British Airways - Managing Change

Executive Summary

"The airline industry is characterised as a mature, highly seasonal, capital-intensive, and price-elastic industry" (Cephas, 2000). However, the nature of competition with regard to European airlines is in a state of dynamism, particularly as a consequence of European deregulation. The subsequent evolution of a 'low cost' no frills market segment which engenders significant improvements in operating costs, has disturbed the balance of 'traditional competitive advantage'. Consequently, a number of established airlines have found it necessary to rethink their market positions and manage change in order to survive.

Introduction

This report aims to establish the context of the European airline environment and assess the impact of managing change in a business organisation by analysing the following:

· In order to analyse the impact of managing change, an initial analysis is undertaken to ascertain the state of the European airline environment.

· Consequently, an assessment is then made of the current state of the organisation after change has taken place.

BAW - British Airways Boeing 757-236

Boeing 747-400 takes off from London Heathrow Airp...

World Traveller

The objective of this assignment is to analyse the practises and to outline British Airway's approach to managing change in its organisation. This issue assumes a particular relevance in an increasingly competitive environment in the service industry.

The approach to this assignment is analytical and look for evidences to sustain the proposed arguments and ideas. Information comes from secondary sources such as newspapers articles, specialised magazines, books on airline management and marketing and management issues, reports and research from the major marketing research providers and professional bodies, companies' annual reports and information.

The report is divided in two parts. The first part analyses the strategic approach to the market and the corporate culture of the airline. The second part focuses on how they manage change, with particular emphasis on factors for success or failure of the change.

Industry Background

The European airline industry is highly regulated, since individual countries and governments aim to protect their flag carrying airlines. With the expansion of the EU, and the breaking down of trade barriers, the airline industry was deregulated in 1992. This meant that any European airline could fly anywhere in Europe and land. This offered airlines the chance to expand routes across the continent and to apply market strategies with greater accuracy.

Company Profile: British Airways

British Airways plc (BA) is the world's biggest international airline, carrying more passengers from one country to another than any of its competitors. British Airways is a scheduled international passenger airline. The Company's main activity is the operation of international and domestic scheduled passenger airline services. The Company's principal place of business is London Heathrow, which handles more international passengers than any other airport in the world. Because its US competitors carry so many passengers on domestic flights, it is the fifth biggest in terms of overall passengers (in terms of revenue passenger kilometres).

British Airways worldwide route network covers some 233 destinations in 96 countries. Its two main operating bases are London's two main airports, Heathrow (the world's biggest international airport) and Gatwick. BA also operates a worldwide air cargo business in conjunction with its scheduled passenger services. The cargo operation, which carries both freight and mail, is run independently of the passenger business, although cargo generally is carried in the holds of aircraft flying scheduled passenger services. The Company also provides other services to outside parties, such as aircraft maintenance. In addition, the Company's operations include certain ancillary airline activities. (See Appendix 1).

SWOT Analysis on British Airways

Strengths:

§ Being the national flag carrier is an inherent advantage that the home market will identify with. This can be exploited to the airline's benefit.

§ High customer satisfaction.

§ British Airways are heavily committed to be at the forefront of technology, offering everything from check-in via mobile Internet to innovative in-flight technology. On long-haul flights for all passengers and short-haul flights for business people, this is an advantage. It is restructuring its short haul network, and launching a new pricing strategy and internet booking system, which should allow it to compete more effectively.

§ Business people want superior quality travel and their flatbeds would be considered a competitive advantage on long-haul flights.

§ BA has reached an agreement with American Airlines, Air France, Continental Airlines, Delta Airlines and United Airlines to create an Internet business-to-business (B2B) marketplace for the airline industry. This B2B exchange will be open to aviation customers and suppliers worldwide and should result in lower transaction, processing and inventory costs for both the airlines and their suppliers.

§ BA has improved the range of services it can offer customers through its policy of 'global alliance'. BA is a founder member of the One World airline alliance. The other founding members were American Airlines, Canadian Airlines, Cathay Pacific and Qantas. The main reason behind such an arrangement was that research had shown customers wanted to buy the full range of international services they required from a single business rather than several different airlines. Such alliances also present opportunities to reduce average costs through economies of scale.

§ Top rankings in airline industry including on-time arrivals and departures, safety, baggage handling, customer complaints, and financial stability.

Weaknesses:

§ British Airways has lost a significant portion of the market to low-cost carriers with the growth of the no-frills, short-haul market. Competition from small airlines led to a downturn in revenue, because there is only so much demand for air travel and the smaller airlines diluted the number of passengers BA flew.

§ The events of September 11th have significantly affected the market for air travel and forced British Airways to take cost cutting procedures.

§ British Airways have had to dramatically lower the cost of flights because of the aggressive pricing and promotion from the smaller airlines, to remain a dynamic competitor in the market.

§ British Airways have failed to adapt to change in the external market and competitive environment and control their costs. BA has had to introduce a restructuring programme, which not only cost money, but hundreds of jobs as well.

