an upgrade for british airways' marketing mix - reviewing opportunities in an ever-changing industry

8/7/2019 An Upgrade for British Airways' Marketing Mix - reviewing opportunities in an ever-changing industry

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IndividualAssignmentof

OliverJonasfor

MarkengManagementMKT450

Dr.GordonBowen

EuropeanBusinessSchoolLondonNovember2010

AN UPGRADE FORBRITISH AIRWAYSMARKeTING MIX

Reviewingopportuniesinan

everchangingindustry


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An upgrade for Brish Airways markeng mix:

reviewing opportunies in an everchanging industry

TableofContent

1.Introduction p.012.TheGlobalAirlineIndustryinBrief p.03

3.TrendsandIssuesintheAirlineIndustry p.04

> A. The formation of alliances p. 04

> B. Mergers & Acquisitions p. 05

> C. Deregulation p. 05

> D. The rise of lowcost carriers p. 06

> E. Impact of the Economic crisis p. 07

> F. Terrorist attacks, ashclouds and SARS p. 07

4.EvaluationoftheBritishAirwaysMarketingMix p.08

> A. Product p. 08

> B. Price p. 09

> C. Promotion p. 10

5.RecommendationstoBritishAirwaysMarketingMix p.13

> A. ProductReinforce posioning as premium carrier p. 13

> B. ProductExpand longhaul services from LCY p. 14

> C. ProductStrengthen posion within OneWorld p. 14

> D. ProductExploit potenal of the Middle East p. 14> E. ProductAcquire fuel efficient aircra p. 14

> F. PriceDefend posioning as business airline p. 15

> G. PromoonOffer earlier incenves p. 15

> H. PromoonEngage more in social media p. 16

APPENDIX

> A. SWOT Analysis p. 18

> B. Five Forces Analysis p. 19

BIBLIOGRAPHY p.21


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1.Introducon No doubt, Brish Airways is a beleaguered airline. Operang in everchanging market

condions with regulaons, mergers, alliances, terrorist aacks, pandemics and even

volcanos turning the industry upside down, the airline seems to be constantly loosing

passengers and revenue. At the peak of the economic crisis in 2008 and 2009 BrishAirways accumulated losses of about 1 billion as business travellers, the airlines

lifeblood, stayed at home or chose for cheaper travel alternaves. To make things worse a

disastrous opening of its new homebase Terminal 5 at London Heathrow and cabin crew

strikes pushed Brish Airways in a repeated loss of 164 million in the first quarter of 2010

(Fortson, 2010).

But Brish Airways is a beleaguered airline with potenal. The merger with Spains Iberia

will be completed by early 2011 with ancipated massive costsaving effects. The

transatlanc jointventure with American Airlines has just received antrust approval

allowing Brish Airways to defend its leading market share on lucrave crossconnental

USUK routes. The airline has also started an effecve markeng campaign to aack lowcost carriers and reached a producvity deal with labour unions. A slight recovery from

the crisis is in sight with the first pretax profit of 158 million reported for the second

quarter of 2010 (Brish Airways Press Release, 2010b).

However, major European competors such as AirFrance and Luhansa are recovering

faster from the crisis and do report higher cket sales and passenger volume. And the low

cost segment with Ryanair and EasyJet as major players appears to be resistant against

any economical downswing.

How can Brish Airways regain market share and win more passengers in the highly

compeve environment of the European airline business?

In a saturated market, gaining market share is only possible at the expense of a

competor. Markeng experts suggest that those organizaons who have a crystal clear

view of their strategy and communicate their value proposion to target customers will

outperform their sector (Smith, 2010). Airlines who ulmately deliver their brand promise

are more likely to win share of mind and share of market. In an industry where products

and prices have become almost idencal it is the lile things that make the difference and

ulmately determine the buying decision for a certain airline. Presence in the minds of the

traveler is what really counts in the airline business.

This report takes a look at the forces that are shaping the airline business (Industry

Trends, p.04; Five Forces Analysis, p.19), it examines threats and opportunies that driveBrish Airways strategy today (SWOT Analysis, p.18) and ulmately evaluates and

recommends changes to the companys current markeng mix (p.13).



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The global airline industry consists of over 2.000 airlines operang more than 23.000

aircra and providing regular service to over 3.700 airports.

In 2009, over 2 billion passengers were transported on 28 million scheduled flights and

yearly average growth of air travel was approximately 5% over the last 30 years. Globalairlines generated revenues of $483 billion and overall profits of $ 8,9 billion are expected

for the year 2010.

