 SWOT Analysis

(Source: Johnson et al., 2008, p81.)

It is important that strategic development is reflective of BA’s strengths and weaknesses relative to
competitors and the opportunities and threats presented by its external environment (Pitts & Lei,
2003):

Internal Strengths Refer to:

• Brand Image
RBV
• Partnerships & Alliances
Financial Analysis
• Financial size and stability

• Terminal 5

Internal Weaknesses
• Poor employee relations history VCA

• Reliability and trust

• Innovation & change

External Opportunities
• SkyTrax Quality System AQR

• Competitors forced exit Porter’s Five Forces

• Competitors failing on delivering GE Matrix

reliability

• Emergence of new markets

External Threats
• Open Skies Agreement PESTEL

• Environmental awareness Strategic Group Analysis

• Global economic crisis

• Lower cost competition

6.2 Key Strategic Issues

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Analysis Tool Key Findings
PESTEL • Global economic crisis.
• Higher regulatory requirements.
• Increasing environmental
awareness.
• Decline in consumer spending.
• Increased use of the internet by
customers.
Porters Five Forces • High competitive rivalry and
bargaining power of suppliers.
Customer Analysis • Consumer trends in high
convenience and high
expectations of service.
Strategic Group Analysis • Intense competition within
strategic group and trend for
consolidation.
• The biggest other threat comes
from low cost airlines.
Airline Quality Review • BA = poor baggage handling,
poor on flight entertainment
and low customer satisfaction.
GE Matrix • Highest growth markets; Asia
Pacific and Eastern Europe.
The Value Chain • BA adds value; financial size
and stability, brand image,
industry expertise, and
partnerships and alliances.
• BA loses value to competition;
employee relations and
performance, marketing
delivery, reliability, and slow
innovation.
Resource Based View • Strong resources including sole
access to hub within largest UK
Airport.
• Strong training competencies.
Financial Analysis • Increased profits and lower
operating costs.
• Lower gearing ratios and higher
liquidity.
• Possibility of a loss in 2009 as a
result of the economic
downturn.
20
Strategic Implications
Focus on technological and
environmental issues.
Defensive strategies needed to
protect market share.
Ensure changing customer
needs are understood and met
Although low cost airlines are
the biggest threat to BA,
moving into low cost market is
not deemed appropriate based
on previous failed attempts.
Service Quality needs to be
improved to gain a competitive
advantage
BA has a strong opportunity for
market development in Asia and
Eastern Europe.
BA needs to address the areas
where value is being lost to
avoid attacking competitor
strategies.
Utilise BA core competences to
gain competitive advantage.
Investment resources available.
Increased scrutiny on strategic
projects for risk assessment.
21
7.0 Strategy Formulation

7.1 TOWs Matrix

(Source: Johnson et al., 2008, p367.)

A range of strategic options will now be formulated using the TOWs matrix to resolve the strategic
issues highlighted from the analysis.

External

Opportunities Threats
Skytrax- star system of quality Open skies agreement

Competitors forced exit Environmental Awareness

(Climate change bill)
Competitors failing on delivering
reliability Global Economic Crisis

Emergence of new markets Lower cost competition

Internal

Brand Image Strategies for strengths to Strategies for Strengths to

Strengths

meet opportunities: defend threats:

Partnerships and
Alliances • Segment focus. • Renovation of brand
image.
Financial Size & • Supply chain migration.
Stability • Diversify into other
• Introduction of transport markets.
Terminal 5 complimentary services.

• Broader service offering.

Poor employee Strategies for opportunities Strategies for Weaknesses

Weaknesses

relations history to overcome weaknesses: not to expose threats:

Recent negative • Improved people • Improved

attention on processes. environmental stance.
reliability and
trust • Technological
advancement.
Quick innovation
and change

Figure 11 below gives a brief explanation of each strategic option and classifies them within Ansoff’s
matrix. A preliminary analysis will be made, scoring each option using a number of defined
performance indicators. This will lead to the elimination of options that are not considered suitable
for BA, leaving the 5 most appropriate strategies to be further analysed for consideration.

