British Airways is among the leading UK based airline companies owned by the International Airlines Group (IAG). British Airways operated a fleet of more than 300 aircraft and operates flights to international destinations across 70 countries. The airline brand carries more than 40 million passengers each year. 2019 was a year full of challenges and opportunities for British Airways.
In 2019, British Airways enjoyed profitable growth. However, it also faced several operational and strategic challenges including those created by Brexit. Brexit has had a substantial impact on airline companies in the UK but these problems were compounded by the spread of the Coronavirus. British Airways grew 100 years old in 2019 and has changed its strategic focus during recent years to become a sustainable brand in the future. It is planning to grow its international network and is investing in several crucial areas including technology as well as its employees and customer experience.
At the same time, it is also investing in making its fleet more fuel-efficient and sustainable. Over time, the company has built strong brand recognition and continues to improve its performance in all strategically important areas. Compared to many other airlines operating in the UK market, British Airways has managed to deal with the challenges created by Brexit and Corona more effectively. 2020 is going to be a challenging year for airline brands around the world. Let us take a look at how strongly British AIrways is positioned against these challenges through this SWOT analysis.
Leading Strengths of British Airways:
British Airways is a strong and well-established airline brand with a strong position in the UK market. Among the several factors that have driven the growth of British Airways, the most important ones are its focus on customer experience, operational effectiveness, and fleet efficiency as well as technology. As an airline brand, it has successfully built a customer-friendly image by placing the highest focus on customer convenience. The parent company of British Airways is the International Airlines Group which also owns. It is considered one of the most reliable airline brands in the UK and has won several awards and recognitions for its reliable operations and continuous focus on customer experience. Stronger brand equity and higher customer trust has also resulted in a strong competitive edge for British Airways over its rivals.
Strong technological capabilities:
Apart from a highly fuel-efficient fleet, British Airways has also invested in technology in several more areas to build strong technological capabilities. British Airways started focusing on technology to grow its operational efficiency some years ago and the investments it made in various areas to improve the technologies being used by the company have started paying off. Not just marketing and sales, but the company has also invested in technology in other operational areas like onboarding to improve customer experience. The company is also considering to grow the level of digitization in various aspects of the business so as to find higher growth faster.
In 2018, it added four more Airbus A350 aircraft models which are fuel-efficient aircraft models. The parent company of British Airways IAG is investing in artificial intelligence and machine learning to grow its efficiency at the use of data and analytics and serve its customers worldwide better. In 2o19, the company made improvements to its website and app to streamline the booking process which has resulted in a growth in the number of people booking directly from the company’s website and app. In this way, the investments that the company made in technology over the last several years has proved highly profitable for the brand and has helped it handle the growing number of challenges in the UK and the international airline industry with higher efficiency.
International route network:
While the core market of British Airways is the United Kingdom, it also covers an extensive international route network. The flight operator serves more than 70 markets and carries more than 40 million passengers each year. The company is continuously optimizing its route network to offer more flights to leisure destinations. As of 2018, British Airways held 30% seat share of all the airlines departing from the London airport. It is the largest flight operator at the Heathrow and London airports as well as the second-largest at the Gatwick airport. BA also launched more than a dozen routes in 2018 including Nashville, Durban, Seychelles, Kefalonia, Corsica, Almeria, Marrakech, and Sheremetyevo from Heathrow, Toronto, Las Vegas, Cologne, and Lyon from Gatwick and Munich and Rome from London City. It had announced in 2018 that it will serve 34 North American locations in 2019 and have the largest route network of all the European carriers (BA annual report, 2018). BA is also continuously optimizing its route network to offer more frequent flights to popular destinations like Seattle and Nashville in the United States.
Focus on sustainability:
British Airways, as well as its parent company International Airlines Group, have grown their focus on sustainability and apart from fuel-efficient vehicles, the company is also investing in reducing its carbon footprint. It has added more fuel-efficient aircraft to its fleet and plans to go zero carbon by 2050. This plan has been named Zero Flight Path by the parent company of British Airways. Apart from higher operational efficiency, the growing focus of the company on sustainability will also strengthen its social image. In this regard, the company has also partnered with renewable fuels company Velocys for developing a system for converting household waste into sustainable jet fuel. Moreover, BA was the first AIrline to participate in carbon trading in 2002. Since then the company has consistently campaigned for this policy across the world. It has also worked collaboratively with the government and industry players to develop the first global carbon pricing system – CORSIA (Carbon Offset and Reduction Scheme for International Aviation). Under this scheme, the airline companies can buy carbon offsets to ensure the collective achievement of carbon-neutral growth starting in 2020.
As a part of its plan, which is called Flight Path Net Zero, BA is making efforts to achieve net-zero CO2 emissions by the year 2050. It has set a target of at least a 20% reduction in its net CO2 emissions by 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.
Large and fuel-efficient fleet:
British Airways operates a large and fuel-efficient fleet of more than 300 aircraft. In 2019, it added 4 new Airbus A 350 aircraft which are highly fuel-efficient. Apart from reducing its operating expenses, this also helps the company reduce its carbon footprint. Apart from leveraging the fuel efficiency of new aircraft models, the company is also phasing out the older less fuel-efficient aircraft models. The fleet development plan of British Airways is aimed at reducing carbon emissions and aircraft noise levels through the acquisition of new generation aircraft.
