BRITISH AIRWAYS PLC

The leading carrier in          

Europe
British Airways is one of the largest
airlines in Europe and is the national
carrier of UK. The major hubs of the
airline are London Gatwick and London
Heathrow. The origins of the company
go back to the 1920s. In 1924 four of
Britain's main airlines Handley Page
Transport, Instone Air Line, British Air
Marine Navigation Ltd. and Daimler
Airways came together to form the
Imperial Airways. On the other hand
there were a number of small airline
companies in the country that merged to
form the British Airways Ltd. This was
later merged with the Imperial Airways
that resulted in the formation of the
British Overseas Airways Corporation
(BOAC). In 1972 BOAC merged with
BEA to form the British Airways.  
 
The privatization of the British Airways
happened in 1987. It acquired British
Caledonian in 1988. The airline was
primarily a Boeing customer for several
years before switching over to airbus
aircrafts in 1998. In 2008 the subsidiary
of the company, OpenSkies was opened
to benefit from the relaxation of the
transatlantic traffic rights. There would
be non-stop flights between the US and
the European cities. It is expected that it
would commence from July 2008.
 
In the 1990s the company had the
maximum profits among all the airlines of
the world. The company bought Delta Air
Transport in 1992 and changed the
name to Deutsche BA. In 1995 the
company introduced a new subsidiary,
British Asia Airways to connect Taipei
with London. The late nineties were
turbulent for the company. Stiff
competition, hike in the oil prices did not
allow the company makes good profits.
In 1999 the company reported the worst
downward slide in its profits since the
company was privatized. In 2005 the
company headed by Willie Walsh
decided to go for major changes in the
management of the company to cut
costs and save money.
 
British Airways has a large Boeing fleet
but it also operated other aircrafts. There
were British made aircrafts that were
taken from BOAC and BEA. During the
1980s the BA purchased Lockheed
Tristar. The company has also acquired
Airbus A320 as well as McDonnell
Douglas DC-10 when it bought British
Caledonian Airways.
 
British Airways at the time of its
formation had a predominantly UK built
fleet of aircraft. There was the
introduction of the Boeing 757 as well as
the Boeing 737 during the 1980s. There
were also the Boeing 747-400, Boeing
777 and Boeing 767 that were
introduced in the 1990s. The company
has fitted most of the Boeing aircrafts
that it had with Rolls Royce engines. The
frequent flyer program of British Airways
is called the executive club. There are
three kinds of membership that are
available with the club: silver, blue and
gold. There is also the premier program
of the Britsih Airways that offers more
benefits than the executive club.
 
 
Facts:
 
British Airways flies to more than
550 destinations across the globe.
 
In 2007 the company for the first
time ordered for 12 Airbus A380s.
 
British Airways offers different
classes of services on their international
routes: Club World, World Traveler, and
World Traveler Plus.
 
 http://globalbb.onesource.com/web/Reports/ReportMain.aspx?
KeyID=4451&Process=CP&CIK=809023&Report=STRENGTHWEAKNESS

http://www.scribd.com/doc/23329171/British-Airways-Strategic-Plan

Strengths/Weakne(SWOT)

Helpful Harmful
to achieving the objective to achieving the objective
Strengths Weaknesses
 Optimum Asset  Litigation from Office
Utilization of Fair Trading
 Customer Oriented  Mishandling Luggage
Internal Origin Service  Decline in Financial
(attributes of the  Worldwide Business Performance
organization) Operations  Declined Operating
Margin
 Limited Liquidity
Position
 Low Return on Equity
Opportunties Threats
 Strategic Business  Operational
Plan Constraints
External Origin
 Consolidation in  Volatility in Fuel
(attributes of the
Airline Industry Prices
environment)
 Open Skies Policy  Intense Competition
 Business
Combination

Overview

British Airways is a major airline company carrying passengers in and out of various
destinations, worldwide. The company has a strong fleet of aircraft, besides extensive global
operations. Going forward, shrinking aviation industry, volatility in fuel prices, and competition
may impede its growth opportunities. However, consolidation in global airline industry, strategic
businesses plan and business expansions could offer ample growth opportunities for the
company.

Strengths

Optimum Asset Utilization

British Airways makes optimum utilization of its aircrafts. It aims to reduce the amount of time
the aircrafts are on the ground. The strategy of the company is to serve downtown airports which
are less congested than other airlines’ hub airports enables it to achieve maximum asset
utilization. During the fiscal year 2010, it rendered services to over 31,825 million passengers
and aired 760,000 tonnes of cargo to destinations across the Europe, the Americas and
throughout the world. Passenger traffic accounted for almost 87%, cargo with 7% and other
activities with 6%, as part of its total revenue. In 2010, it registered a total load factor of 73.3%
along with 78.5% of passenger load factor. With such utilization of asset resources, the company
is able to save on cost and provide low fares to its customers.