22
Figure 11 - Preliminary Comparison of Strategies

Do BA have Effect on Effect on In Level of risk Score Accept for

the Brand competence accordance involved? further
financial Image. 1 = Bad with 1 = High consideration?
Strategy linked resources? 1 = Bad 3 = No current 3 = Medium
Strategic Option Explanation
to Ansoff 1 = No 3 = No change strategy? 5 = Low
3= change 5 = Good 1 = No
Possibly 5 = Good 5 = Yes
5 = Yes
1. Improvement Reduce current tension from 5 5 5 5 5 20
to people negative employee and customer

processes relations.

2. Improved Go above and beyond current 3 5 3 5 3 19

environmental environmental requirements.

1. Market
Penetration stance.
3. Renovation of Renovation and modernisation of 3 5 3 1 3 15
brand image. brand image in an attempt to gain

market share.
4. Segment focus Focusing on business class 5 5 3 1 5 19
customers as the most profitable

segment of the business.
5. Technological Introduction of internet access on 3 5 5 5 3 21
advancement. flights to improve the overall

quality of service.
2. Product
Development
6. Introduction of Offering of complimentary services 3 5 3 1 1 13
complimentary such as car rental or hotels.

services.
7. Broader service Increase number of destinations 3 5 3 5 3 19
3. Market offering BA flies to, focusing areas of

Development growth such as India and China.

8. Diversify into Diversify into substitute services 1 3 3 1 1 9

other transport such as rail in an attempt to

4. markets. maintain competitive advantage.
Diversification 9. Supply chain Vertical integration along the 1 3 5 1 1 11
migration. supply chain. i.e. Gate Gourmet or

Boeing.

23
8.0 Analysis of Strategic Options

Based on the analysis performed in figure 11 the five most viable strategic options will now be
considered further in terms of suitability, acceptability and feasibility.

8.1 Strategic Option 1 - Improvement to People Processes

Brief Outline: The analysis highlighted recent negative attention both internally and externally. The
RBV and SWOT identified BA’s public criticisms for poor bag handling and delay management, and
disapproval following a number of negatively handled employment related cases. A people processes
strategy may rebuild brand image and stakeholder confidence.

SUITABILITY SUPPORTS
STRATEGY?
Poor employee relations history and recent negative attention on BA’s 
reliability and trust (SWOT).
Given the current economic environment, unemployment is increasing 
(PESTEL). Therefore, the threat of industrial action and resignations are less
likely at this time.
BA’s current strategies are to motivate, engage, support and develop 
employees, alongside improving baggage handling and delay management at
their resident airports (British Airways, 2008).
Increase in internet usage, with more customers and independent services 
reviewing and sharing feedback (Porter’s five forces). Better customer
relations may improve such reviewing mechanisms.

ACCEPTABILITY SUPPORTS
STRATEGY?
Employees and customers are likely to invest high interest into the 
development of their relations with the organisation due to the negative past
experiences.
Skytrax highlights that customer relations is an important measure for 
customers when selecting airlines for travel, increasing the potential of high
returns (Skytrax, 2008).

FEASIBILITY SUPPORTS
STRATEGY?
The Resource Based View (RBV) illustrates an international customer 
database holding. Access to such data could assist BA in market research and
customer relation development based on findings.
The industry and organisation is highly unionised, and are likely to gain 
support from this external body when strategically developing employee
relations.

24
8.2 Strategic Option 2 - Improved Environmental Stance.

Brief outline: As identified within the PESTEL analysis, environmental issues are becoming
increasing important. A reactive strategy therefore could be to build an improved environmental
stance and go beyond the requirements of regulations such as the climate change bill.

SUITABILITY SUPPORTS
STRATEGY?
BA benefits from a sound brand image (RBV) which would be further enforced 
by this strategy.
This would ensure that BA remains a strong global competitor by ensuring 
they are meeting changes in socio-economic behaviour. Consumers are
becoming more environmentally friendly and this strategy would at least
ensure that BA’s market share is not compromised if competitors move in a
similar direction (PESTEL).

ACCEPTABILITY SUPPORTS
STRATEGY?
Changes in customer preferences indicate a heightened concern for the 
environment (PESTEL); therefore this strategy is low risk, especially when
coupled with a low degree of uncertainty. Furthermore, this strategy will
ensure that BA is identifying and meeting customer demands.
As the requirements of environmental regulations are frequently increasing 
(PESTEL), it would be beneficial for BA to be the first mover in the industry
and make changes before any of its competitors.

