1

Executive Summary

Background and Introduction

External Analysis

1 Macro Environmental analysis

1.1 Political and Legal Factors

1.2 Economic Factors

1.3 Social Factors

1.4 Technological Factors

1.5 Environmental Factors

2 Micro Environmental Analysis

2.1 Industry Analysis

2.2 Market Analysis

2.3 Competitor Analysis

2.4 Customer Analysis

2.5 Stakeholder Analysis

4.0 Internal Analysis

4.1 Resource Analysis

4.2 Marketing Audit

4.2.1 Marketing Strategies Audit

4.2.2 Marketing Structure Audit

4.2.3 Marketing Systems Audit

4.2.4 Marketing Function Audit

4.2.5 Marketing Productivity Audit

4.3 Innovation Audit

4.4 Other Auditing Tools

4.5 SWOT Analysis

5.0 Conclusion

6.0 Bibliography

7.0 Appendices

2

This report identifies through research, the impact that marketing environmental

issues have on British Airways. It clearly outlines the macro and micro environmental

factors and internal factors that the new Chief Executive, Willie Walsh, has to

consider in order for him to successfully drive the company forward and receive a

10% operating margin.

British Airways (BA) is the UK’s largest international scheduled airline, operating

international and domestic scheduled and charter air services for the carriage of

passengers, freight and mail and the provision of ancillary services. The airline flies

to over 550 destinations globally and is considered to be a leader in the industry.

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.

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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 security1 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 2Open 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

1 New regulations from the US and the EU mean airlines have to provide details such as where a passenger is staying on the first night of their visit, their place of birth and their home address, up to 72 hours before departure. BA has already started to react to this by collecting required information on the ‘manage my booking’ section of its website.2 It may be necessary to change the specification of a product quickly, if a competitor offers customers better value-for-money.

4

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’ market3 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

3 whereby the over 50’s own around three quarters of the world’s financial assets and control half of the discretionary budget.

5

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.

3.2.1.1 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).

3.2.1.2 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

6

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.

3.2.1.3 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.4

3.2.1.4 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

4 CAA does the following:

*protection against the consequence of travel organiser failure for people who buy

package holidays, charter flights and discounted scheduled air tickets; and

* licenses airlines and ensures compliance with requirements of European and UK

legislation relating to financial resources, liability and insurance of airlines. CAA [online]

http://www.caa.co.uk/consumer/index.html, 21November 2003

7

high-quality service, including private limousine transfers to and from the airport,

massages and champagne.

3.2.1.5 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

8

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 airlines5

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 scale6.

Within the UK, BA is the largest carrier in the market accounting for 45.1% of

passengers in 2004 (Euromoniter) with Virgin Atlantic being the second largest

carrier in the market with 9.2% market share. It is also likely that long-haul licenses

will be granted to low-cost airlines which will enable them to compete in both

5 This was originally a major cause for concern for British Airways and they initially set up Go-fly to

be able to compete with its new competitors. However, it later decided to focus on its core business and

sold Go to EasyJet in 2002.

6 For example, regional competitors such as Air Wales have entered the market offering European

flights from local airports in Wales.

9

EasyJetRyanair

BMI Baby

British AirwaysVirgin

LufthansaUAL Corporation

Air France

Scope Operations

PR

ICE

Regional Global

Fig.1 Strategic groups in the airline industry (Drummond & Ensor 2004)

strategic groups increasing its influence on BA’s strategy (see appendix 6). In

Europe, the UK’s EasyJet and Ryanair were the pioneers of budget airline travel.

Their initial business model was based upon offering low fares through outstanding

cost management7.

As mentioned in 2.2.1.4, Lufthansa’s change in strategy will have direct affect on BA

as they continue to attract customers for their high quality standards. Another

strategy that seems to be emerging amongst traditional carriers is to reduce fares in

order to become more competitive with the low-cost airlines.

BA also has to consider the indirect competitors that were mentioned in 2.2.1.

New planes, new routes, additional flights and management changes are all factors

that impinge a business. Such changes made by a competitor need constant

monitoring in order for BA to examine its current position and develop future

strategies.

3.2.4 Customer Analysis

Shaw (2004) addresses what he calls the most fundamental and commonest

mistakes made in airline marketing - failure to make a proper distinction between the

‘Consumer and the ‘Customer’. Consumers are the people who actually travel

however it is important that BA consider customers, as they are the decision makers.

This is important in both consumer and industrial markets.

