For this assignment I have been told to compare British Airways to another low cost airline of my choice. I have chosen to compare BA to EasyJet as it is the largest low budget airline in this country.
To make a success of this assignment I will have to assess the current position of both the airline companies, their objectives, how these objectives are implemented, and how each airline decides what their objectives are. I will also be comparing both airlines and identify how they are different in setting their objectives.
British Airways is one of the world’s largest international airlines and by far one of the best known. It carries more people from one country to another than its competitors. Also, it is one of the worlds longest established airline and has always been regarded as an industry leader. British Airways is known as, “the worlds favourite airline”. It is the British flag carrier and is best known for its luxurious travelling facilities and until last month it was only one of two airline companies to own a fleet of supersonic planes known to all of us as Concorde. Concorde was taken out of service late last month because of its high running costs and less demand. It will still be greatly missed because it was a symbol of BA’s authority in the airline wars.
Last year more than 44 million people chose to fly on the 499,000 flights it operated which is equivalent to 80 passengers checking in every second around the clock. A British Airways flight takes off or lands every 60 seconds. BA also carried 907,000 tonnes of freight and mail last year which is more than any other airline in the world and you would think that this is the world’s number 1 airline.
British Airways has always been the worlds best airline but in recent times its profits have suffered dramatically due to the likes of EasyJet, RyanAir and Buzz all of which are low budget airlines which offer a lot of things that BA don’t offer such as cheap travel, internet booking, etc. Above all the main factor has to be the incentive of cheap flights to destinations that are most travelled to by the British people.
In the last 5 years or so BA has gone from a massive profit making airline to one that is looking for an airline to make a merger with to split the risk and again create the world’s largest airline. Within the last month BA have been considering merging with the Spanish flagship airline company Iberia. This will create the world’s largest airline company after the merger of Air France and KLM. The merger between BA and Iberia will be good for both parties because like Air France – KLM both will be able to keep their own identities as their nation’s flagship airline.
This merger will take place because of the pressure on BA to maintain its cost efficiency and market position that has been lost within the last year or so.
These sorts of mergers are very common these days because of the struggling airline industry which has many airlines fighting it out for very few tickets. If we look around the world it is apparent that it is not just BA that is struggling, many airlines are going out of business because they just can’t afford to stay in business because of factors which have hit the airline industry, the main one being the Sept 11th incident which affected the industry in a big way because people were reluctant to travel.
This caused American Airlines to go into administration and it had a massive effect on BA because it was a British carrier, transatlantic flights were more than halved for at least a year after the incident.
Also the recent war on Iraq hasn’t helped the industry because it is feared that terrorists will be targeting American and British targets. The only international airline that has come out strong after this bad period is Emirates, mainly because it is an Arabic airline and the risk of Emirates being targeted by Muslim extremists is very low so more and more people are choosing this airline to travel.
SWOT Analysis on British Airways
Strengths – Very well known
Known for its luxury
Weaknesses – Massive loss maker
Too expensive for customers
Too expensive to operate
May be a target of terrorists
Opportunities – Can be the worlds number 1 again
Rectify the loss by selling GO and scraping Concorde
Merger with Iberia
Threats – Low budget airlines
Talks of strike action by the staff
British Airways Objectives
* Cut costs and improve its bottom line
* Reduce running costs by ï¿½300 million by 2005
* Continue to be the flagship airline
* Improve on service quality
* Cut ticket prices
* Make air travel more luxurious
* Make sure that British Airways remains the world’s number 1 airline.
EasyJet is one of Europe’s largest low budget airline companies which is based in Luton, England. EasyJet was established in the mid 90’s by Stelios Haji Ioannou. He was the heir to a Greek shipping fortune and got interested in the airline business after meeting Richard Branson, who is the founder of the Virgin Empire. Ioannou started the business at Luton airport in 95, with one office, booking system and sub-contractors to provide the rest of the services. Within three years EasyJet covered 17 new destinations in Europe, and expanded its fleet of owned aircrafts. It exploded on the airline scene with cheap air fairs that even the working class can afford. An example of this a flight from Luton to Scotland would cost as little as ï¿½29 on EasyJet, on the other hand on a normal airline the cost would be ï¿½100+.
EasyJet can afford to offer such low prices because they are a no frills airline and when they were established in 95 so were 79 others, out of these 80 only 20 as well as EasyJet survived because they got their strategy right.