FEASIBILITY SUPPORTS
STRATEGY?
Resources may be better employed elsewhere, as investing in environmental 
policies may not increase returns.
BA must be confident that it will be able to successfully pursue such a 
strategy as if it fails it would be open to public scrutiny which could damage
its currently strong brand image (RBV).

25
8.3 Strategic Option 3 - Improved Technological Stance.

Brief outline: The technological capabilities of an airline is increasingly affecting consumer choice of
airlines, from both leisure and business fliers. Greater improvement of the in-flight services will
enhance their overall service, increasing long-term revenues.

SUITABILITY SUPPORTS
STRATEGY?
The in-flight entertainment facilities need to be greatly improved and become 
more reliable. This will lead to a long-term growth in the number of
passengers (AQR).

Many of BA’s main competitors are beginning to introduce basic internet 

capabilities on selected flights. Therefore it is in its interest to keep up with
the competition and exceed it by rolling out internet access on all flights. BA
is currently testing the service on one flight from London City Airport to JFK,
New York (Shephard, 2009).

BA also needs to compete with other modes of travel, e.g. Eurostar, which 
already have internet capabilities (AQR).

By implementing the strategy, BA can modernise its image whilst maintaining 

traditional values (AQR).

ACCEPTABILITY SUPPORTS
STRATEGY?
Extensive testing has found the internet connection to be reliable, with loss of 
connection only occurring for a couple of seconds during adverse weather
conditions.

Delivery time of the project – Implementation takes only 1-3 days per plane 
(Row 44, 2008).

FEASIBILITY SUPPORTS
STRATEGY?
Ownership of the operations is much less costly and more reliable than the 
abandoned ‘Connexion’ service offered by Boeing (DailyWireless, 2007).

BA has the slack resources in the technology department needed to 

implement this strategy (VCA).

BA must successfully deploy this technology first time; otherwise it will 

receive serious criticism and could ruin its long-term image.

26
8.4 Strategic Option 4 - Segment Focus

Brief outline: Focus and tailor tactics to the business segment to combat Virgin Atlantic’s market
share growth.

SUITABILITY SUPPORTS
STRATEGY?
The company overview shows this strategy aligns with the existing BA 
strategy to improve the customer experience.

The recent 8.6% drop in BA’s business class passengers suggests a need to 
address the current strategy (Milmo, 2008).

Although the business segment is not growing as significantly in long haul as 

in short haul, (Keynote, 2008c), the profitability and sustainability of the
customers demand provides incentive for market share growth.

Through focusing on one segment BA may lose their advantage in other 

segments (see appendix 8).

Stakeholders may view this strategy as competitor narrow focus as BA would 

be targeting their prime domestic competitor and challenging Virgin Atlantic
at their own core competence (Competitor Analysis).

ACCEPTABILITY SUPPORTS
STRATEGY?
In relation to other strategies the benefit to cost ratio may not be as great. 

The development of database marketing in line with BA’s loyalty club card in 
order to segment and target these business users will increase relationship
marketing operations, increasing BA’s failing customer service (AQR).
The benefits should also be sustainable through increase brand image and 
preference (RBV).

FEASIBILITY SUPPORTS
STRATEGY?
Competition such as Virgin, have made head way in segmentation 
development, however with the brand reputation of BA and the expertise
within the firm can ensure success (RBV).

The time frame to implement the strategy is achievable through resource 

allocation, as there is no immediate urgency or threat (Competitor Analysis).

BA may have already missed the first mover initiative with specialists such as 
Virgin being so successful, the imitation BA would offer may gain little credit
(Competitor Analysis, SWOT).

27
8.5 Strategic Option 5 - Broader Service Offering

Brief outline: Extend flights and services to new destinations past that of BA’s current strategy.

SUITABILITY SUPPORTS
STRATEGY?
Utilises the core capability of BA, their service portfolio, in their core long haul 
market (British Airways business map).

There is an increasing demand for new destinations to be reached directly by 

domestic and international travellers (Customer Analysis).

As the pound continues to fail against the Euro, the economic advantage to 
travelling to other destinations is found (PESTEL).

To gain significant share in the most profitable markets in the short term it 
may be worth focusing on a few markets as is outlined in BA’s current
strategy. Also the demand level of many markets is still unclear, and a
phrased approach to increased destinations may be the best (GE Matrix).

BA has just restarted services to some destinations in the middle east after a 
decade of a turbulent political environment (Tradearabia.com). The risk to
some destinations is still present and BA may not wish to take on the security
risks.