§ BA has also been compounded by recession in the Far East, increased petrol prices, government taxing, and privatising of airports. BA still has a large fleet of aircraft's, which need insuring, since the attacks, insurance has increased by ten fold. This sets to increase fixed costs even more.

Opportunities:

§ Open Skies agreement between the United States and the United Kingdom would create an open and competitive environment in one of the world's largest international aviation market.

§ Globalisation of the airline industry will enable BA to expand their services and profit bases abroad. Airlines are becoming increasingly dependant upon each other and have entered into mutually beneficial alliances and networks in order to compete in a global market and also helping to prevent new players to enter the market on long-haul routes.

§ BA recently moved to service the business/premium service segment whereby service quality and not price is the overriding factor in selecting an airline. Thus, as a result of significantly higher operating costs engendered in traditional airlines and in response to developments in the low cost segment. BA found it necessary to re-think their position in the market.

Threats:

§ Less restrictive, more competitive bilateral agreements unacceptable to key bilateral partners will suspend growth in international markets.

§ Operating restrictions in foreign airports.

§ Deregulation and the single destination provisions that small airlines were set removed, a number of airlines are able to operate and therefore compete on the major international routes that larger airlines had an oligopoly on. The smaller airlines pose a serious threat to BA because they offer considerably cheaper flights.

§ The subsequent evolution of a 'low cost' no frills market segment which engenders significant improvements in operating costs, has disturbed the balance of 'traditional competitive advantage'. BA underestimated the threat and was forced into reactive mode.

§ The events of September 11th will continue to have an impact on the global airline industry, in terms of passenger traffic, future consumer behaviour, and the financial & economic health of airlines, and thus will have contributed significantly to the further demise of the European airline environment, accelerating and intensifying existing problems in the industry.

Organisational Structure

British Airways has a formalised structure with precise rules and procedures, due to its size and the global scope of its activity. A major change in the last years has been the reduction of its management layers, between the chief executive and the front line who interface with customers. It now has small ad hoc groups working in parallel with the formal structure, with responsibilities that cut across different functions, or in some case duplicated these functions.

British Airways have a board and a leadership team. Whilst the structure would lend itself to a hierarchical one, British Airways encourage employee participation, suggesting a top down and bottom up approach. British Airways are set up as a traditional hierarchical structure, however management is moving into collective decision making, involving all employees. BA operates from many airports, but its main base is at London Heathrow.

British Airways' Culture

British Airways is defined as a role culture reflecting functional differentiation in its structure. There are two cultures in British Airways, one high in the sky at 30,000 feet which is highly co-operative, service oriented focused on passengers and the other one on the ground highly competitive, politicised head-to-head with the external world, where it seems that fiercely adversarial values reigned. Middle management, which is key to the implementation of any strategy and the outcome of cultural change, is still ruled by separate functions and at the top all the weight still goes on the individualist functions of high finance and take-over. (See Appendix 2).

The reason for BA's success lies in the radical change of its culture prompted by a marketing orientation. Customers have been posed at the centre of the attention and individuals have been empowered to take initiative. It learned to respond to customers' requirements and co-act on individuals' initiatives.

Managing Change

Although BA can, and should, evaluate their environment, no one can foresee the future. Events occur that challenge our assumptions and contradict our forecasts. Also, bright ideas often come spontaneously, outside of the formal strategic planning process's framework, and between planning events. BA's approach is based on the assumption the management are firmly in control. Of course, the reality in the modern world is that management seek to mange and control, but often events move ahead, and strategies have to emerge to enable the organisation to manage change. For BA it would be necessary to adopt more that one style of strategy. BA's strategy "to be the undisputed leader in world travel" realised that environmental factors throw its strategy off course. As it was impossible for them to have foreseen the destructive events of September 11th and increased competition by LCA's, these uncontrollable events had a devastating effect on the airline industry. British Airways were forced to reassess their objectives and new strategies emerged in an attempt for them to become more competitive and to regain their market position. BA needs a strategy adapting in response to changes in the internal and particularly the external environment of the organisation.

In order to compete against LCA's (Low-Cost Airlines) BA introduced GO Airline, but this venture lost BA millions as it came too late. The GO Airline failed to compete with the other LCA's and was sold off. Resulting in BA now dealing with mainly business flights.

British Airways then introduced a new mission statement "to be the undisputed leader in world travel". By redefining its marketing, sales, and managerial approach and substantially improving customer service, British Airways transformed its reputation and finances. The new direction the company has adopted will improve customer service and employee-management relations and also set financial and operational goals.

To manage change in the organisation BA used Benchmarking as a technique to evaluate the business processes.

Areas Benchmarked:

British Airways is seeing great results from its on-going punctuality push, with record levels of on-time departures being achieved. This initiative has enabled British Airways to maintain an on-time departure rate of eighty percent. Numerous programs have been established in order to maintain and improve British Airways punctuality.

British Airways has formed a strong alliance with American Airlines. American Airlines and British Airways filed with the United States Department of Transportation applications to code-share on flights serving some seventy-five destinations in the United Kingdom, United States, Europe, and Africa. This is just one part of their efforts to develop a global marketing alliance. Both American Airlines and British Airways are committed to forming a strong international alliance.

