British Airways is one of the leading airline companies in the UK. It is owned by the International Airlines Group and operates a fleet of more than 300 aircraft. British Airways is also among the leading European international flight operators that fly to more than 70 different countries and carries more than 40 million passengers each year. 2019 was both a challenging and profitable year for British Airways. Apart from profitable growth and major advancements in several areas, the flight operator also faced many challenges which were both operational and strategic.
In 2019, the brand also celebrated its centenary and is focusing on becoming a sustainable aviation brand. Apart from achieving network growth, the brand also plans to invest in most crucial areas and sustain its financial performance in the long term.
In 2019, the company also added four brand new Airbus A350 aircraft to its fleet. Managing a strong reputation is also one of the main focus areas for the company and for that reason, it is investing in sustainability, people and customer experience. The Center for Aviation (CAPA) awarded the brand, the title of Airline of the Year in 2019 for its great performance in various areas.
As a leading international flight operator, British Airways faces several kinds of challenges that can be operational as well as economic or political in nature. In this PESTEL analysis of British Airways, you will study some of the leading challenges and opportunities created by various political, economic, technological, legal and other forces in the field of aviation.
Detailed PESTEL Analysis of British Airways
Political factors are playing an increasingly central role in the aviation industry. There are several reasons behind the growing importance of political factors including the role of political stability in driving growth, the role of government policies in terms of market attractiveness and creating a business-friendly environment as well as the effect of government oversight and regulation on the overall aviation market in a region. The airline industry is especially affected to a large extent by government policies in the leading aviation markets of the world like the UK and the US. Moreover, the political environment of the United Kingdom and the level of political stability also has a direct impact on the profitability of the airline brands. The United KIngdom aviation industry was heavily regulated by EU legislation and the areas most affected by regulations included operator licensing, traffic rights, safety regulation, and personnel licensing. In the UK, the leading authority that oversees the regulation of the aviation industry is the Civil Aviation Authority. Apart from safety standards, environment, and security issues, the CAA also oversees consumer rights.
However, apart from the government’s control of the aviation industry and other challenges of political nature, the uncertainty caused by Brexit has also had a definite and deep impact on the airline brands. Some of the leading issues arising from Brexit and which will affect air travel include border, customs, and immigration laws. Things are not going to change overnight and both Britain and the EU are working on sorting out all the issues before the end of 2020. The UK government has also taken several steps to make travel from leading markets like the US and other WEstern countries convenient for travelers. However, there were no barriers related to cross border travel between the EU countries and the UK when it was a part of the European Union. There were no customs or passport related hassles. These things are going to change after the Brexit which happened on 31st January 2020. The airline businesses would need to consider several things to overcome the negative effects of Brexit in both the short and the long run. The various aspects of their business that airline brands must focus on for overcoming the challenges created by Brexit include Economic and Financial, Regulation, Corporate Governance and Strategy, Operational Strategy, and the Consumer and Customer Relationships. British Airways had already taken a sensible approach to manage the effects of Brexit and announced to its customers that its flights will be running according to their normal schedule following Brexit.
Economic factors and economic changes also have a direct impact on the business of the airline industries in the United Kingdom. The economic situation in a country or region has a direct impact on the profitability of the airline brands operating there. Whether it is economic stability, level of unemployment or the GDP, all these factors affect air travel and flight operators. Economic slowdown has a negative impact on the profitability and revenues of the airline operators. However, the economic environment in the UK has been highly uncertain following the announcement of Brexit back in 2016. Since then the UK economy has suffered a lot due to the uncertainty caused by Brexit. One major disadvantage of the UK of Brexit was the economic slowdown. While the UK economy slowed, many major businesses also moved their headquarters from the UK to the EU. However, despite eroding economic confidence and slowing economic growth, the unemployment rate in the UK remained low. Some of the main factors that have helped British Airways sustain its growth rate and profitability include higher investment in strategic areas, growing focus on customer experience and the ability to adapt its business and operating model to the changing economic situation. Even amidst the economic uncertainty caused by Brexit, the company has experienced nice growth in revenue. The total revenue of British Airways in 2018 grew 6.1% compared to the previous year reaching £13,021 million from £12,271 million in 2017. During the same period, its operating profit rose by 10.3% reaching £1,952 million from £1,769 million.
