Strategic planning is pivotal for every company operating in the market, regardless of its size, location, and business goals. According to Grant (2019, p. 4), strategy “is a unifying theme that gives coherence and direction to the actions and decisions of an individual or an organization.” This case study aims to describe a strategic problem facing the British Airways company, analyze the context, and provide a set of recommendations to resolve the situation.
To begin with, it is essential to examine the context from a strategic perspective. The airline industry faces unprecedented change due to the COVID-19 pandemic, which caused uncertainty and disruptions to all businesses involved. Figure 1 illustrates the impact of various crises on world passenger traffic, with the current pandemic resulting in the most dramatic passenger reduction. Air travel demand has plummeted as a result of safety regulations, social distancing, lockdowns, travel bans, and new entry requirements introduced by countries to prevent the spread of the virus. As ICAO (2021, p. 5) reports, preliminary estimates of the COVID-19 impact for 2021 compared to 2019 indicate an “overall reduction of 39% to 40% of seats offered by airlines … [and a decrease of] 2,198 to 2,230 million passengers (-49% to -50%).” Furthermore, a “USD 322 to 326 billion loss of gross passenger operating revenues of airlines” is expected in 2021 (ICAO, 2021, p. 5). Such estimates reflect the severity of the pandemic’s impact on the airline industry and identify the need to address current strategic challenges.
British Airways (BA) is one of the leading premium airlines, based at London Heathrow and operating international flights. PEST analysis can be performed to evaluate the external influences on BA and frame the strategic context. Political factors affecting the aviation industry include government policies and regulations. For BA, Brexit has a significant influence causing uncertainty and affecting air travel with regard to immigration, customs, and border laws. Furthermore, the United Kingdom’s withdrawal from the European Union implies the loss of the status and legal power of the European Union Aviation Safety Agency (EASA) member state (Perry, 2021). Economic factors shaping the business include the UK economy’s slowdown. However, the adaptability of British Airlines and investment in strategic areas allowed the company to maintain profitability despite the challenges caused by Brexit (Conboye, 2019). Nevertheless, according to Sweney and Topham (2021, para. 1), “a record €7.4bn loss” was reported by British Airlines for 2020, which indicates the need for effective strategic decisions to address the profitability problem. The current socio-economic crisis caused by COVID-19 has an adverse impact on the company’s financial strength.
Social factors affecting the aviation industry involve demographic changes and customer preferences. As new generations’ decisions can be heavily impacted by the company’s corporate social responsibility strategy, BA focuses on customer experience and maintains its social image through sustainable practices minimizing its environmental impact. Furthermore, flight cancellations and safety regulations resulting from the coronavirus outbreak have heavily affected the market demand (Sweney and Topham, 2021). Finally, technological factors are critical to the aviation industry’s growth. British Airways invests in technology and supports the digital transformation of operations, aiming to improve customer satisfaction and achieve operational efficiency.
Current changes in air travel demand and the world passenger traffic caused by the COVID-19 pinpoint the main challenges for the airline industry, such as revenue and profits damages, while Brexit implies uncertainty and impact on the airline’s operations in the EU. Furthermore, sustainable practices and technology use remain central to the company’s activities. Overall, the strategic challenges facing British Airways can be summarized as follows:
- How can the operational, accounting, and organizational problems caused by the global pandemic be tackled?
- What are the opportunities for operations expansion outside of the EU?
- Should airline sustainability initiatives be implemented to contribute to combating climate change and stimulating the economic recovery post-coronavirus?
- How can evolving technology be applied to maintain a competitive service advantage and high quality of services in challenging times affected by Brexit and COVID-19?
The PEST analysis performed in the previous section of this paper allowed for evaluating the broader business environment. In addition, it determined the key factors affecting the airline industry and the British Airways company. The complexity of the COVID-19 and Brexit situations and the combination of factors influencing the aviation industry operations raise several strategic challenges that must be considered in the airline’s future strategy.