Customer Oriented Service

The company is focused on providing best of services to its customers, particularly in areas
around booking and on-board experience, In this regard, it has installed new Club World cabin
on its entire 57 Boeing 747 fleet. This cabin provides better sleep to its premium customers and
an improved Club kitchen. This innovation was already awarded and has set new benchmarks for
comfort in air. Also, the company is focused on improving its online booking engine ba.com.
This online facility enables the customers to buy tickets online, check in online and email
messages in eleven languages. These improvements of the company to enhance customer service
strengthen its worldwide operations.

Worldwide Business Operations

The company is the largest international scheduled airline in the UK and is one of the largest
international airlines in the world. It is also one of the old established airlines. It serves more
than 31,825 million passengers across the world. It has one of the largest fleets in Europe
comprising 238 aircraft comprising 49 Boeing 747s, 46 Boeing 777s, 21 Boeing 767s, 9 Boeing
757s, 84 Airbus A319/320/321s, 19 Boeing 737s and 10 smaller aircraft used in the company’s
regional business. It flies to more than 300 destinations at convenient times. It also operates a
worldwide air cargo business. The group’s operations classified its geographical operations into
Europe, The Americas, Africa, Middle East and Indian subcontinent and Far East and
Australasia. It is the only airline that is providing a full service carrier from Gatwick to
destinations such as Antalya, Faro and Malaga. Such an international presence of the company
increases its passenger load factor.

Weaknesses

Litigation from Office of Fair Trading

Office of Fair Trading (OFT) imposed GBP 121.5 million as fine on British Airways, following
the company’s involvement in over price of long-haul passenger fuel surcharges. In addition,
£225 million is to be collected as fine by the US Department of Justice (DoJ), from British
Airways. Also, if OFT is successful in establishing criminal liabilities against the company, it
could open the possibility for a US extradition request. Imposition of such huge amounts of fine
could not only hurt the company’s finances but also its brand image.
Mishandling Luggage

British Airways has been in the news for mishandling luggage of its customers. The company
has a reputation of either losing or misplacing its customers’ luggage. It has a record for the most
number of luggages mishandled by an airline operator. Though the company retrieves most of
the mishandled luggage, this inefficiency of the company could damage its reputation and
thereby increase the probability of its customers preferring its competitors’ airways to its flights.

Decline in Financial Performance

The company recorded decline in its financial performance in the fiscal year 2010. It recorded
revenue of GBP 7530.00 million during the fiscal year 2010, a decrease of 6.1% over the fiscal
year 2009. The operating loss of the company was GBP 231.00 million during the fiscal year
2010, as compared to GBP 235.00 million in 2009. Operating margins declined due to a
combination of tax regimes and passenger revenue yields. As a result, the mainline passenger
revenue decreased by 10.9%. Its cargo revenues also decreased by 18.3% or GBP 550.00
million, mainly due to fewer shipments as a result of the recent worldwide recession.
Additionally, its compounded annual growth rate (CAGR) for revenue was -0.67% during 2006-
2010. This was below the S&P 500 companies average* of 12.74%. A lower than S&P 500
companies average* revenue CAGR may indicate that the company has underperformed the
average S&P 500 companies growth and lost market share over the last four years. The
company's underperformance could be attributed to a weak competitive position or inferior
products and services offering or lack of innovative products and services. Such decline in the
financial performance could have negative effect on the company's growth and expansion plans.

Declined Operating Margin

The company's operating margin was -2.89% for the fiscal year 2010. This was below the S&P
500 companies average* of 7.26%. A lower than S&P 500 companies average* operating margin
may indicate inefficient cost management or a weak pricing strategy by the company. The
operating margin has decreased 28 bps over 2009 which may indicate management's low focus
on profitability. Additionally, the company registered return on assets to -4.149% in the fiscal
year 2010 as compared to -3.576% in the fiscal year 2009. The return on assets of the company
has been declining from the past two years. This huge difference shows the poor performance of
the company in generating profits from every dollar of capital investment. The company’s
inefficient usage of assets in generating profits might be due to the economical turmoil. This
inefficiency of the company in managing resources could affect its revenues.

Limited Liquidity Position

The company has low current assets with respect to its current liabilities. It has a weak working
capital position due to high level of payables accrued over the years. The current liabilities of the
company as at March 31, 2010 were GBP 3740.00 million as compared to its current assets of
GBP 2674.00 million. As a result, the company's current ratio was 0.71 at the end of fiscal year
2010. This was below the S&P 500 companies average* of 1.46. A lower than S&P 500
companies average* current ratio indicates that the company is in a weaker financial position
than other companies in the S&P 500 index. Weak liquidity position could lead to an additional
risk on the short term liquidity of the company if the company requires a short term loan to fund
its outstanding payables.

Low Return on Equity

The company's return on equity (ROE) was -23.2% at the end of fiscal year 2010. This was
below the S&P 500 companies average* of 4.5%. A lower than S&P 500 companies average*
ROE may indicate that the company may not be using the shareholders' money as efficiently as
other companies in the S&P 500 index and that it is generating low returns for its shareholders
compared to other companies in the S&P 500 index.