ACCEPTABILITY SUPPORTS
STRATEGY?
Extending markets and their opportunities allows BA to capitalise on low 
competition as the first mover advantage is gained (GE Matrix).

The benefits far outweigh the costs, although the difference in benefit to the 
current strategy may be doubtful in relation to other strategic options.

FEASIBILITY SUPPORTS
STRATEGY?
Funding for the current strategy can be extended more easily for this aligned 
strategy. The resources required for a successful strategy are within the
capabilities of BA (Financial Analysis).

BA’s brand strength accommodates globalisation and a higher probability of 

acceptability by new countries (RBV).
Against local competition BA’s brand strength may not be enough to achieve 
the demand needed (RBV).

Based on the analysis of the strategic options it has been decided that before growth strategies are
pursued BA should focus on defending its current market position and achieving fundamental service

28
quality. Based on this the people processes and technological advancement strategies are deemed
most appropriate for implementation.

29
30
9.0 Implementation

Based on the analysis of strategic options it is proposed that two strategies are implemented
simultaneously. These strategies are a people processes focused strategy and technological
advancement. Figure 12 details the objectives and performance measures of these two strategies.

Figure 12 – Strategy Overview

Strategy Objectives Performance Measures

People processes
Aim: Improved stakeholder brand
image & profitability
Technological advancement
Aim: Customer Loyalty & Market
Share
• Utilise databases.
• Improve service delivery
efficiency.
• Improve internal
communication.
• Implement effective review
monitoring.
• Following succession with
test internet
implementation, roll out
internet on-board internet
access.
• An appropriate pricing
strategy involving
complimentary service for
first class whilst targeting
business class as the most
profitable market.
• Profit margin increase
of 2 – 3%.
• Increase repeat
purchasing by 25%.
• Increase customer
recommendation from
59% (2007/08) to
70%.
• Improve employee
survey rate from 35%
(2007/08) to 80%
(Value Chain).
• Install equipment on
remaining 244 aircraft.
• Increase business class
market share by 10%.
• 80% of business class
customers purchasing
internet usage.

• Continued market research • Following R&D

to ensure that this is a implement 1 new
valued service and seek technological service.
opportunities for further
development.

In order for the chosen strategies to be successful effective implementation is essential to organise
and enable success and to manage the changes that will impact BA.

31
9.1 Company Structure

When implementing strategy, people are crucial to the success (Johnson et al., 2008), therefore the
structure within BA will now be analysed to ensure successful implementation.

9.1.1 Corporate Level Structure

(Adapted from British Airways, 2008).

At a corporate level, BA has a good structure already in place. There is a new Acting Customer
Director on an interim basis, Silla Maizey (British Airways, 2008). She has introduced a new
customer service team working with Heathrow Customer Services, designed to put customers first.
Using the current structure to implement our strategy, it is recommended that a permanent and not
acting director to be recruited. In terms of the technological strategy, no amendments to the current
structure are necessary as BA already have systems in place to implement new technology.

9.1.2 Business Level Structure

At a business level each department will need to ensure all staff implements the strategies that have
come top-down from a corporate level and work within the organisation’s brand values. Each
department must also tailor the corporate level objectives specifically to its own targets. This will
help to build the brand, improve its customer relationship focus and achieve the stated objectives.

9.1.3 Functional Level Structure

Every function must coordinate with each other to ensure objectives are met and an updated
operations manual must be developed. Specifically for the relations strategy, detailed targets must
32
be stated for both the marketing and HR functions with constant data capture and analysis to see
whether the targets are being met. Sufficient training on the new onboard technology will be
necessary on an ongoing basis to ensure that employees are fully familiar with the service.

33
9.2 Service Quality Gaps Model

The Service Quality Gaps Model demonstrates the long-term strategy to improve service quality
(Appendix 4).