COVID-19 Strategic Challenge
In particular, the onset of the coronavirus implies long-lasting impacts on the industry due to the decline in demand. As shown in Figure 2, there are several recovery profiles, including optimistic, pessimistic, and most likely scenarios. Either way, as Wollaston et al. (2021, para. 9) argue, “the severity of impacts experienced will prompt a reshaping of the competitive landscape for years to come.” As OECD (2020, para. 18) reports, the learning-by-doing strategy of aircraft manufacturers “may cause under-investment in technology, innovation or production facilities and, hence, justify public support.” As a result, policy responses to the crisis heavily impact air transport and include support schemes, sectoral schemes, and company-specific measures (OECD, 2020). Investments are critical for airlines to continue operations, implement technology, and reduce the industry’s environmental impact.
Air passenger carriers adopt different approaches to address the current market’s problems and adjust their strategic responses. In particular, Korean Air diversified the business and increased cargo operations which resulted in profits while most carriers reported tremendous losses (Globaldata Travel and Tourism, 2020). Singapore Airlines transformed one of its aircraft into a flying restaurant, while Qantas offered a sightseeing flight as a successful revenue stream (Globaldata Travel and Tourism, 2020). As can be seen, a diversification strategy can contribute to the recovery process post-COVID-19 by providing necessary revenue streams.
In this regard, British Airways was seriously impacted by the global situation. The company attempts to match the current market demand by allocating variable costs accordingly (Sweney and Topham, 2021). The cargo operations of BA have increased in contrast to long-haul flights, which decreased significantly (Sweney and Topham, 2021). As a result, this revenue stream allowed the company to stay afloat in the changing market environment. At the same time, it is essential to consider various operational, accounting, and organizational challenges caused by the global pandemic to identify the relevant strategy.
Brexit Strategic Challenge
Another strategic challenge for BA to consider is the impact of Brexit and the possibility of expansion outside of the EU. With its loss of the EASA member state status, British Airways became the third country with regards to the European Union which suggests the need for the approval of organizations willing to provide services to the EU (Perry, 2021). Hence, such an event can be considered an opportunity to expand the airline’s presence in other geographic markets, such as the United States and Asia-Pacific. Despite the presence of British Airways in the US market, it can still find new opportunities and markets to serve. In particular, routes expansion can result in profitable growth; however, there is a need to balance between leisure and business flights to meet the altered demand. Similarly, introducing more Asia-Pacific destinations can be another opportunity for the BA company. The industry’s recovery depends on government regulations, and British Airways can address its strategic challenges such as Brexit and COVID-19 by expanding its business further.
Sustainability Strategic Challenge
Another issue to address is the role of sustainability practices in the aviation industry. Air travel-related emissions are known to be one of the main factors contributing to global warming. Despite the current shift of focus to the coronavirus outbreak, many people see the opportunity in crisis. In particular, preventing future catastrophes is crucial, and investment in sustainable practices can result in long-term benefits. According to Blanshard and Cserep (2021, para. 4), “as aviation returns to growth and other sectors decarbonize, the industry will drive a growing share of emissions,” which implies the need for a proactive approach. The concept of corporate social responsibility plays an essential role to the modern customer, and passengers increasingly choose airlines that demonstrate responsible attitudes towards their carbon emissions.
British Airways is known for its commitment to reducing the industry’s carbon footprint. As Story (2021, para. 1) notes, the airline’s strategy involves “investing in more fuel-efficient aircraft, improving their operational efficiency, and investing in the development and use of sustainable aviation fuel.” It is critical to maintain the company’s objective despite the current challenges since responsible practices positively impact the brand image and can result in long-term financial, economic, and environmental benefits. Furthermore, sustainability goals provide an opportunity for collaboration and cooperation.
Technology Strategic Challenge
Technology and innovation are pivotal to the development of the aviation industry. Even though the pandemic shifted the airlines’ focus to survival rather than innovation, there are positive advancements resulting from the changing environment and the need for additional safety measures. In particular, aircraft disinfection techniques, passenger identification methods are only some of the examples of new solutions invented in the recent few years. Furthermore, to recover from the COVID-19 impact, it is essential for the industry to invest in digital technology and apply innovative thinking in all business operations.
British Airways viewed the pandemic as an opportunity to improve its operations and customer service. In particular, the company offered “a new initiative allowing travellers in the London area to check in their luggage the day before their journey and have it collected ahead of time” (Cirium, 2021, para. 3). Furthermore, BA allows its passengers to order food from seats onboard using the wi-fi, improving in-flight safety and supporting social distancing principles. Flexibility is critical in turbulent times, and offering options to the customer can improve the quality of services and provide the airline with a competitive advantage, resulting in improved demand.