Biggest markets are the US in terms of value and volume followed by Europe and Asia.

Currently the Middle East and South America show the strongest growth in air travel

(Buck, 2010). However, since the 9/11 aacks, the SARS pandemic, the economic crisis

and the volcanic ashclowds from Iceland, global demand and prices for air travel

collapsed and are only recovering very slowly.

Brish Airways is the largest airline in the United Kingdom and plays a major role in

Europe but on a global scale Brish Airways is rather small. However, this will change aer

the planned merger with Spanish carrier Iberia has been finalized at the end of 2010. The

newly formed Internaonal Airlines Group will be the third largest airline holding in the

world.

GlobalTop10Airlines

(by passengers carried) (by desnaons served)

Airline Country 2009 Airline Country 2009

1 Delta Airlines USA 161,049 1 Delta Airlines USA 355

2 Southwest Airlines USA 101,339 2 Connental Airlines USA 287

3 American Airlines USA 85,719 3 American Airlines USA 250

4 United Airlines USA 81,421 4 Air FranceKLM France/NL 245

5 Luhansa Germany 76,543 5 United Airlines USA 230

6 Air FranceKLM France/NL 71,394 6 Luhansa Germany 202

7 China Southern China 66,280 7 Air China China 185

8 Ryanair Ireland 65,300 8 Air Canada Canada 178

9 Connental Airlines USA 62,809 9 Turkish Airlines Turkey 16610 US Airways USA 51,016 10 Brish Airways UK 165(Source: adapted from IATA Stascs, Apr 2010)

2.TheGlobalAirline

IndustryinBrief

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The airline industry has undergone significant change in recent years. Mergers,

regulaons, the environment and everchanging economics have shaped and restructured

the business like no other.

Only a few years ago, it was almost unimaginable that well established airlines such asSwiss Air or United Airlines are filing for bankruptcy. Airlines who operated in formerly

highly regulated markets are now facing fierce compeon in open markets. The pressure

to cut costs is high and, at the same me, cket prices and margins are falling.

A. The formaon of alliances

Airlines who were former rivals are now cooperang in large alliance networks such as the

StarAlliance, SkyTeam and OneWorld. The three big internaonal alliances together

account for over 60% of all possible flights throughout the world (Euromonitor

Internaonal, 2010 a). Instead of expanding their own routes and services to new

countries, airlines have been connecng with each other to codeshare flights, sell eachothers ckets, share airport lounges, checkin desks, staffand even equipment. Alliances

today have also joint their frequent flyer programs and benefit from combined markeng

and promoon strategies.

The first airline corporaon to be established was the StarAlliance in 1997, a jointventure

between United Airlines, German Luhansa and Singapore Airlines. This formaon was a

milestone in the airline industry as it sparked the formaon of rivals, notably the SkyTeam

and OneWorld.

Key benefits of alliances for airlines:

Expansion and integraon of networks

Cost reducon Joint markeng acvies

Greater impact on internaonal aviaon policies

All of todays airlines desire to belong to a network (with exempon of lowcost carriers)

and they ulmately strive for a global presence to strengthen market share through

alliances. Some industry observers think that most airlines in the world will eventually

belong to one of four or five large alliances (Dana and Vignali, 1999).

3.TrendsandIssues

intheAirline

Industry

>>>

Asthe

wings

of

change

glide

through

the

airline

industry,

alliances

are

becoming

increas

inglyimportantforpassengersaswellascarriers.

Jill James, Airline alliances: Team work helps fuel the wings of change, Financial Times UK, Nov 5, 2010

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B. Mergers & Acquisions

Airlines today have several opportunies to grow. The tradional way for an airline to

expand is to add routes and planes to its network. However, this strategy requiressignificant capital expenditures and a lot ofme. Recently, more and more huge airlines

became even larger by acquiring compeng airlines and integrang their routes, staffand

planes into its own network.

The first megamerger of two European airlines was the one between Dutch KLM and Air

France in 2004. It was perceived as an exemplary merger by many industry professionals

in terms of integrang two company cultures and establishing synergies while keeping two

disnguished brands alive (Pritchard, 2008). Recent examples are the acquision of Swiss

and Austrian Airlines by German carrier Luhansa. Both airlines were considerably smaller

in size and complemenng each others networks.

