British Airways

Executive Summary 3

1.1 Structure of the European airlines industry 5, 6, 7

2.1 PEST Analysis of the airline industry 8, 9, 10

3.1 Analysis of the airline industry (Porters 5 forces) 10, 11, 12

4.1 Major threats confronting the British airline industry 13

4.2 Opportunities confronting the British airline industry 14

4.3 Possible strategies in overcoming external threats 15

5.1 British Airways X Point Plan 16, 17

References / Bibliography 18

Executive Summary:

This report investigates the state of the airline industry, focusing on the leading British airliner British Airways (BA). This investigation covers issues such as how BA have managed to become a different entity in such a short space of time in comparison to other leading UK airliners and looks at the state of the airline industry in regard to current and future influences acting upon BA. During the last 10 years the airline industry has been flooded by new entrants, such companies have created greater competition within the sector and has led to massive implications for British Airways, this report looks at how such threats can be managed.

The UK airline industry at present is at its most competitive, with over "40 individual companies" competing for over "86 million customers" , the growth of the industry is staggering. To emphasise the growth; in 2004 "70 Million customers" were reported in comparison "86 million" reported in 2005, a true testament to this growth is the fact that London's Heathrow Airport (the biggest airport in the world) is currently developing Terminal 5, which will mean the airport is able to cater for further growing numbers of customers. Such growth, carries many external threats, most notably terrorism and growing fuel prices, all of which have direct implications on BA and other airliners.

Although such threats can be managed, the major battle with airliners like BA, is maintaining consistent progress, the airline industry in general tells us that this is a bigger problem than what appears. This report will indicate reasons to how BA have managed consistent performance in their industry and will look at ways of possibly developing their position in the future.

All in all this report will focus on the directions the airline industry is taking and notably looks at how companies like British Airways are maintaining a competitive edge whilst dealing with such widely reported threats within the industry. It will comment on recommendations British Airways can adopt to consolidate current high performances especially when considering the added threat of new entrants such as the budget airliners.

1.2 Structure of the European airlines industry.

The European airline industry is characterized as an oligopoly structure, this is a structure which has imperfect forms of competition i.e. very few airliners dominating the industry. Airliners operating in this oligopoly have a great deal of power in setting prices, especially airliners with established reputations such as British Airways. The European aviation industry has proved to be one of fastest developing markets in the world; aided by the European Unions decisions to de-regulate the industry. Historically the European airline industry has been heavily regulated, as a result this has meant prices and flights being monitored and controlled. This resulted in the industry having a slow uncompetitive industry, which proved to offer limited choice for the discerning customer.

In the last 15 years, the EU has begun de-regulation of the industry, this has resulted in open sky agreements being made, and this allows countries to fly between each other without restrictions. Industry expansion has also been aided as "non national" airliners such as budget airlines are able to operate in European countries thus making the industry more competitive. The increase in competition and the emergence of budget airliners has forced the hand of many of the leading airliners in Europe especially that of BA, the industry is in meltdown with regard to price and customers have been given greater influence. Budget airliners offer superior savings in comparison to national airliners; the cheap European flights on offer have great appeal and offer excellent value for money for customers wishing to travel around Europe.

Overview of the European aviation industry:

Although De-regulation has had a massive impact on the airline industry, it is not the sole reason for the experienced changes in the industry. The development of new technologies can also be attributed to the increase in competition and has presented buyers further influence with regard to shopping online for the cheapest flights. Hundreds of different flights are available all around Europe, due to the sheer size of demand now experienced, the emergence of the internet has eased the sales function for airliners and has simplified the way data is processed. Getting the customer to enter their information and instantly paying for flights enables airliners to achieve income more quickly, this could mean receiving more interest in airline accounts, possibly increasing the airlines income. The application of technology alongside sales functions has saved airliners a great deal of time, money and staffing, this will of course have a direct affect on the overheads of the business aiding profitability. Overall, technology has allowed businesses to increase their productivity and improve upon operations; there are however, drawbacks especially with regard to the larger airliners like BA. Online processing of flight booking has in itself created a mini sector within the aviation industry these are known as the budget airliners, such airliners offer cheap flights and have mass appeal within Europe. Increasing numbers of customer's book