Ansoff Matrix for British Airways
As can be seen, diversification strategy might be an opportunity for British Airways to improve its financial performance and competitive advantage as well as create shareholder value. According to Grant (2019, p. 299), changing corporate goals has been the primary driver of trends in diversification,” and the two primary objectives include risk reduction and growth. In particular, the acquisition is typically a successful strategy resulting in revenue growth. At the same time, companies should be aware of the transaction costs, particularly from the acquisition.
This analysis applies the Ansoff Matrix to British Airways in order to identify the potential growth strategy for the airline needed to address the market’s strategic challenges. As shown in Figure 3, this framework proposes four strategies: “market penetration, product development, market development and diversification” (Lohmann and Spasojevic, 2018, p. 143). Based on external and internal factors affecting the business, organizations can choose the relevant approach for strategic planning.
The market penetration strategy involves increasing the organization’s market share and focusing on existing markets and services. British Airways can implement this approach through competitive pricing and attraction, which will lead to consumption and sales. Furthermore, investing in marketing activities and enhanced communication allows for reaching more customers (Lohmann and Spasojevic, 2018). BA can reduce operational costs and introduce price-cutting to achieve competitive pricing. At the same time, the company is positioned as premium, which needs to be considered when deciding the affordability of services.
The market development strategy suggests offering the existing services to new markets. Such an approach involves investing in research and development (R&D) to identify possibilities and customer segments for the company (Lohmann and Spasojevic, 2018). British Airways can consider regional or international expansion to reach new consumers and create new routes. Furthermore, the market development strategy allows for improving visibility and strengthening the company’s brand awareness. Such activities are essential for purchase decisions and increased sales.
The product development strategy involves offering new services to existing markets. British Airways can make use of its technology-driven approach to modify and enhance its products and create more value for the customer. It is essential to invest in R&D to maintain a creative and innovative approach, particularly in times of crisis. Strategic partnerships can be crucial for BA to evaluate the acceptability of its new offerings before pursuing the product development strategy fully.
Finally, the diversification strategy refers to developing new products in new markets. For British Airways, such an approach is critical since it allows the airline to remain innovative and competitive while executing its strategic objectives with regard to technology use and sustainability. According to Lohmann and Spasojevic (2018, p. 146), “the most common airline related diversification strategies involve cargo; maintenance, repair and overhaul; catering; information technologies; and leisure management.” These activities can improve the quality of services and strengthen the company’s operations. There are several options available for BA, including horizontal and vertical diversification, as well as engagement into new business through acquisitions and mergers. Overall, the application of the Ansoff Matrix identified that diversification could be crucial to the airline’s recovery from the pandemic and Brexit effects. Despite the financial concerns, strategic factors offer numerous benefits and can outweigh the associated issues.
Pursuing the diversification strategy can benefit BA by strengthening its competitiveness and clients’ perception. The airline can alter its strategic focus to address the current challenges and diversify attributes that provide the most value to the customer. According to Globaldata Travel and Tourism (2020), the experience of other large air carriers such as Korean Air, Singapore Airlines, and Qantas indicates successful outcomes of differentiating revenues streams in the recovery process post-COVID-19. As reported by international organizations, recent events have disrupted global air travel and heavily impacted customer demand in the market (OECD, 2020; ICAO, 2021). British Airways is not an exception, and the decline in passenger traffic and revenue losses have a direct influence on the company’s strategy. The PEST analysis and Ansoff Matrix provided a foundation for understanding the strategic direction of BA to pursue in order to address the current challenges. At the same time, the barriers to implementing the diversification strategy include cultural attributes, the need for significant investment, and governmental policies. Therefore, the airline’s reliance on technology and research and development can b critical in developing an effective diversification strategy.
To conclude, British Airways operates in various markets, adjusting its strategic growth decisions and global operations based on the region and specific factors. The use of the PEST framework provided an overview of the external factors affecting the airline and industry as a whole. Upon revisiting the strategic challenges facing British Airways, one can assume that the company must tackle the effects of the global pandemic and the UK’s withdrawal from the European Union while retaining its focus on sustainability, technology, and innovation. The application of the Ansoff Matrix identified that BA diversification could provide a solution to operational, organizational, and financial problems and recover from the socio-economic impacts of recent years.
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