Recent Airline Mergers and Acquisions:

Brish Airways Iberia (20102011)

Connental Airlines United Airlines (2010)

Luhansa Austrian Airlines (2010)

Luhansa Brussels Airlines (2010)

Delta Airlines Northwest Airlines (20082010) Luhansa Brish Midland BMI (2008)

Luhansa Swiss (2006)

Air France KLM (2004)

SAS Airlines Spanair (2003)

C. Deregulaon

The airline business was tradionally a highly regulated industry with each country

protecng its naonal airline.

Governments were seng routes and prices, compeve pressure or other market forceswere not on the agenda of airlines. Some airlines were more an instruments of naonal

presge than a commercial enty. In 1989 of the 750 shorthaul flights in Europe 71% had

only one carrier and further 24% only two carriers (Dearden, 1994).

These were usually the two carriers of the country of origin or desnaon of the flight and

prices were agreed by the regulatory bodies of the two states. Other airlines only provided

public service and were not established to make a profit (Dana and Vignali, 1999).

Most famous example of an inefficient staterun airline is Italys flag carrier Alitalia who

became bankrupt in 2008. Amongst many other problems such as overpaid staff, too

close corporaon with unions, low investment in more efficient material (Walsh, 2001)

the Italian government insisted to keep lossmaking routes alive. Unl today, the Italiangovernment has failed to sell the airline to one of the global alliances and connues to

heavily subsidize the airline (Israel, 2008 and Bes, 2009).

>>>

Brish Airways is expected to finalize its merger with Spanish carrier Iberia in early 2011.

The merger will create Europe largest airline by market capitalizaon, carrying 62 million

passengers and earning revenues of 12.5 billion a year (Plimmer, 2010).

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It was only unl the 1990s when the EU opened the market in order to break monopolies

and enable compeon. Finally, supply and demand have replaced government regulaon

and protecon. In order to become compeve the whole industry has since then

undergone heavy structural change with a shi towards alliances.Today, some market barriers are sll in place and deregulaon sll progressing. Latest

example is the Open Skies agreement between the European Union and the United

States which directly affects Brish Airways.

D. The rise of lowcost carriers

The process of deregulaon and privazaon has led to many changes in the airline

industry. The most significant is the rise of lowcost airlines. These are airlines designed to

have a compeve advantage in terms of cost over fullservice carriers.

Aer the formaon offirst alliances major airlines evolved their networks from a pointto

point system to a hubandspoke system with the effect that new rivals could enter over

some of the exisng pointtopoint routes. However, they did this with a whole new

business model in mind. Flying to secondary and remote airports, selling ckets solely overthe internet, abandoning services and charging for onboard catering enables lowcost

airlines to achieve a cost advantage of up to 4065% over tradional airlines.

They experienced a fast growth and did not suffer from the airline crisis aer the 9/11

aacks or the recent economic crisis. In fact, Ryanair and EasyJet were growing their

operang margins by 26 and 9,5 percent at a me where established naonal carrier were

making huge losses (SkyTech, 2008). This was mainly because the low prices were sll

aracng passengers and because lowcost carriers are not operang in polically

sensive regions or on transatlanc routes (Alderighi et al, 2004). Today, lowcost air

travel accounts for 25% of global air travel (Euromonitor Internaonal, 2010 c).

>>>

In October 2010, the jointventure of Brish Airways, Iberia and American Airlines were

granted antrust approval from the US Department of Transportaon to defend their

leading market share on lucrave crossconnental and USUK routes. This joint ventures

allows the three carriers to coordinate routes, schedules and prices (Esterl, 2010).

>>>

In 1997 Brish Airways established its own lowcost carrier Go Fly in order to meet the

changing demand for air travel in Europe. However, as profits fell short of expectaons

Brish Airways sold the business to a venture capital company who sold the airline to

EasyJet in return. EasyJet took over the exisng network but disconnued the brand Go

Fly (BBC News, 2001).

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E. Impact of the Economic crisis

The recession had a dramac impact on the airline industry with a loss of demand and

revenues previously unimaginable. In 2009, global airlines faced a 14% decline in airtransportaon sales and accumulated a loss of US$4.7 billion as a direct result to falling

demand caused by the economic crisis.

All regions saw a decline in passenger figures but Europe was hit hardest as one of the

most important business travel markets. Premium business travel declined by 19% in 2009

which represents a huge concern for airlines as business travel accounts for about 710%

of demand but for up to 30% of profits (Euromonitor Internaonal, 2010 b).

6.

F. Terrorist aacks, ashclouds and SARS

Airlines are highly sensive towards natural disasters, pandemics and terrorist aacks.