Figure 13 – Application to BA

Service Gap Current Strategy Strategy in practise

Priority status
The Knowledge Low Current BA has completed extensive market
Gap research into understanding the customer
(British Airways, 2008), and our
assessment suggests in this fast changing
environment, that it needs to be
sustained.
The Design and Medium Current & BA will soon renew their fleet (British
Standards Gap recommended Airways, 2008). Our recommendation is to
incorporate the latest technology. This will
address the current service design’s
failure to meet customer needs in terms of
operational efficiency.
The Performance High Recommended The issue with the service delivery is for
Gap BA to maintain satisfied employees. Our
recommendation is for BA to invest in
research to understand the employee’s
needs, responding with an adaptation in
HR policy and internal marketing culture.
The Medium Future BA appears to be losing value in the
Communications marketing delivery over competitors such
Gap as Virgin and EasyJet. A future
recommendation and development
strategy would be to address the external
communication and ensure the promises
of delivery previously corrected reach and
penetrate the relevant target market.

34
9.3 Managing the Change

Figure 14 – Types of Change

Scope of Change

Realignment Transformation

Incremental Adaptation Evolution

Nature
of
Change
Reconstruction Revolution
Big Bang

Source: Johnson et al., 2008, p520.

The shaded area of figure 14 reflects the nature and scope of change that the proposed strategies
will require of BA. Adaptation will be necessary; as this is done on an incremental basis it is
relatively low risk. The specific areas of change are looked at in more detail in figure 15.

35
Figure 15 – Contextual Features of Strategic Change
Time
The improvement of people processes will not
be immediate. Perceptions of the firm will take
time to change. Internal surveys across
employees will take time to design and analyse
and be implemented. It will take longer than a
year.
A customer orientated approach is needed
immediately to gain competitive advantage,
however as this approach stems from an
internal marketing philosophy full
implementation may take over a year. Data
capture and using this within the marketing
activities could take up to two years before the
full benefits are reached.
Refer to Gantt Chart for a full break down.
Power
The current top level management structure will
provide the power to implement these strategies.
Employees who have direct contact with customers
must be given the power to obtain direct feedback.
Middle managers must be given enough power to
ensure some autonomy in the firm, and good
communications within the firm.
Readiness
Employees will need training and education on
the strategy to realise the importance of
managing customer relationships
implement the new systems.
Certain employees within the
operations/general operations/cabin
department will have to be trained to be familiar
with the new technology if anything does go
wrong mid-flight.
Scope
A medium degree of change is needed in implementing a
people processes strategy. New systems will need to be
implemented and surveys will have to be performed to
assess satisfaction. Training is needed to improve customer
relations. A new/reinforced firm culture needs to be
implemented as a result of extensive employee satisfaction
research.
A low level of internal change is needed for the introduction Preservation
of full internet access across the fleet. A medium level of The traditional brand image of BA will
change maybe required when it comes to carrying out be maintained whilst also being
research to ensure it is a valued service and in seeking modernised by an improved
opportunities for development. technological stance.
Measures will be taken to preserve
the employees, e.g. revised pension
schemes.
People Diversity
Processes, As the nature of change is incremental
and the scope of change is adaptation
for both strategies, the diversity risks
Technological are minimal.
Advancement.
Capability
On a corporate level, the directors do have
the knowledge and skills to implement both
Capacity strategies. However, senior/middle
An Acting Customer director is managers and employees will need to be
already in place at a corporate further educated.
level, which feeds down into External consultants may be required for the
customer relations team. people processes strategy and will be
and to However, a permanent position required for the improved technological
over the next 3 years is stance strategy.
flight recommended to ensure
successful implementation.
crew
The capacity for the improved Adapted from Johnson et al.,
technological stance already
2008, p523.
exists. 36
Adapted from: Johnson,G., Scholes, K., and
Whittington, R., ‘Exploring Corporate
Strategy’, 2006, Prentice Hall, Page 508
9.4 Gantt Chart

2009 2010 2011 2012

Responsible Parties
Stage Activities Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Planning Market Research- Market Research Team
internal and external (MRT) (in-house or
outsourced)

Strategy formulation Corporate Business

Development (CBD)/dept.
Managers

Financial and resource

allocation
Finance/CBD

Implementation Process designs

Operations/CBD

Coordination of CBD/dept. Managers

individual
departmental
strategies

Internal and external

communications e.g. Marketing/PR/HR
Promotion, reduced department
vertical measures.

Evaluation On-going research and MRT/HR

feedback

Control Systems and CBD/dept. Managers/MRT

reviews

37
9.5 Stakeholder Map
It is important to assess the expectations of different stakeholders and the extent to which they are
likely to seek influence over BA’s strategies.

Figure 16 – Stakeholder Map (Source: Johnson et al., 2008, p156.)