BAs customers differ enormously in terms of their buying behaviour. Not only do they

differ in terms of their age, income, educational levels and geographic location but

more fundamentally in BAs case in terms of their lifestyles and expectations which

are influenced by many factors.

BA also operates in an industrial market where differences in buying behaviour are

exhibited by the formality of BAs purchasing policies, delivery dates and expected

7 This means using smaller airports, not allocating seats, making passengers pay for refreshments and not issuing tickets.

10

performance. The majority of these decisions are made by a group of individuals

working to a set of purchasing criteria, known as the Decision Making Unit (DMU) as

illustrated below in fig 3.

3.2.5 Stakeholder Analysis

BA recognises that financial stability alone cannot ensure long term prosperity,

therefore it strongly believes in the importance of loyalty, support and trust amongst

its stakeholders; customers, employees, pressure groups, government, suppliers,

banks and local communities within which it operates. A report carried out by Mintel

in 2003, found that 44% viewed BA as the most trusted brand in the UK.

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Recognition of purchase requirement

Purchase classification

Purchase specification

Search and investigation of alternative proposals

Evaluation of alternative proposals

Choice of Supplier

Agreement on terms and conditions of supply

ORDER PLACED

Post purchase evaluation

and feedback

BUYER

GATEKEEPER

USER

INFLUENCER

DECISION MAKER

Fig.3 Buying process for BAs industrial consumers. Adapted from Fifield and Gilligan

All factors that are internal to the organization are known as the 'internal

environment'. The internal environment is as important for managing change as the

external and is used to aid communication and change management.

As stated by Hooley et al; ‘The realistic identification of an organisation’s marketing

strategy options can only be undertaken in the context of that organisation’s’. The

resources of an organisation should be the things that give it a competitive edge.

The corporate capabilities should be sources of competitive differentiation and

advantage in activities that matter to the customers.

BA places much importance on their employees and hence is seen as an excellent

employee. For example, for the fist 6 months that Walsh was with the company, he

spent getting to know the company through meeting the employees. However,

recent jobs cuts made by Willie Walsh will affect the morale of the workers. (See

appendix 7)

It is essential to have an understanding of BA’s strategic resources; both assets and

capabilities as these are the things that determine the nature and strength of the

internal and external resources BA have. Please see overleaf for resource analysis.

12

TANGIBLE INTANGIBLEPhysical Ownership and control of facilities

at prime airports across the wordAbility to expand e.g. terminal 5 at Heathrow

Strategic Recent recruitment of Willie Walsh who has an excellent reputation since Aer-Lingus

Financial Is making a large profit yet still in some amount of debt. A Considerable amount of money is put into marketing each year at BA.

Good credit ratings – the government will always bail them out

Functional Excellent skills of individual departments – marketing department– able to handle customer relationships, product management and new product innovation

Operational High standard and range of planes, equipment and technology

Procedures and Systems Operational The skills required to run the day to day operations including the flexibility to react to sudden changes within the environment and the skills required to maintain relationships with agencies for example Bartle Bogle Hegarty (BBH)

Human Highly skilled workforce from managerial to baggage handlers.

Their skills and abilities to perform effectively

The three above competencies are successful in BA on an individual, team and corporate basis.

Legal Licensing agreements to fly into other airports

BA will go to court to defend their rights e.g. (DVT case)

Systems Databases and MIS, E-ticket system

Specialised knowledge and an infrastructure that supports decisions

Marketing

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RESOURCES

ASSETS COMPETENCIES

Customer based Distribution

based

Alliance based Internally based

Market leader Strong brand which has developed customer loyalty and high reputation

Large global geographic network and presence

Member of the one world alliance. Allowing them to have access to markets, management expertise and exclusive agreements.

BA can achieve lower costs than competitors through online booking. Large customer database Innovative culture – new product development and welcoming ideas from staff

14

15

FIRM

INFRASTRUCTURE

Excellent infrastructure – highly skilled management, presence at hub airports.

HUMAN

RESOURCE

MANAGEMENT

AND

DEVELOPMENT

Flight, Route and Yield

Analyst training

Pilot and cabin crew

training including health

and safety

Baggage

Handling

training

Highly skilled and

trained staff

In-flight

training. Union

representation

TECHNOLOGY

AND SYSTEMS

Computer reservation

systems - Online

booking and e-tickets.