Security risks following aacks or physical restricons aer volcano ashclouds do set

limitaons to air travel and can bring down a whole industry.

Aer the 9/11 aacks all flights between the US and Europe as well as within the

connents were stopped. As a result, worldwide demand for airtravel sank dramacally

and unl today airlines have not fully recovered from the financial impacts of the aacks.

As a direct result of the SARS pandemic in 2002 Hong Kongs carrier Cathay Pacific

reported its worstever loss of $160m for the first half of 2003 and the Icelandic ash

cloud crisis in April 2010, which shut down European airspace for five days, worsened the

already difficult situaon. Losses of $1.8 billion are reported in relaon to the ash cloud

(IATA, 2010).

(Source: IATA Financial Forecast September 2010)

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This chapter explores the most disncve elements of the Brish Airways markeng mix

based on findings from October and November 2010. The elements Product, Price and

Promoon are reviewed and recommendaons for each element given in the following

chapter.The element of Place is neglected as it only involves the distribuon channels ofcket

sales (internet, travel agents, telephone etc.) and not much change is observed in this part

of the industry.

A. Product

Brish Airways core product is the operaon of internaonal and domesc scheduled air

services for the carriage of passengers, freight and mail and the provision of ancillary

services (Brish Airways Annual Report 2009). The airline currently flies to 155

desnaons, using 245 aircras.

Kotler and Keller (2009) disnguish 5 levels of product a firm can offer to the market, 4 of

them include a service:

Pure tangible goods (Primary goods such as soap)

Tangible goods with accompanying services (cars, computers, cellphones)

Hybrid (Equal parts of goods and service) Major service with accompanying products (air travel)

Pure service (Babysing, massage)

The product offering of airlines can be classified as a major service with accompanying

goods. The core service passengers buy is the transportaon through the air from one

place to another. The delivery of the service requires capital intensive goods such as

airplanes and airports.

The core and basic product of transportaon from one airport to another is exactly the

same from every airline so the only opportunity of product differenaon happens on the

level of the augmented product. The augmented product exceeds the basic need of thecostumer and is the extra service that Brish Airways provides (such as drinks and snacks,

larger seats, airport lounges, frequent flyer programs etc). Airlines have gone a step

further and categorized the augmented level of their product into three different service

classes: the economy, business and first class.

Brish Airways strives to deliver a premium service across all three travel classes to be

delivered at the various contact points of the airline and the passenger. These points of

contact are the booking of a cket, the airport checkin, gates, lounges, the airplanes

themselves, the service on board and services aer arrival such as arrival lounges and

baggage handling etc. These services are described as the secondary service features by

Kotler and Keller (2009) and Keaveney (1995) idenfied more than 800 crical behaviorsthat cause customer to switch services. Airlines are compeng primarily on price but real

product differenaon only happens on the augmented product level.

4.Evaluaonofthe

BrishAirways

MarkengMix

>>>

The general markeng objecve of Brish Airways is to establish itself as a fullservice air

line that delivers superior value for reasonable cket prices.

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B. Price

Kotler and Keller (2009) idenfy five main pricing objecves that companies can follow:

Pricing for survival

Pricing for maximum current profit

Pricing for maximum market share

Pricing for maximum market skimming

Pricing for quality leadership

Airline pricing is a highly complex process with several of these pricing objecves coming

to terms for Brish Airways:

Over the years the pricing strategy of Brish Airways has gone from government price

dictaon (as government enty unl the late 80s) to maximizing profits (at the earlystages of privazaon with low compeon in the 90s) to a price war today (defending

market share against lowcost carriers).

Current pricing of airline ckets is generally determined by the me pricing concept

where cket prices depend on seasons (flights during holidays are usually more expensive

as demand is higher) as well as yield pricing where ckets booked well in advance are

usually cheaper than ckets booked one day before the flight (Deesiraju and Shugan,

1999). Connental Airlines for example opens flight for booking as early as 330 days in

advance with up to 30 different prices for the same seat on the same flight (Coy, 2000).

On routes with high compeon, overcapacity and changing demands (eg. domesc and

shorthaul flights in Europe) Brish Airways has to choose for a survival price strategy inorder to align its own prices to that of lowcost carrier in order to defend or regain market

share. Several budget airlines forced the airline industry into a price war with Ryanair

leading the way.