38
 INTEREST
Low High
Minimal Effort Keep Informed
Low
POWER

Charities Creditors
BA donates money to a number of Must be kept informed due to money owed however this would not
registered charities in the UK (British impact on the choices adopted at BA as they have a good credit
Airways, 2008) - minimal impact on the rating (Financial Analysis).
strategies.
OnAIr Internet Service
BA is currently testing the use of the OnAir internet service
(Inmarsat, 2009). By expanding and utilising their service across
the fleet would positively impact OnAir therefore they have a high
interest. However they have little power as BA could move to its
competitors (Row 44/Air Cell), which have already shown positive
results.
Keep Satisfied Key players
High

Government/Regulators
New legislation if introduced can have a
great impact on the organisation but is not
individualised to BA specifically.
Customers
Customers provide all of the sales but have
low interest in how the company is
managed. They still have a high impact as
the goal is to attract more customers.
Employees
Due to service being a key part of BA’ image employees have the
power to influence customers. They have a vested interest as BA
provide their financial wellbeing. The workforce is heavily
unionised, this increases the power of the employees.
Competitors
BA’s main rivals within their strategic group have both a high
interest and power in influencing BA’s strategy. The oligopolistic
nature of the market will affect the decisions BA make.

Suppliers
Two airline suppliers, Boeing and Airbus. They have a high interest
and power over BA as BA is a big source of income for them and BA
in turn relies upon them. With only one supplier of fuel, they too
have a high interest and power over BA. This is also true for BAA
the airport operator.

Financial Institutions
Financial support maybe required from Financial Institutions to fund
these strategies and even though BA has lowered its gearing ratio
and increased its liquidity. With the current conditions the
institutions have great power over BA and can refuse finance.

Shareholders
Shareholders have a high interest due to aspiring to gain
financially. They have high input into selecting board members and
authorising new strategies. The shareholders must be well
informed of the risks of the strategies and length of time before
returns are expected and the size of those returns.

Local Communities
BA continues to show corporate social responsibility including
environmental issues and has a high power over its direction.
BA must keep the local communities satisfied as they can severely
damage BA’s brand image.
9.6 Control Systems

Strategy Review Expected Contingency in place Resource

Guidelines Competitor Allocation
reactions
Technology Review the Premium BA will partner with a People –
39
 progress of Competitors such technology provider Introduce
the as Virgin are ensuring that they are the technology team.
strategy in already advanced leaders for quality, and
line with in this area, that BA’s relationship is Technology –
competitor although many exclusive. If imitation Combine existing
intelligence, other competitors occurs BA will take steps and new hardware.
and may look to to communicate the
customer imitate, and form quality and take the early Finance – R&D,
feedback alliances with adopter advantage. Installing and
every 6 either the same maintenance,
months. supplier or a training.
cheaper
manufacturer. Information –
Providing manuals
to users and
promotion.
People As the processes of As competitors may take People – Service
Processes implementing an steps to head hunt BA secondments in
internal marketing employees, and offer third parties
culture are benefits. Internal research
complex, imitation => meet employee needs Technology – Use
is unlikely, and the (strong pension/ service blueprints
culture of BA will shareholder schemes and to outline
remain unique. internal marketing of the processes.
Although any brand). This will turn
measures internal customer Finance – Market
competitors will ‘Mercenaries’ or even research
make will be faster ‘terrorists’ into Advocates
and more effective (Jones and Sasser, 1995). Information –
to implement due Promotion, internal
to their small size. communications.

9.7 Balance Scorecard

The Balance Score Card (Appendix 7) is used as a tool to analyse the progress of the strategy in the
review occurring every six months (Johnson et al., 2008). Whilst it highlights the strategy
achievements, it additionally focuses attention to areas which may be failing, and hence need further
resource allocation or a red flag to adapt the strategy. A traffic light system is utilised to categorise
areas of success, monitoring, and decision making.

40
10.0 Critique

Although strong and justified strategies have been created within the confines of the report there are
a number of issues which BA should take into consideration when implementing the proposed
strategies. These are considered briefly below.

10.1 Financial

BA should not have much trouble in implementing these strategies. With an increasingly lower
gearing ratio and better liquidity they should be able to secure some funding from financial
institutions and obtain the rest from retained profits. However, with the current economic
conditions, it will still be difficult to obtain funding and BA will not want to increase its gearing too
much.

