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British Airways and marketing environmental issues
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DescriptionBritish Airways and marketing environmental issues
In order to profitably satisfy customer needs, an organisation must understand its external and internal situation including the customer, the market and its own capabilities. Furthermore, it needs to understand and adapt to the dynamic and uncontrollable factors of the environment in which it operates.
A marketing audit is in a number of ways the true starting point for the strategic marketing planning process, and is therefore, as Kotler (1999)has suggested ‘a comprehensive systematic, independent and periodic examination of a company’s-or business unit’s-marketing environment objectives, strategies and activities with a view to determining problem areas and opportunities. An analysis of the three key perspectives of a marketing audit; the 'macro-environment,' the 'micro-environment' and the 'internal environment will be carried out for BA.
2005 saw a new Chief Executive being appointed in BA; Willie Walsh, former head of Aer Lingus. The man with an excellent reputation for driving down costs has stressed his determination to realise his predecessors, Sir Rod Eddington’s, goal of a 10% operating margin.
The marketing environment is ever changing and therefore it is essential that a structured, detailed and continuous analysis of the principal dimensions of the environment is made.
3.1.1 Political and Legal Factors
The start of the millennium is turning out to be some of the most difficult times that the airline industry has ever faced. The events of terrorism attacks in September 11, 2001 in New York and July 7, 2005 in London along with the wars in Iraq have no doubt caused an unprecedented crisis and political instability. The events have caused the introduction of new security regulations from the EU and US that come into effect in summer 2006 and a fall in customer travelling confidence.
Governments have controlled where airlines can fly, and aspects of their product planning and pricing policies. In recent years, substantial regulatory reform has taken place, giving carriers more opportunity and increasing the market competition. Deregulated companies like BA require systems that enable decisions to be made quickly Open skies is an agreement which changes the regulatory landscapes significantly (appendix 1).
A significant legal factor affecting BA is the power of trade Unions. BA has suffered many strike actions (August 2004 and August 2005) and is aware of the implications that the trade unions can cause. Legal regulations on employee rights, customer rights and an upsurge in environmental and ecological issues are more factors that BA must consider.
3.1.2 Economic Factors
The demand for air travel is characterised by a very high income elasticity. Therefore, as the world economy grows, so the demand for air travel can be expected to increase too.
The political situation in Iraq has helped to drive oil prices to a record high and for BA, the oil price rise might add £100 million to their costs. In response, the cost of fuel surcharges is always at risk (appendix 2). BA is in the business of transporting people to and from worldwide destinations for both business and pleasure. If the international economy slows down, business trades less and fewer business people will use planes. Equally, people may choose less 'exciting' holidays.
3.1.3 Social Factors
The social and cultural influences on business vary from country to country however it is important that such factors are considered and include demographic and cultural aspects. These factors affect customer needs and the size of potential markets. Demographic changes have resulted in the development of the ‘grey’ market who are spending more on leisure and travelling. Lifestyles , tastes and fashions are all changing; customers require opportunities to visit new and interesting, often long-haul, destinations.
3.1.4 Technological Factors
Technology is vital for competitive advantage, and is a major driver of globalisation. A key issue will be the extent to which technological advancements can offset upward pressures on prices and costs. Online sales are regarded highly important by BA and they are placing considerable faith in its website presence to boost online-sales which will reduce customer traffic via BA’s call centres. E-Tickets are now the standard ticket format used by BA, making flight ticketing more straightforward, flexible and secure (appendix 3).
BA is focused on improving its customer service in line with modern technology and has opened its first drive-through, offer Wireless LAN systems and communicate through modern SMS texting. A significant long-term threat is the effect of video-conferencing on the demand for air transport and they may have to accept telecommunications companies as formidable competitors for their business customers.
3.1.5 Environmental Factors
Sir Rod Eddington, former Chief Executive of BA stated ‘The whole aviation industry must accept global warming as a reality, and galvanise its efforts to limit generation of greenhouse gases.’ (www.sbac.co.uk) Global Warming also affects the demand for airline travel as warmer UK summers may result in more people spending their holidays in the UK. There is also a threat of a pollution tax being imposed on airlines from the government (Adam and Gow, 2005).
This environment influences the organization directly. It includes suppliers that deal directly or indirectly, consumers and customers, and other local stakeholders.
3.2.1 Industry Analysis
Michael Porter’s (1998) five forces analysis will allow an examination of the amount of power BA has in its immediate environment.