Ryanair implements the so called freemium strategy where a quarter of seats are given

away for free. Passengers only pay taxes, fees and virtually for everything else that full

service airlines do not charge for (such as luggage, checkin, seang, catering etc). This

strategy works for Ryanair as it is one of the most profitable airlines in the industry (Kotler

and Keller, 2009).

On certain routes, Brish Airways also implements a maximum market share or market

penetraon pricing strategy (LondonNew York) to generate higher sales volume to fillplanes which will lead to lower unit costs per flight and higher longterm profits. Price

skimming is also in place on routes where Brish Airways is the only carrier (some

domesc flights and the new London CityNew York business class flights). Prices start high

on this route to harvest profits and are lowered once compeon rises.

Recent pricing strategies in the airline industry have also been determined by

overcapacity. Prior to the 9/11 aacks air travel was predicted to connue its rapid growth

well into the future and Brish Airways, just as any other major carrier, ordered many new

aircra to expand fleets and networks. In 2002 around 1.500 new aircra were delivered

which had the effect of overcapacity and driving down prices (Strategic Direcon, 2004).

Airlines tend to fill empty seats through the contribuon cost approach. This approach

assumes that any price paid for a seat is beer than leaving the seat empty.

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Typical acons are last minute price reducons. More recently, airlines give away empty

seats solely for members of their frequent flyer programs who pay with a few miles or

points.

A notable markeng exercise with regards to pricing is the so called Price Promise thatBrish Airways gives to its customers. The airline promises that if customers find the same

flight cheaper on another UK website the company will refund the difference.

C. Promoon

Brish Airways current promoonal acvies are targeted at the three core customer

groups: leisure traveller, business customers and premium travellers. This chapter will

present campaigns for business and leisure travellers that were actually in place at the

me this report was wrien in October and November 2010.

The latest promoonal campaign targeted at leisure traveller highlights the difference

between nofrills airline and fullservice airline travel. The campaign has been designed to

coverup the hidden costs that lie behind the so called low fares and has been classified

as a frontal aack on lowcost carriers by industry professionals (Quilter, 2010).

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It was officially launched on 8th

November 2010 across print, press, outdoor and digital

media and carries the message that travellers are beer off value flying with a full

service Brish Airways rather than having to pay for basic services with lowcost airlines.

Brish Airways head of brand and insights commented on the new campaign: "As no frills

airlines constantly drive down their price, quality has hit rock boom. With Brish

Airways, the price you see is the price you get. High Value Flying is about not scrambling

into a sandwich shop before you board, but geng drinks and a snack as

standard." (Owen, 2010).

Alongside this campaign Brish Airways has also launched a Value Calculator on its

website that allows customers to check the hidden costs of Ryanairs and EasyJet's

added charges versus the value of Brish Airways full service. Again, this is part of the

aack against nofrills airlines who even plan to charge for using the onboard toilet

(Quilter, 2010).

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With regards to business travel, Brish Airways currently runs the facetoface campaign

to encourage more business travel and diversify away from the banking and large

corporate sectors into the small and mediumsized enterprise sector.

The iniave offers 1.000 US and UK based small business entrepreneurs free businesstravel across the North Atlanc worth 15 million. Companies and business individuals

interested in this offer are required to submit a business plan to the airline, with the

successful applicaons selected by a judging panel. To promote the effort, fullpage

adversements appear in TheWallStreetJournal,USAToday,and TheNewYorkTimes

(MarketWatch, 2010).

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Based on the general industry trends as described earlier in this report, the assessed

economic environment (Five Forces, see appendix) as well as idenfied Strengths and

Opportunies (SWOT, see appendix) the following key suggesons are made to the

markeng mix of Brish Airways:

A. Product Reinforce posioning as premium carrier and harvest the luxury travel market

London is the home base of Brish Airways not only a major business travel market but

also leading in terms of luxury travel. More and more wealthy Asian and Arab individuals

travel to London for shopping and cultural experiences and are willing to pay a premium

price for a premium service on longhaul flights.

Brish Airways has chosen to keep up its First Class product at a me when other major

airlines such as Connental Airlines stopped its first class service as revenues were falling

during the economic crisis. The airline made the right decision to further extend its FirstClass product as luxury travel is returning to precrisis levels again, rebounding at a growth

rate of 20% over the first quarter in 2010 and margins of up to 80% can be achieved on

first class cket sales (Euromonitor Internaonal, 2009).

Brish Airways conforms to all the requirements that are necessary to posion itself as a

premium carrier next to Emirates or Singapore Airlines. The first class cabins have recently

been upgraded with a 100 million investment and the new Terminal 5 allows to produce

a first class product on the ground (Brish Airways Press Release, 2010b).