When they implied that they are a no frills airline that is what they meant. Other airlines offer a lot to their customers, EasyJet offer the following on their flights:
* Very low fares
* No business or first class
* No assigned seating
* No in flight service apart from soft drinks
The owner Haji-Ioannou is known to say, “If you want a meal go to a restaurant”. He sees air travel in a complete different way to other people by just offering the basics.
For such low prices even people who wouldn’t have travelled in the first place choose to fly instead of driving domestically, of catching a ferry across the channel because it more convenient.
EasyJet cover the domestic flights and flights to Europe and it seems that they have done what they wanted to achieve. This was done by operating from local airports and not international ones, the idea of on line booking, and attracting a larger audience.
EasyJet has now expanded to Liverpool Airport where they offer flights to Amsterdam and Greece.
EasyJet has gone a long way since the early days when it was operating from one office. In 1998 it brought a 40% stake in TEA Switzerland with the option to increase it to 90% and EasyJet’s aim is to re-launch it as EasyJet Switzerland to ease pressure of its Luton base. At the moment they have Luton which is second to Heathrow, Liverpool which is second to Manchester and maybe in the future Geneva with the take over of TEA.
It also recently brought out GO, which was the budget airline owned by British Airways. This was a massive blow for BA because they lost their share in the budget airline market. At the time it seemed to BA that for ï¿½100 million it was a good deal but overall the only winner is EasyJet because they have acquired a fleet of aircrafts and made their way clear with fewer competitors.
In 1997 EasyJet made a loss of ï¿½3.3 million, but in 97 announced profits of ï¿½2.3 million based on a 65% increase in passenger numbers, producing a turnover of ï¿½77 million.
* Remain the number 1 domestic airline
* Make air travel cheaper and more affordable
* Expand the EasyJet link to other cities such as Geneva, etc
* Increase the fleet of aircrafts
* Offer a good service at a low price
* Remain customer and employee focused
* Drive out the competition
EasyJet and British Airways are very different to each other but at the same time can be considered to be very similar.
* The difference between the two is that BA is already an established company, whereas EasyJet is still developing.
* Also it seems as though Easy Jet are more customer focused because they are thinking about all of the people who can’t use air travel as their travel source, on the other hand BA are more concerned with making their company as luxurious as possible. It’s like driving a Rolls Royce and a standard Ford, both will take you from A-B but you pay more for the name and logo.
* BA want to reduce their running costs because they are spiralling out of control, this is very important for BA because they lose millions every year because they have very high running costs, on the other hand EasyJet have a strategy to have a very low running cost policy. This is a massive plus for EasyJet.
* For British Airways being the flagship airline means a lot to them because they had competition from Virgin Atlantic because if they lost the flagship they would lose their identity, whereas on the other hand this doesn’t matter to EasyJet because all they want to do is create a whole new genre of no frills air travel.
* BA want to make air travel as luxurious as possible, on the other hand EasyJet want to make air travel as simple as possible. BA can improve on luxury but EasyJet are as simple as you can get.
It is very important for both businesses to have objectives. This is because it is these objectives that fulfil the mission that is set for all businesses in the short and long run.
If organisations did not have objectives then they would not be able to implement their mission statement because they would not have a strategy to fulfil their goals.
Objectives need to be:
* Made specific
* Be easily understood
* Be widely communicated
* Be challenged
* Be attainable
* Be measurable
If these steps are not followed then there would be no need to set the objectives and the mission statement would be irrelevant.
Mission statements are extremely important for all businesses to have; this is because it reminds staff, stakeholders, and customers what the business is in place for.
Mission statements defines the fundamental, unique purpose that sets a business apart from other companies of its type and identifies the scope of business operations in terms of products offered and market served.
EasyJet and BA have very different mission statements. The mission statements for both companies are as follow:
EasyJet – “To provide our customers with safe, good value, point to point air service. To effect and to offer a consistent and reliable product and fares appealing to leisure and business markets on a range of European routes. To achieve this we will develop our people and establish lasting relationships with our suppliers.”
British Airways – “To be more than just an airline. We are aiming to set new industry standards in customer service and innovation, deliver the best financial performance and evolve from being an airline to a world travel business with the flexibility to stretch its brand in new business areas.”
As you can see both if these mission statements are very different to each other. EasyJet are more customer focused, on the other hand BA want to become the best airline in the world again and want to be financially well off.
Just by looking at these mission statements you can tell that BA is need of a change and EasyJet are committed to fulfilling their own goals and satisfy the customers needs at the same time.