Opportunities

Strategic Business Plan

The company under its business plan has introduced its Global Premium Airline strategy,
structured with five key themes Colleagues, Customer, Performance, Excellence and
Partnerships. Under which, it is focusing upon the engagement of resources for efficient and high
performing organization. It also has rolled out and restyled first cabin services with the
development of products for the Boeing 787s and Airbus 380s, which would enable it to render
outstanding services to their customer base. Performance indicators would be enhanced with
structured changes keeping controllable costs flat and boost revenues from third-party
engineering, retailing and non-air partnerships. Further under its partnerships, it would
implement joint business agreement with American Airlines and Iberia, for delivering a range of
customer benefits. In addition, the company is focusing upon developing partnerships with
India’s Kingfisher Airlines and the Russian carrier S7 for expanding its operations. The company
is fostering its operational performance for improving its service excellency with the
development of second satellite Terminal 5C. With such strategically implemented businesses
plan, the company would increase its operational efficiency and future growth prospects.

Consolidation in Airline Industry

The global airline industry is into a consolidation phase, with volatility in fuel prices and slide in
the passenger load factor following the economic slowdown. Major airline companies are eying
mergers and acquisitions of small players in the market serving niche segments such as business-
class customers, among others. British Airways is focused on leveraging this trend. During late
2008, the company acquired the French airliner L’Avion, and it fully integrated the acquired
company into its wholly-owned subsidiary, OpenSkies, in April 2009. Further, towards the end
of 2008, the company was in talks with Qantas Airways to acquire the company, which
eventually failed. The company also looks at Spain airliner Iberia, as a merger and acquisition
option. This trend could enable the company to expand its service offerings, and access to
different destinations.

Open Skies Policy

Many regions across the global are embracing the open skies policy, which could enable the
company to fly to different destinations, going forward. Of late, the Canadian government has
released its regulation with minimum regulations for operation of airways in Canada. It has
released open skies policy for cross border operations. The agreement will allow the U.S. carriers
to utilize Canada as a platform to serve their cargo and passenger services to any third country.
Further, there is no regulation on pricing of tickets or tour packages. Similar agreement exists
between the US and EU. As part of its strategy to capitalize on this trend, the company recently
established OpenSkies, its new subsidiary for offering direct services form continental Europe to
the US for the first time. It provides services from Paris to New York on a Boeing 757 with flat
beds and a unique style of service. This could enable the company to sustain its business
performance in a shrinking market.

Business Combination

During the fiscal year 2010, the company through its OpenSkies SASU operational subsidiary
acquired the entire assets of the French airline L’Avion, for worth of GBP 54.00 million.
L’Avion is a privately owned business class airline, rendering services through two Boeing 757s
between Paris (Orly) and New York (Newark) airports. In April 2009, the operational process of
OpenSkies and L’Avion were merged. Due to these acquisitions, the company has increased its
operational presence in France, Europe. Such strategic acquisitions would support the company
to increase its customer base by expanding in new markets.

Threats

Operational Constraints

The company's mainly operates its business service through its major operating bases, namely,
London’s two major airports are Heathrow, and Gatwick. Of which, Heathrow has no spare
runway capacity and operates on the same two main runways, since it has commenced its
operation. As a result, the company is vulnerable to short-term operational disruptions and is
unable to mitigate issue. Further, airline industry is increasing its regulation over the company's
and covers many activities, including route flying rights, airport slot access, security and
environmental controls etc. The expansion of the airport would require certain approvals,
licenses, registrations and permissions. Delays in this could adversely affect the company’s
business growth plans. Any disruption, unanticipated expense or operational failure related to
this process could negatively impact the company’s facilities operations. The non-availability of
a proper mechanism in the company might prove bad for the overall operations.

Volatility in Fuel Prices

The company’s growth could be limited due to the volatility in fuel prices. The prices of aviation
fuel have been fluctuating rapidly. The average fuel price for 2009 stood at USD 2.46 per gallon.
The International Air Transport Association (IATA) has estimated that industry fuel bill will fall
from USD 165 billion in 2008 to USD 59 billion in 2009, on a USD 56 per barrel average price
of oil, but prices begun to climb in June. For instance, jet fuel prices increased 15% worldwide,
and in New York, jet fuel prices closed the first week of June 2009 at USD 68.81 per barrel. For
the week ended September 4, 2009, jet fuel price averaged USD 73.2 per barrel. The volatility in
fuel prices could affect the profit margin of the company, as they could find it difficult to pass on
the increased fuel prices to passengers in the form of price hike or surcharge in a contracting
aviation market.

Intense Competition

The markets in which the company operates are highly competitive. The company faces
competition from other airlines on the same city-pair routes, from indirect flights, from charter
services and from other modes of transport. The intensity of the competition varies from route to
route, depending on the number and nature of the competitors, The company’s principal
competitors include AMR Corporation, Delta Air Lines Inc., Air France KLM, Southwest
Airlines Co., UAL Corporation, Lufthansa Cargo AG, Virgin Atlantic Airways Ltd., Cathay
Pacific Airways Limited, Qantas Airways Ltd and so on. The company’s routes with multiple
carriers, and pricing decisions are affected by competition from other airlines. The highly
competitive environment could adversely affect the growth of the company.