22.214.171.124 Competitive Rivalry
This not only refers to the degree of competition, but also the type of competition occurring. BA operates in two different markets - long-haul and short-haul flights - and therefore faces competition in both. In the long-haul market, competition comes from other large airlines for example Air France, who compete on routes, service, comfort and overall quality. In short-haul, competition is driven by low-prices from airlines including EasyJet. A growing number of tour operators (like Thomas Cook and TUI) are also now selling air only scheduled seats to reduced prices (Feldman, 2002).
126.96.36.199 Bargaining Power of Suppliers
This refers to the extent to which firms who supply a business can dictate prices, contract terms or delivery times. For BA this situation can be complex. As identified in the macro analysis BA’s prices depend on fluctuations in oil prices which it cannot control. Without aviation fuel, planes do not fly and BA will not make a profit. Although one may argue that BA has a choice as to which fuel supplier it uses, the petrol market is alike in terms of prices. In terms of suppliers of the actual planes, the situation is different again. Companies such as Airbus with its new A380 plane and Boeing with its 787 Dreamliner, are desperate to secure long-term orders to recover development costs.
188.8.131.52 Bargaining Power of Customers
There is a high degree of buyer power for BA’s. Customers as they have the ability to vote with their feet if they are not happy with the product. Events such as the check-in and baggage-handlers strike at Heathrow 2005 (in support of Gategourmet employees) seriously affected BA’s revenue as customers had to find alternative airlines to use. Buyer power is strong especially in the low-cost market , as there is little differentiation between market offers, and hence consumers shop around for the cheapest price, supported by the convenience of online-sales. These low switching costs mean that customer loyalty is crucial. Customers also have the Civil Aviation Authority (CAA) on their side.
184.108.40.206 Threat of new entrants
BAs dominant position means that it would be difficult for a firm to compete with the company on a global level from the start. However as barriers of entry are becoming non-existent, new entrants are appearing in the short-haul business and these low-cost operators, such as Easy Jet, have steadily chipped away at BA’S European dominance. However, a lack of take-off and landing slots makes it difficult for new carriers to find suitable airports. Several speculators have suggested that it is only a matter of time until a low-cost operator attempts a more serious move into long-haul market. Lufthansa has responded early to this speculation by offering a high-cost high-quality service, including private limousine transfers to and from the airport, massages and champagne.
220.127.116.11 Threat of substitutes
The threat of substitutes refers to the ability of buyers to switch to an alternative type of product, hence alternatives to air travel. While it is fair to suggest that there is no real alternative to long haul air travel in terms of time and cost, the alternatives for short-haul destinations do exist, and vary from coach to car to rail. The extent to which any of these pose a real threat depends upon factors such as the efficiency and the price of the rail or coach service, however, until trains travel as fast on UK rail as they can on the continent, this will not be so much of a threat.
3.2.2 Market Analysis
The first thing that needs to be done is to identify which market BA operate in to be able to carryout an accurate analysis. BA operates in the airline industry. Their main market is hence transportation but they also work in other areas such as communication, leisure and logistics.
During the last 10 years the airline industry in the UK has changed out of almost all recognition. Today, according to the International Air Transport Association (IATA), the airline industry is going through ‘the worst crisis in history’ (BBC, 2006)British Airways operates within the highly competitive airline market. The UK market for airlines grew by 1.2% since 2003 to reach a value of £8.7 billion in 2004. The number of passengers flying from UK airports alone has increased from 70 million in 2000, to 86 million. The development of a fifth terminal at London Heathrow testifies this growth. However, against this expanding consumer market, the airline industry continues to struggle with the continuous threat of terrorism, high fuel prices and increased competition. The two main sectors of the market are long-haul and short-haul, both of which BA operate in.
The market for airlines is forecast to grow by 5.7% by 2009 to reach a value of £9.2 billion (see appendix 4) as air travel will remain to be the favourable mode of transport . Short-haul is expected to be both the most dynamic and largest sector accounting for 72.9% of the market in 2009 (appendix 5). Prices for both markets will continue to decline as the price competition continues to grow between major carriers like BA and low-cost airlines who are already dominating the short-haul market. There will be however, some upward pressure from the ever growing fuel prices.
3.2.3 Competitor Analysis
The airline sector is more competitive today than it has been at any time in the past, providing consumers with more choice and cheaper fares than ever before due to the emergence of low-cost airlines
British Airways operates within two strategic groups within the airline sector – the short-haul and the long-haul. Each of these sectors has different competitors (see fig 1). One group consists of airlines with regional operations offering scheduled flights and competing on costs. The second group offer long haul flights, with quality environments and services to a range of destinations. Therefore, BA competes on a global, European, national and regional scale .
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