Waing and arrival lounges could be cobranded with a leading London luxury hotel such

as the Savoy or the Ritz which would be a strong luxurious statement. Suitable

promoonal acvies for luxury travel customers would be the sponsoring of highclassevents such as polo or golf tournaments and a eup with elite associaons such as the

Lions or the Rotary club.

5.

Recommendaons

toBrishAirways

MarkengMix

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B. Product Expand longhaul services from London City Airport

In 2008 Brish Airways introduced a new all business class service from London City

Airport to New York despite difficult market condions (Done, 2008). However, the routehas proven to be very popular among business travellers and Brish Airways menons a

seat factor of 74% which is more than analysts have expected (Brish Airways Annual

Report 2009).

Brish Airways should build upon its strong posioning within Londons business

community and expand its premiumonly service from London City Airport to more long

haul desnaons to other major business capitals such as Chicago, Toronto, Moscow,

HongKong and Mumbai.

C. Product Strengthen posion within the OneWorld alliance

As described in chapter 3 Trends and Issues in the Airline Industry membership in an

airline alliance represents many strategic and operaonal benefits for airlines, resulng in

profit boosts of up to 20% (SkyTech 2008). Alliances have also been the most important

catalysts for growth in the last years. In this light, Brish Airways should further drive the

expansion of the OneWorld alliance and aract new strategic members from growing

travel markets to the alliance. Ideal candidates would be Emirates Airlines and China

Southern Airlines.

D. Product Exploit the potenal of the growing Middle East travel market

While the global economic downturn had a very strong impact on Europe, Asia and the

USA, the Middle East market for air travel has performed a lot beer.

Growth in this area also slowed down but not as drasc as in other regions. Recovery to

precrisis levels happens at a much faster pace and the share of premium cket sales for

first and business class travel is higher than on other routes. Passengers from the Middle

East are currently the biggest driver in the luxury travel market (Datamonitor, 2010).

Brish Airways should move and exploit the potenal of this market as early as possible.

The airline already established direct routes to Jeddah and Riyadh in Saudi Arabia in 2009

(Brish Airways Annual Report 2009) but a much quicker and wider expansion to the

Middle East and within the region would be beneficial.

There is not much notable compeon yet with the excepon of Emirates Airlines based

in Dubai. However, Emirates is not part of an alliance yet and there is much room for

growth on the routes from Europe to the Middle East. Acng as a first mover on regional

routes within the region would enable Brish Airways to catch on the much higher

margins of the local market.

E. Product Acquire fuel efficient aircra

Leading airlines have connued replacing exisng fleets with nextgeneraon aircra to

bring significant cost efficiencies in the future. The EU is about to set future carbon

emission targets in place and it is important for airlines to be ahead of the legislaon.

More and more travellers and corporaons are environmentally aware and look for ways

to reduce their overall carbon emissions of which air travel for business has a large poron

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of. The addion of new and efficient aircra to the fleet is capitalintensive but the airline

industry has developed several financing strategies such as leasing which Brish Airways

also makes use of (Brish Airways Annual Report 2009). Investments in efficient aircras

does pay off in the future through a greater cost effecveness (which is vital in mes ofrising fuel costs) and through providing a beer customer experience.

F. Price Defend posioning as the ulmate airline for transatlanc business travel

Although business travel has dropped sharply due to decreasing transatlanc journeys

aer bankruptcies in the banking sector, London and New York remain the worlds largest

markets for business travel and early signs for a recovery are there (Euromonitor

Internaonal, 2010 b).

More and more corporaons are willing to pay premium prices for businessclass travel

again and Brish Airways, together with American Airlines will hold the poleposion toharvest the market once demand for business travel has fully recovered. Now is the me

to further consolidate the image of Brish Airways as the right choice for corporate travel

within Londons and USAs business communies.

New products such as the all business class service from London City Airport to New York

allow the airline to skim high margins as no compeon is established yet. Promoons

such as buyonegetonefree business class ckets in May 2009 from London to Beijing

are profitable as travelers are very likely to book their next journey in a premium class

again.

G. Promoon Offer earlier incenves for economy passengers within loyalty programs

Loyalty programs such as the Brish Airways Execuve Club have proven to be successful

markeng tools in keeping customers loyal to the airline and not loosing them to less

expensive transportaon. However, Brish Airways current loyalty program focuses to

much on premium traveller and leaves the leisure traveller out of focus. The airline should

offer more incenves at an earlier stage to leisure travellers.