Partnerships and alliances:
The company has formed several important partnerships and entered into international alliances to grow its route network and customer base. While this has helped the company find faster growth, it has also helped it optimize its portfolio of services and bring more efficiency and effectiveness to its business model. American Airlines, one of the leading airlines based in the US is a key partner of British Airways. BA is one of the founding members of the One World alliance which also includes American Airlines, Cathay Pacific, Finnair, Iberia, Japan Airlines, LAN Airlines, Malaysia Airlines, Qantas, Qatar Airways, Royal Jordanian, S7 Airlines, SriLankan Airlines, and TAM Airlines. The 13 members of the alliance provide service to almost 1000 destinations across 150 countries in the world. Moreover, BA has partnered with American Airlines, Finnair and Iberia to offer its customers a higher number of choices as well as better deals on flights from Europe to the United States.
Leading Weaknesses of British Airways:
While the company has grown its focus on managing its employees strategically in recent years, HR is still a very challenging area and ensuring 100% satisfied employees is difficult if not impossible. In 2019, the company faced disruption of operations due to a strike by its pilots. The issue even acquired the form of a legal tussle where British Airways was forced to accept and approve the demands of its pilots in order to avoid a global disruption to its operations. Such issues can crop up from time to time and apart from causing operational disruption, they can also damage the image and reputation of the company.
Over-dependent on the domestic market:
British Airways is the largest airline in the portfolio of the International airline groups accounting for more than 50% of the group’s net revenue. In 2018, British Airways generated close to 50% of its revenue from the United Kingdom market. The United Kingdom is the core and the largest market of the International Airlines Group and its largest subsidiary British Airways. However, that also leaves BA highly dependent on the UK market for revenues and income. In 2018, when the net revenue of BA was around £ 13 billion, its revenue from the UK market was £6.3 billion. This is why the company needs to grow its penetration of foreign markets since the UK has also grown highly unstable in the face of Brexit and spread of Coronavirus.
Problems with Rolls Royce Engine:
Another leading problem that British Airways has faced during recent years was caused by the Rolls-Royce Trent 1000 engine. The engine issues led to many operational problems including delayed flights. The punctuality rate of British Airways declined by 3% in 2018 falling to 76% compared to 79% in the previous year, partly due to the knock-on effects of the Rolls-Royce Trent 1000 engine issues. A large number of aircraft had to be taken out of service due to damage or technical issues. These engine issues also affected aircraft availability. These problems have continued in 2019 and the company was forced to cut down flights and the number of seats on the London-Miami route significantly. The Rolls Royce engine in question is used in the Boeing 787 Dreamliner and has been limited by a Directive from the US Federal Aviation Authority till a permanent solution has been found.
Leading Opportunities for British Airways:
While the Airline industry globally is facing some tough challenges, British Airways can find faster growth through increased penetration of its international markets. Currently, the company depends on the UK market for a large part of its annual revenue (close to 50%). Expanding internationally and penetrating its existing international markets deeper, will help the company grow its customer base and increase revenues.
Digitalization and technological innovation:
Increased focus on digitalization can also help the airline brands like British Airways increase their market share and find faster growth. There are several areas of flight operations where digitalization and investment in technology can help Airline services expand their customer base and grow faster. Over the past several years, the company has already been benefiting from higher investment in digitization. However, there are several areas where the company can use digital technology and machine learning for better results including the use of data and analytics for customer retention and engagement.
Expand services portfolio for revenue growth:
Expanding the services portfolio of the company to include more premium services can also help the company grow its revenue from the existing markets. Premium services attract more business and higher-end customers and can be an attractive method of growing revenue faster for airline businesses. Apart from that, the company can expand its business into related areas in the hospitality industry to include hotel and vacation services in its portfolio. This is a strategy also used by leading airlines based in the US.
Leading Threats for British Airways:
Competition is a leading threat in both the UK and the international airline industry. Apart from the growing number of carriers, the rise of carriers that operate in niche segments has led to a loss of market share in some key markets for the company. Apart from that higher competition also leads to growth in operational expenses including the higher costs of acquiring new aircraft.
Like the US airline industry, the UK airline industry is also highly regulated and the web of regulations is quite complex. CAA is the main governing authority in the area of aviation in the United Kingdom. However, apart from the growing focus of government bodies on safety, security, consumer rights, and labor rights, there are other areas too where compliance is essential and the level of regulation is high. Airline businesses like British Airways need to operate with a lot of caution to avoid hefty fines which may be imposed in case of non-compliance in any of these areas.
Problems caused by Brexit:
Brexit has also given rise to a new set of challenges for the UK airline businesses like British Airways. Apart from the higher economic uncertainty and dampening investor confidence caused by Brexit, the airline industry is also under higher pressure since a new set of laws will govern the operations of UK based airlines throughout Europe. Apart from custom laws, there are several other areas too including immigration laws which will affect the operations of the airlines operating from the UK. The high level of economic uncertainty that was caused by Brexit has already affected the UK airline industry deeply overall. While British Airways has claimed that Brexit is not going to have any major impact on its business, the impact could still be substantial given it can affect the business indirectly to some extent.
The spread of Coronavirus:
Another problem that has compounded the effects of Brexit is the Coronavirus and which is affecting airline operations worldwide including the UK. The effects of Coronavirus are not limited to a reduction in rates of international travel but there is intense pressure on airline brands that are struggling to maintain their revenue and profits in such a challenging environment. Flybe in the UK canceled flights and shut down its operations because its funding challenges were compounded by the spread of Coronavirus which has severely affected traffic to coronavirus affected nations. Coronavirus is expected to have a severe impact on flight operations around the world including the UK and British Airways.
Other Sources: (BA annual report, 2018)