Social factors including demographic changes are also playing an important role in the context of the aviation industry. The main target market of the airline brands like British Airways is the millennials whose travel habits are different from the previous generations and who seem to be spending more than the baby boomers on air travel in the leading Western markets. While consumers, as well as their safety and convenience, have become the central focus for flight operators and regulatory bodies, the social image, and reputation of the airline companies have also become an important factor that affects business profitability. British Airways apart from customer experience also maintains a heavy focus on operational efficiency, reliability and its social image. In recent years, the company has grown its focus on sustainability and is investing in areas where it can minimize its environmental impact. Other types of factors in the society apart from the social image can also take a direct toll on the aviation industry. The fear of coronavirus has already hit the industry hard. Apart from the shutdown of several airports around the world, several airlines including Flybe in the UK have been severely affected. Flybe stopped its operations because of coronavirus. The funding challenges of Flybe were compounded by the outbreak of the Coronavirus. Other flight operators including the British airways and RyanAir have also canceled several flights. According to BBC, British Airways is canceling 216 flights from 16 to 28 March due to the outbreak of Corona. British Airways is canceling flights to key destinations including New York, Italy, France, Austria, Belgium, Germany, and Ireland. The fear of Coronavirus has spread in society leading to people cutting back on travel to foreign destinations. This is bound to hit the operations as well as revenue of flight operators like British Airways.
Technology is a central factor driving the growth of the airline industry and apart from more fuel-efficient and safer aircraft models, the evolution of better sales and service technologies has also aided the faster growth of the airline industry worldwide. Digital technology has also helped the airline businesses grow their customer base and market themselves more efficiently. British Airways is investing in technology to make its fleet more fuel-efficient and to offer a superior customer experience to its passengers. Moreover, as a part of its strategic plans for the future, British Airways has decided to invest more in technology in order to ensure higher efficiency, better services, and higher profitability. The company is also planning to undertake a digital transformation to get the full advantage of merging technology in its daily operations worldwide. During the last few years, the company has made technological improvements in several areas including its website to streamline the booking process and to make improvements to the BA app. This has led to more customers booking tickets directly from the company’s website. Technology is a key driver of operational efficiency and customer satisfaction in the aviation industry and BA has also realized its benefits in terms of improved fleet efficiency as well as customer satisfaction. Other areas where the company introduced new technologies during the recent years include process automation, cargo handling, onboarding etc. The entire IAG group is focusing on making improvements to how the company handles data and analytics so as to bring higher efficiency to the system and grow the customer base. Apart from introducing new and more fuel-efficient aircraft, the IAG group (parent company of British Airways) is exploring additional means to reduce its carbon footprint which has become crucial to operational efficiency as well as the company’s reputation. IAG is also using machine learning for efficiently extracting data in its business processes. In 2019, British Airways added 4 new Airbus A 350 aircraft. Higher focus on technology has helped British Airways handle key challenges arising from Brexit and Coronavirus with higher efficiency and effectiveness.
Environmental factors are now a central concern for the airline operators as well as the aviation authorities. The environmental impact of the airline industry is a central concern for regulatory authorities around the world. However, British Airways has taken some firm steps in this direction to minimize its environmental impact on making its business model more sustainable. Sustainability is now one of the core areas of strategic importance for the brand which is continuously investing in growing the fuel efficiency of its fleet and reducing its carbon footprint.
The parent company of British Airways, the IAG has committed to bringing its carbon footprint to net zero. As a part of its plan, which is called Flight Path Net Zero, the company has planned to achieve net zero CO2 emissions by the year 2050. The company plans to achieve at least 20% reduction in its net CO2 emissions by the year 2030. British Airways has also planned to offset its carbon emissions for its domestic flights in the UK and make them net zero carbon by 2020. The company is also continuously exploring new methods and technology to control carbon emissions. While there are several reasons behind growing its focus on sustainability, some of the main reasons include better reputation and social image, incentives from the UK government as well as improved operational efficiency and customer satisfaction.
Legal factors are one of the most important concerns in the entire aviation industry including the UK market. Compliance is critical for all aviation players including the British airways since noncompliance can result in major fines and also hurt the reputation of the brand. Apart from customer convenience and passenger security and environmental impact, there are laws related to labor and several more operational areas that the British Airways is required to remain compliant within its domestic market as well as overseas.
There are several laws that govern the UK airline industry which has until Brexit remained regulated under the EU regulations mainly. While CAA is the main regulating authority in the UK, there are additional international regulatory authorities that oversee the operations of international airline brands. Apart from the laws related to operations, labor laws are also a significant area affecting British Airways. The company faced a significant challenge in 2019 in the form of a pilot’s strike. The company lost its legal attempt to block the planned strike and had to agree to a pay settlement later to avoid disruption. Such cases whether related to labor or consumer rights or passenger safety can tarnish the company’s image as well as cause operational disruption and losses in the form of large fines.
- British Airways Plc Annual Report 2018.
- IAG Annual Report 2019.