To fulfil these missions setting objectives is a very important tool. Objectives are set so that step by step the mission is followed and short and long term goals are met. The diagram below illustrates how this works.
The above diagram shows how from the mission the objectives are set taking things such as internal and external environment into account, analysing the objectives, choosing the strategy, implementing it and reviewing the situation. If it isn’t working then via the review and control you can go back and see what isn’t working and amend accordingly. For example the strategy might be wrong or the wrong objectives might be put into place. This also applies when the external environment changes so you can go back and set short term objectives.
Businesses have to choose their objectives carefully because if they don’t follow the mission then they would be useless because they won’t be following their own policies.
For example a football team has to offer attractive football to attract the fans but at the same time make profit so they can attract the best footballers. If you look at the mission statement of any top football team you will see the same sort of mission and the objectives will be the same. They will have objectives such as build a team that can compete in Europe, make a profit by filling the stadium and to this you need to play attractive football and attract people to come and see the games, also to develop young players that can help the country and the club because if they are young and talented they can be sold for a massive profit thus generating profit.
The objectives of EasyJet are stated in the first section and it seemed as though they chose these objectives because they are a new company.
They increased their fleet of planes 5 folds in the past 5 years, they have remained to keep the prices low because they have minimised their operating costs and streamlined their booking system by allowing bookings online and it seems as though other airlines are following suit, they have seemed to remain the largest domestic airline in the UK and maybe Europe by extending their link to the continent, finally it seems as though they have got rid of their biggest rival GO. This was their main rival and they brought them out for ï¿½100 million from BA and got a larger market share.
British Airways most recent objective was to cut their operating costs by ï¿½300 million by 2005, they have partially achieved this by scrapping Concorde which was their biggest loss maker, selling GO to EasyJet for ï¿½100 million and reducing their operating costs. Also they have reduced the cost of travelling so they can again be the best airline in the world which is a must in their mission statement.
Both organisations have been successful in achieving their objectives but it has to be said that EasyJet in recent years have been the more successful company because they have been achieving their goals and have gone out and followed their mission statement.
The Classical Approach
The classical approach which is also known as the rational approach is based on the view that managers can run the organisation in a scientific and organised way.
This is based on the theory that managers know what is going on in the external environment and they can make a plan to make sure that the manager can adapt to the changes in the internal environment of the organisation.
When the classical approach is applied there has to a hierarchy of objectives with the most important at the top so it can be seen by all. This is a very formal approach and as stated above can be very time consuming, by the time the plan is made the external environment might have changed.
This approach is based on the assumption that the planners are in control, but in the real world changes can happen in a flash and organisations need to be ready to manage change.
The diagram below explains this theory.
* Clear and directed
* Everyone knows their role and what is expected
* Able to change if strategy fails
* All aspects are looked at before any action is taken
* Wastes a lot of time
* Lack of flexibility
The Incremental Approach
This is the most widely used strategy because it is the simplest and one that has the less risk involved. It is a step by step approach with small changes made as the environment changes. It gives you time to try things out and see how they work.
* Changes can be made as the environment changes
* Ideas can be tested
* Gets less internal resistance
* Avoids major errors
* May not work if there needs to be a Huge change
* May need to develop another approach for large change
The Emergent Approach
This approach comes out of the incremental approach because this is making decisions as situations arise. This can sometime be very important because most planned strategies fail because the goals are set to very high standards.
An example of this is Honda bikes. They had a strategy of selling large bikes, as this failed, they chose the emergent approach and started to sell smaller, 50cc bikes and this made a massive impact on the company. This strategy doesn’t need to be planned it just arises when times get hard for the company and changes need to be made to amend the mistakes.
* Good for the long term success of the organisation
* Has to be managed and supervised
By looking at the objectives I presume that BA are using the classical approach. I think this because they are a very large organisation who like to do things in order and scientifically. They also set objectives that go from the most important to the least, the most important being to save ï¿½300 million within three years and one that would be less important would be customer service. Both are important but the top managers would be uncharged of the saving and junior managers would be more concerned with customer service.
EasyJet seem to be using the incremental approach. This is because they seem to make small changes every now and then and seem to experiment a lot to see what outcome they would get. This is very clever because they don’t make massive changes because if it doesn’t work then they would lose millions, by using the incremental approach they can make small baby steps and even if mistakes are made they can be rectified with a less loss.