10.2 People

The recommended strategy to improve relations will require full support from BA’s workforce. As a
highly unionised workforce, success in changing the employment relationship will be determined by
BA’s ability to work efficiently with each recognised union. In regards to implementing change, due
to BA’s history and size the company may experience organisational inertia or myopia. Again,
improvements to customer relations may be hindered by an uncooperative workforce, highlighting
the importance of ongoing training and support. Similarly, a technological stance will require BA’s
employees to develop service knowledge, and it is imperative for the organisation to support them in
doing so on a continual basis.

10.3 Legal

The use of Wi-Fi on planes is already allowed by the aviation regulators in the UK, Europe and Rest
of the World. However, regulatory approval must be achieved before it can be implemented on
planes flying to/from USA (Wlanbook, 2008; Row 44, 2008). The use of external legal consultants
should be used when implementing both strategies to ensure that legal requirements are met,
especially when performing internal and external surveys and the confidentiality of data.

41
11.0 Conclusion

As a result of the external and internal analysis a number of strategic options were proposed. It was
concluded that a combined strategy approach to improve service quality was deemed most suitable.
Due to the current industry climate we have chosen a strategy to consolidate BA’s position as
market leader.

Due to the scale and scope of BA’s operations it was decided that the focus of this report would be
on scheduled passenger flights. We would recommend further strategic analysis to implement SBU
level strategies.

Due to lack of primary research and restricted access to company information there may be
limitations in our findings and recommended strategy, however we believe that if the general
direction of our suggested strategic intent is followed it will lead to lead to success.

42
Appendices

Appendix 1 – Real GDP Growth and Trend

Appendix 2 – Jet Fuel and Crude Oil Price Trends

Source: IMF, 2008

43
Appendix 3 – Ageing Population (Source: National Statistics Online, 2009)

44
Appendix 4 – Service Gaps Model

External Environment
GAP 1 - Knowledge Gap
EXPECTED SERVICE
GAP 5: Service Gap Closing this gap requires:
Understanding and listening to customers
Closing Gaps 1 - 4 will help meet
customers expectations and close gap 5 (Market Research)
Building relationships with customers
PERCEIVED SERVICE Filtering feedback through vertical channels of
communications

Internal Environment
EXTERNAL
SERVICE DELIVERY GAP 4: Communications COMMUNICATIONS
Gap
TO CUSTOMERS
GAP 3: Delivery Gap To close this gap:
To close this gap:
Horizontal Communications
Internal Research
HR Policies Integrated marketing
Match supply and demand communications
Management of Customer
Expectaions

GAP 2 Standards Gap

To close gap:
Customer defined standards
TRANSLATION OF Approved service design.
PERCEPTIONS INTO Appropriate physical evidence and servicescape
SERVICE DESIGN &
PRECOEDURES

MANAGEMENT
PERCEPTIONS OF
CUSTOMER
EXPECTATIONS

Zeithaml, V, A. & Bitner, M, J. (2003)

Appendix 5 – Tourist Arrivals (Source: Datamonitor, 2009)

45
Appendix 6 - Travel expenditure by region (Source: Datamonitor, 2009)

46
47
Appendix 7 – Balance Score Card (Source: Garrison et al., 2003.)

Financial Perspective Customer Perspective

CSF Measures CSF Measures
- Sales growth - Quality control
Improved - End of year
financial financial Quality of airline - Customer
performance accounts service feedback
- Profitability and
liquidity ratios
Customer service - Customer
Shareholder questionnaires
value - Share price and feedback
- Dividends per
share
Increased brand - Customer
awareness feedback
- Increased
passenger
volumes

Innovation and learning

Internal Perspective perspective
CSF Measures CSF Measures
Security and - Positive - Staff
speed of feedback Integration of UK motivation
check-in - Time efficiency and emerging
services of check-in market cultures
service
- Increase
spending in
Investment into R&D
Customer - Increased sales technological
orientated volumes innovation

- Profitability of - Spending on
airline Highly skilled staff staff training
Expansion into competitors in
new markets the new markets

48
 Appendix 8 – Airline Segmentation Matrix

Price

Premium

Virgin

Medium
BA
First Choice,
Thomas
Low Cook…
Ryan
Air, Easy
Jet
Domestic Short-Medium Haul Long Haul

Focus of Service Provided

49