BAs competor Air FranceKLM for instance is granng frequent traveller status already

aer 15 oneway flights in any class whereas BA customers need 50 oneway flights.

Giving passengers an earlier incenve would increase their loyalty to Brish Airways and

would make them less sensive for offerings from competors.

A special segmentaon of the program for students (Brish Airways Student FlyingClub) is also highly recommended as students do represent future premium passengers

and should be edup to the brand as early as possible. Other major industries such as the

banking industry are successfully implemenng this approach with offering free student

accounts in early years. As students proceed to worklife they are less likely to switch

banks.

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H. Promoon Engage more in social media:

The majority of airlines invest heavily in their presences on social media sites such as

Facebook, Twier and YouTube as it offers them a new approach to reach new andexisng customers. Brish Airways presence in social media, however, is very weak and it

is recommended to catch up on this lucrave trend.

Main competors like Luhansa and KLM see the integraon of social media into their

exisng markeng campaigns as essenal to reach new customers and as an excellent way

to promote new fares or sell remaining seats without damaging the overall brand image.

Furthermore, this approach allows for customers to directly engage with the airline to

communicate service issues and general quesons (Deutsche Luhansa AG, 2010). The

airline in return is enabled to react on criques or to test certain services within a safe

environment (Krger, 2010). Luhansa counts 129.730 so called fans or followers on its

Facebook page and KLM counts 79.169 (Luhansa Online, 2010 and KLM Online, 2010).

Brish Airways came up with a great interacve tool to compare its own prices with prices

of lowcost carriers which is ideal to be integrated into social media websites. The airline

could profit from viral markeng effects and the message that Brish Airways is a full

service airline worth its money would spread around very quickly.

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APPENDIX

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APPENDIXA

SWOTAnalysis

Strengths

Leading UK airline with extensive network and desnaons with well balanced geographic spread

Strong hub posion in London Heathrow, controlling 40% of slots

New Terminal 5 as home base to deliver superior customer experience

Well posioned among business traveller who are less price sensive

Founding member of the OneWorld alliance

Strong cash cushion which BA can use in emergency situaons (such as the volcanic ash crisis).

Weaknesses

Overdependence on transatlanc travel which accounts for 50% of longhaul sales.

Homebase Heathrow will soon reach maximum capacity and plans for a third runway have been

banned by UK government.

Difficult negoaons with cabin crew and the Unite union over changes to staffing levels, pay and

working condions. Industrial acons had very negave effects on revenues and brand image.

Pretax loss of 531 million for the year ending 31 March 2010 (largest deficit since 1987).

Pension deficit of 3.7 billion in March 2010 which adds to severe financial condions.

Opportunies

Merger with Spanish Iberia will create third largest European carrier to enhance customer benefits,

provide cost savings and extend global network.

Transatlanc alliance with American Airlines and Iberia was granted antrust approval to defend

leading market share.

Cost reducon plan in place (6% reducon offlight capacity, abolished bonus payments, unpaid leave

schemes)

With the Middle East business aviaon market set to grow to more than US$800 million by 2012, BA

can make significant strides by penetrang the market aggressively.

Threats

Highly sensive towards natural disasters, pandemics and terrorist aacks. Brish Airways as naonal

carrier of the United Kingdom andfl

ying to many desnaons in the USA has a higher risk exposure toterrorist aacks than other European airlines.

Introducon of Air Passenger Duty might put further pressure on falling travel expenses. Introduced

by the UK government, some longhaul flight will be hit by a surcharge of up to 55%.

Fluctuang fuel prices are big challenges for BA as fuel is vital for flight operaons.

Fierce rivalry from lowcost carriers and their growing market share could force BA out of the

European shorthaul leisure market.

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The compeve environment of Brish Airways will be analyzed taking airline companies as

players. The key buyers will be taken as leisure and business travelers. Fuel suppliers, aircra

manufacturers and skilled employees are the key suppliers.

Buying Power

Airlines generally have a large number of buyers. Many of these are individual consumers

purchasing flights directly from the airline. Price sensivity is high; a result of factors such as the

growth of online price comparison sites, corporate travel expense policies for business flyers, and,

for the legacy airlines like Brish Airways, Luhansa, and Cathay Pacific, compeon from lowcost

carriers such as Ryanair and Jetstar. This tends to strengthen buyer power in the airlines market.

