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British airway case analysis
- 1. British Airway’s Airway’ Dilemma Eliminate short-haul or not?
- 2. Contents Part 1 The Main Facts And Issues Part 2 The SWOT Analysis Of BA’s External and Internal Environments BA’ Part 3 The BA’s Stragetic Choice BA’
- 3. The main facts and issues Here we go Facts and issues 1. Deregulation 2. Trend 3. Competition 4. Predicament The deregulation Low-cost Competition in BA was faced of European business models the low-cost with a loss of airline market have become the carrier market in market share bring in many new driving force in Europe is brutal and a financial entrants in 1997 the world airline failure in short industy had segament
- 4. SWOT analysis Strengths Threats Weakness Opportunities BA’s external and internal environment
- 5. Strengths Global Making BA “the world’s favourite airline” world’ airline” brand Creation of BA’s club world business class BA’ &network Estabishment of an extensive global network High BA’s profits per passenger is the highest BA’ ————(FIigure 1) ————(FIigure profitablity Strengths With more than 2000 million ￡ net assets and over Financial 7500 million ￡ revenue every year superiority With a nice asset-liability ratio Experienced in management and operation Managem Outstanding marketing skills ent Skills Harmony realtionship with goverment Willie Waslh was highly-skilled in cost-cutting
- 6. Figure 1: Profits per Passenger Profits per Passenger=Revenue per Passenger – Costs per Passenger Ryanair 9 Southwest 6 British Airways 19 Air France 13 Lufthansa 11 EasyJet 2 Jetblue -1 0 4 8 12 16 20
- 7. Weaknesses The aging The average age of the fleet is 9.5years,so it of fleet need to invest in infrastructure. Poor The lowest “% on time”-----74% time” The lowest “% completions”-----98.5% completions” consumer The highest “Lost bags per 1000 PAX”-----17.7 PAX” Service Weaknesses Cost Poor performance in cost-control disadvantages Half-hearted NO contunity of strategies in short-haul bussiness Strategies
- 8. Opportunities The integration of Europe market Opportunities Airway became more and more popular Price wars among low-cost airlines
- 9. Threats The influx of new entrants which were fast growing (Figure 2) Threats The privilege in UK began to lose The competition in the airline market grew intense day by day
- 10. Figure 2:Key Statistics of Ryanair and easyJet Unit: Millions Ryanair EasyJet Millions ￡ Millions ￡ 2001 2002 0 2003 2004 2005 2001 2002 2003 2004 2005 BA was confronted with the heavy pressure from Ryanair and EasyJet’s rapid growth.
- 11. Figure 3:BA’s Profit befor tax and Basic EPS per share 3:BA’ 70 700 Basic EPS per share 60 600 Profit befor tax 50 500 40 400 30 300 20 200 10 100 0 -10 -100 -20 -200 1997 1998 1999 2000 2001 2002 2003 2004 2005 2005 2006 IFFG IFFG British Airway’s poor financial performance during 1998 to 2002.
- 12. Figure 4:BA’s Cost efficiency Operating margins and Passenger load factor 4:BA’ efficiency、Operating 100 90 80 70 60 Operating margin 50 Passenger load factor 40 Cost efficiency 30 : Unit: % 20 10 0 -10 1997 1998 1999 2000 2001 2002 2003 2004 2005 2005 2006 IFFG IFFG
- 13. Figure 5:Boston matrix high Stars Qestions marks Long- Inudstry growth rate Cargo haul Dogs Cash cows Short GO low -haul high Prelative market short low Focus on “stars”-------Long-haul business
- 14. 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.
- 15. Figure 6:Bowman’s Strategy Clock 6:Bowman’ 1,Low price/ low added value ——Low-cost value—— ——Low-cost 3,Hybird——BA’s two class operation 3,Hybird—— BA’ ——BA 5,Focused differentiation ——Long-haul differentiation—— ——Long-haul
- 16. The Strategy Clock: Bowman’s Competitive Strategy Options Bowman’ 1,Low price/low 2,Low added value Risk of price war Likely to be price and low segment specific margins/need to be cost leader Low cost base and reinvestment in 1 a) Without price premium low price and b) With price differentiation premium 3,Hybrid 4,Differentiation ThemeGallery is a Design Digital Content & Contents mall developed by Guild Design Inc.
- 17. The Strategy Clock: Bowman’s Competitive Strategy Options Bowman’ 5,Focused 6,Increased Higher margins if Perceived added differentiation price/standard competitors value to a particular do not value segment,warranting follow/risk of losing price premium market share Only feasible in 2 Loss of market monopoly situation share 7, Increased 8, Low price/low value value/standard price ThemeGallery is a Design Digital Content & Contents mall developed by Guild Design Inc.
- 18. Realistic alternatives strategy Strategy 1:Downsize short-haul business First Retreat from low-cost airlines ,focus on long-haul business and downsize short-haul business. Strategy2:Cut off short-haul Second Elimate short-haul business throughly and immediately. Retreat to long-haul business. Strategy 3:Stay in short-haul Third Compete with EasyJet and Ryanair at all reapect. Set up subsidiary to strethen its short-haul net.
- 19. BA’s final choice BA’ Conclusion Based on SWOT analysis,the best stragetic for British Airway is to utilize its strengths and avoid the threats as much as possible.The following two models prove that the first stragetic is the most suitable and deliverable choice ——Retreat from low-cost airlines ,focus on ——Retreat long-haul business and downsize short-haul business.