Fuelling machinery

E-tickets, drive thru check

in. High security systems,

In-flight systems including

flight scheduling. In flight

entertainment systems

Computer

reservation

systems

Product development

and market research

Baggage

tracking

systems

PROCUREMENT Warehousing and

inventory management

Material Handling Maintenance

Route selection

Passenger service

system

Fuel

Flight and crew

scheduling

Aircraft acquisition

Check in operations

Gate operations

Aircraft operators

Onboard service

Baggage handling

Baggage

system

Flight

connections

Rental car

and hotel

reservation

Promotion

Advertising

Frequent flyer

Group sales

Electronic sales

Travel agent

programs

Lost

Baggage

service

Complaint

follow up

INBOUND

LOGISTICS

OPERATIONS OUTBOUND

LOGISTICS

MARKETING AND

SALES

SERVICE

BA has a large margin as it

has many extra benefits

that add value to the

company. Many people

search for these extra

benefits and buy into them.

The margin of a low-cost

airline would be

considerably smaller as

they focus on low prices

hence very few added

benefits.

Having conducted the initial resources audit, Porters value chain is used to illustrate how these resources are being used by BA to gain added value and hence competitive

advantage. This process can identify ways of creating added customer value, hence affect future marketing strategies, and enable an organisation to analyse how well each

element is managed.

Now that an overview of BAs resources has been made and demonstration on how

these resources relate to the organisations performance through using the value

chain, an internal marketing audit needs to be carried out to identify wider assets and

competencies that assist the marketing function. Hooley et al (1998) suggests these

wider non-marketing assets include how innovative the organisation is and its

organisational climate, the skills of the management team, the financial resources

and information systems. A specific review of BAs marketing activities is required and

includes analysing the following distinct areas.

4.2.1 Marketing Strategy Audit

Need to ensure that adequate resources are allocated to the right components of the

strategy for example; enough financial support for BA high impact advertising

campaigns. In 2004, BA spent £488 million on Marketing. (Euromonitor, 2005)

4.2.2 Marketing Structures audit

BA does not have a Marketing representative on the Board which indicates that it is

not regarded as strategically important. However communication is the key between

functions, especially Finance. As financial comparisons are extremely helpful and

can aid modelling, forecasting, competitor analysis.

4.2.3 Marketing Systems Audit

BA has invested in new product development such as flat beds in business class,

drive thru check in.

4.2.4 Marketing functions audit

Includes all aspects of BAs marketing mix, product, price, place, promotion, physical

evidence, people and processes.

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4.2.5 Productivity audit

CIM developed a model that identified branding as an element of marketing

excellence. Either way, it can be measured differently, for example profits, passenger

traffic figures, BA shares (appendix 8). BAs brand is a phenomenal one and hence

contributes largely to its success. Is BA’s marketing effective or efficient? Based on

models developed by Kotler and CIM, the model below (fig 4) illustrates the effects

that this has on an organisation. In light of BAs profit and performance levels it is

both effective and efficient and hence this is why it is so successful.

EF

FIC

EN

CY

EFFECTIVENESS

HIGH LOW

HIG

H

T H R I V E D I E S L O W L Y

LO

W S U R V I V E D I E Q U I C K L Y

As stated within the market analysis, the airline industry is confronting increasing

global competition. It is stated that in order to survive, organisations need to foster

creativity and innovation (Higgins, 1996)

BA’s strong focus on customer service is driving its vision to deliver innovative

services. Its worldwide reputation is built on high quality (appendix 9 –Club world

benefits) of its customer service and for its track record and innovation

(www.londoneye.com). A survey carried out by Hay Group, August 2005, showed

that BA was in the top 10 of the World’s most admired UK innovators

(www.prnewswire.co.uk). Operating in such a competitive market, BA recognises

innovation as being a key driver to increase market share and this shows with

innovation such as the Club World flat bed that now features Sleeper Service on

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selected routes, the continued rollout of Self-Service Check-In and improved control

of travel arrangements on ba.com.

BA encourages an innovative climate where creativity is rewarded, for example a

high-profile award ceremony is run to recognise the ideas put forward by line

management level. They cleverly link their meaning for existence into this sentence ‘

BA is all about brining people together, and taking them wherever they want to go.

This applies as much to our employees as the 36 million people who travel with us

every year’ (www.britishairwwaysjobs.com’

Management are highly trained so that they have a positive influence on the

organisation’s orientation towards creativity and innovation through a balanced profile

of cognitive styles.

It has been demonstrated how the Value chain can analyse BAs internal

environment. Other auditing tools that can be used include the product life cycle and

gap analysis.