Several training programs were organised to challenge employees. One such program "Putting People First (PPF)" encouraged employees to show their ingenuity and creativity. Staff were told to utilise delays, bad weather, lost baggage, and other dilemmas as opportunities to solve crises without supervision. Management was also very committed to this particular initiative. This program was meant for all employees of British Airways. On top of this, management also had their own "Managing People First" training modules where managers were taught how to coach, train, and support their subordinates.

More recently, British Airways has decided to move their airline crews to more modern facilities. This move dramatically improved working conditions, and it combined all service delivery functions under one roof. This brought significant efficiencies and productivity gains to the operation. For example, travel times between the crew reporting centre and the aircraft will be significantly shorter. This facility is based on more horizontal organisational structure. It has an open plan, hot-desk environment with the latest technology - encouraging greater interaction, less hierarchy, and new ways of working.

Each of these are "world-best" practices that ultimately lead to high customer satisfaction. In a customer service oriented industry, such as the airline industry, these initiatives have set British Airways apart from the rest. The ability to maintain customer satisfaction leads to customer loyalty, and continuous profitability. British Airways strives to meet and exceed industry standards to measure up to its new mission, "To be the undisputed leader in world travel".

Management Style & Leadership at British Airways

The traditional style at BA had been bureaucratic, distancing, highly segmented between functions and characterised by low personal feedback, neglect of subordinates, depersonalisation and hierarchy. It has changed to a style where coaching, training and supporting are key to employees empowerment. Managers learn how to trust employees developing a vision and then letting employees use judgement and discretion while responsibility remains with them. Managers are shown how to build a support system, so that they can get help from one another outside the formal structure and across functions. Subordinates need to be shown how their job contribute to the larger whole. People are asked to make decisions, they are provided with a vision or framework in which they are then empowered to take action to respond to non standard situations. Mistakes are forgivable provided one tries.

BA's Leadership has set a positive example at all levels which pervades the organisation. Mutually responsive relationships have been created which gives status and support to people in the middle. This has enabled all elements of the circle to learn and develop.

Summary of Analysis

Analysis of British Airways, comparing Marketing, Finance, HRM, Management Structure and Operational policies.

Marketing:

British Airways is to increase the use of the Internet to 50% within two years. British Airways reduced their marketing costs by 4.5% in the same period.

Summary: The airline's marketing policy is to increase their use of the Internet to reduce costs.

Finance:

British Airways were reporting a £115m loss (nine months ending 2001). British Airways are now looking to raise £900m through property and aircraft disposals.

Summary: British Airways are looking to reduce costs, which includes capacity reduction and aircraft disposal.

HRM:

British Airways heavily invest in employee development. BA is reducing their workforce by 23%.

Summary: British Airways are cutting their workforce, BA have a paternalistic approach to their workforce.

Management Structure:

British Airways have a board and a leadership team. Whilst the structure would lend itself to a hierarchical one, British Airways encourage employee participation, suggesting a top down and bottom up approach.

Summary: British Airways are set up as a traditional hierarchical structure, however management is moving into collective decision making, involving all employees.

Operations:

British Airways is focusing on profitable markets dependent on business travel. BA are cutting aircraft size, to reduce capacity but maintain frequency. BA is insistent on remaining a full service airline.

Summary: British Airways is focusing on the business traveller.

Recommendations

The business could focus on attracting niche customers who demand high-class service and customers who are leisure flyers, offering special prices to families and senior flyers (old aged pensioners). It can be assumed that the older generation have money saved up and pensions so BA could offer discounts and special offers for these people. Early indications suggest an increase in bookings, BA will have to keep promoting and boosting consumer confidence if they wish to attract customers old and new. One easy way to attract more customers is to drastically lower ticket prices, the low prices means flying will become more accessible to people.

New programmes could be developed to help cut costs further. Axing unprofitable routes, streamlining the fleet and cut more jobs could make large annual savings. To ensure BA's survival in this uncertain time, the very best service should be offered with some lessons to be taken from the smaller airlines which have managed to do so well in these hard times.

Conclusion

Among the European airlines, British Airways is the most exposed to the North Atlantic. Capacity reductions in recent years, however, combined with a strong premium product have allowed the company to limit yield declines. British Airways looks well-positioned to benefit when market conditions recover. The company has been successful in controlling costs and a £650m cost reduction programme announced earlier this year should help it to lower its break-even load factor.

British Airways is the only network carrier in Europe experiencing strong low fare competition on its short haul domestic and European network for point-to-point traffic. It is therefore several steps ahead of its competitors in dealing with low fare competition. It is restructuring its short haul network, and launching a new pricing strategy and internet booking system, which should allow it to compete more effectively. The short haul European market share of low fare airlines will grow strongly in the years to come, and airlines such as Lufthansa, Air France, KLM and SAS are likely to face increased competition. This might force them to review their own short haul operations, just like British Airways has done.

British Airways has successfully managed change in the organisation, although still in open competition with other airlines, this will ensure they will remain proactive and ahead of competition in all aspects of their businesses.