The inherent switching costs for buyers in the airline market are negligible, which strengthens

buyer

power.

Where the buyers are individual travelers, whether leisure or business, there is no opportunity for

them to integrate backwards or for the airlines to integrate forwards; however, vercal integraon

is more feasible between airlines and companies such as travel agents.

>>> Overall, buyer power is moderate.

Supplier Power

Airlines must enter into contracts when buying or leasing aircra from suppliers. Breaking these

contracts can oen imply a heavy financial cost. Furthermore, Boeing and Airbus effecvely form aduopoly of suppliers of new jetliners, especially in the large jetliner category, with planes such as

the 747 and A380.

In the market for lowercapacity regional jets and propellerdriven aircra, companies such as

Embraer, ATR, and Bombadier are significant suppliers. The relave lack of alternave

manufacturers or substute inputs increases supplier power. In an industry where reliability and

safety are crical, the quality of the planes and their maintenance are highly important; another

factor that boosts supplier power.

Staffing costs for an airline are substanal, with large numbers of flight and ground personnel,

including mechanics, reservaon and transportaon cket agents required for an efficient service.

Aviaon fuel is another vital input. Again, relavely few companies supply aviaon fuel,

strengthening supplier power, although airlines generally defend against price rises using hedging

strategies.Commonly, airlines are forming alliances with one another, not only to achieve network size

economies through code sharing, but also to achieve scale economies in the purchase of fuel, and

APPENDIXB

FiveForcesAnalysis

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even of aircra. Combining forces to make purchases serves to increase the industry players'

bargaining power and therefore reduce supplier power. It is currently virtually impossible to find

substutes for the inputs required for airlines to operate an airline must have aircra, a supply of

aviaon fuel and a sufficient workforce before it can offer flights. Unlike other modes of transport,airlines have no alternave source of energy.

>>> Overall, supplier power is assessed as strong.

New Entrants

The economic entrance barriers to the airlines industry are relavely high. For an enrely new

company, they include the considerable upfront outlay needed to obtain planes, although this may

not be an issue for an exisng airline beginning to offer flights to a new country or region.

Distribuon is not parcularly easy, as new players need to establish an online booking system, and

relaonships with travel agents and other sales intermediaries. It is also vital to obtain airport

slots for takeoff

and landing. Established airlines will already hold the monopoly over slots atcertain airports, making it harder for addional airlines to gain access.

The various naonal civil aviaon authories in Europe, such as Direcon Gnrale de lAviaon

Civile (DGAC) in France and the Federal Aviaon Authority in the US, regulate areas such as safety,

environmental impact, airspace usage, and passenger rights; compliance raises the cost of entry for

a new company.

For airline markets, there is an addional regulatory issue to consider. Cabotage is the provision of

domesc transport services in a country by companies based in a different country. Airline

cabotage is generally forbidden, unless explicitly permied by an agreement between two or more

countries.

>>> Overall, there is a moderate likelihood of new entrants to this industry.

Subsitutes

Other forms of transport such as road, rail and marine travel are considered as substutes to airline

travel. Buyers take into account not only the cost of travel but also how long the journey will take

on corresponding forms of transportaon. In larger countries, air travel makes it easier to

overcome long distances and has certain benefits such as shorter travel me than rail travel, even

including the me to check in. However in smaller countries, domesc air travel may not be so

appropriate, and rail and road transportaon become more aracve alternaves. Furthermore,

many consumers are now aware of the

environmental impact of air travel, and are turning to rail travel instead. It is possible to travel

around much of the world by longdistance bus or train, although levels of service vary and some

border crossings may present a difficulty.

Most of Europe has welldeveloped land transport infrastructure. Domesc flights, defined asflights beginning and ending in the same country, account for just under onethird of European air

passenger volumes, and can easily be substuted by car, bus, or rail. Crossborder land transport,

including high speed trains in several countries, means that many internaonal flights within

Europe can also be substuted. The Channel

Tunnel allows Eurostar to operate trains connecng the UK to France and beyond.

For business travel, alternaves include virtual meengs via videoconferencing and similar

technologies.

The switching costs here are the cost of the equipment required. At present it is not clear how

completely such technologies will replace facetoface meengs.

>>> Overall, the threat from substutes is assessed as moderate.

(Source: Industry Profile: Global Airlines, Datamonitor, 2010)

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Contact:Oliver Jonas

[email protected]

an upgrade for british airways' marketing mix - reviewing opportunities in an ever-changing industry

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