4.4.1 Gap Analysis

This is a simple diagrammatical method of presenting ‘where are we now?’ and

‘where do we want to be?’ The existing situation of the market whereby low-cost

airlines are dominating the market, in order to fulfil this gap may adopt a

differentiation strategy; to offer a service that is superior to those offered by

competitors, instead of trying to compete on price with the low-cost airlines.

4.4.2 Product Life Cycle

BAs product is, of course, an intangible one which is instantly perishable and cannot

be stored. To be able to market its product properly, BA must be aware of the

product life cycle. The standard life cycle tends to have five phases: Development,

Growth, Maturity and Decline. Taking BA as a whole, it is currently in the maturity

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stage, which is evidenced through their current application of the marketing mix8. For

example, their product has been developed and they are now concentrating on

differentiation through emphasising quality, their pricing strategy is to simply compete

with other key competitors rather than price penetration and their advertising aims to

remind its target audience that they are ‘the no 1 airline’ and to re-emphasise the

brand which is already well established.

As suggested by Meek et al, BA is a classic product as it seems to defy the

traditional S shape PLC and go on forever (see fig below). Marketers in BA need to

understand that the PLC is limited use as a forecasting tool and although they are in

the mature stage of the PLC, creativity and innovation is still necessary to enable

organisational success.

4.5 SWOT Analysis

4.5.1 Strengths

8 The aerospace industry illustrates well some of the risks involved in product innovation. For example,

the Concorde was completely unsuccessful in achieving commercial sales and had to be withdrawn

from production as a marketing disaster. (Shaw 2004)

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PRESENT POSITION

INTRODUCTION GROWTH MATURITY DECLINE SENILITY

PROFIT – Typical course

PROFIT – BAs expected course

SALES – Typical course

SALES – BAs expected course

TIME

+

-

British Airways is a well-established brand name that has gained loyalty and

trust from customers.

Innovative culture enables BA to take full advantage of technological

developments for example, online sales, drive thru check in.

BA has a global geographic coverage with excellent communication with

strong international alliances.

4.5.2 Weaknesses

BA has yet to have recovered from events including the Iraq war, the 2001

and 2005 terrorist attacks because of its reliance on international air travel.

The threat still remains.

BA continues to have extremely high debts.

Recent job cuts may have a negative effect on BA as in the past this cost-

cutting exercise has resulted in understaffing and industrial action in 2004 and

2005.

4.5.3 Opportunities

The growth of internet usage globally is likely to further expand BA’s online

customer base

Value-added and innovative flight services such as sleeper services wil attract

more customers as customer expectations are risisng.

Terminal 5 is due to open at Heathrow in 2008, which is likely to benefit BA.

The current UK government stresses Heathrow as a global gateway and

recommends a third short runway and sixth terminal be opened by 2020,

which will also benefit BA.

4.5.4 Threats

Lo-cost airlines continue to enjoy strong growth and power in the market and

new entrants and the likelihood of them being issued with long-haul licenses

could pose a further threat to BA’s market share.

The continuing growth and fluctuations in fuel prices is may threaten them

with regards to not achieving a 10% profit margin.

20

Customers are still cautious of the threat of repeated terrorist attacks.

With the increase of competition in the low-cost airline market, more

companies may focus their strategy on high quality and hence increase the

direct competition for BA.

21

British Airways remains cautiously optimistic about its future prospects. However, it is

certain that considerably more work lies ahead if the airline is to succeed. The FSAS

plan incorporated by BA resulted in considerable cost savings, and divestments also

raised funds to pay off debt. The goal of the FSAS plan was to achieve a 10%

operating margin and hence more recent cost cuts and job loses have been made by

Willie Walsh order to accomplish this.

In air travel, a great deal of success or failure depends on external factors, with BA

suffering badly in the aftermath of the 2001 and 2005 terrorist attacks, , the war in

Iraq and the global economic slowdown. However, the single most important external

factor is the price of fuel. Fuel prices are continuing to grow and this is likely to both

erode profits and raise prices for BA. Rising prices could place BA in a

disadvantageous position, particularly given the continued popularity of budget

airlines. This is an important factor for Willie Walsh to consider.

Walsh must understand that the key growth area for BA is likely to be in value-added

travel. In some areas, BA found that it could improve customers’ experience while

reducing costs, such as in its building up of online sales. Other value-added services

are likely to see mid-priced flights being upgraded, as air travel continues to become

more competitive.

Overall, BA, through Walsh, must continue to strive to reduce costs and improve

customer and employee satisfaction .

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