Strategic Report 2009 Group 10A

Candidates: 706523 , 412805, 802050, 464929

Executive Summary This report was produced for the purpose of providing British Airways Plc (British
Airways) with a strategic plan to implement over the next three years. British Airways is the UK
market leader in airline operations, however has faced increasing competition over the last decade
resulting in erosion in their market share. The report begins by analysing the current internal and
external environment of BA. Through strategic evaluation we have recommended that BA focus on
their fundamental service delivery to restore their competitive advantage within the industry. This
will require implementing a combination of two strategies; a people processes strategy and a
strategy focused on technological advancement. The people processes strategy was derived from a
number of industry sources outlining BA’s decline in customer satisfaction. The technological
advancement strategy coincides with the renewal of BA’s aircraft fleet and will further improve the
overall customer experience.

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Table of Contents

Table of
Contents...........................................................................................................................................3

1.1 Report
Objectives.....................................................................................................................................4

1.2 Company
Overview..................................................................................................................................4

1.3 Current
Strategies.....................................................................................................................................4

Figure 1 - Business Map (T-O

£8.32bn)........................................................................................................5 .........................................
...............................................................................................................................6

2.0 External
Analysis.....................................................................................................................................7

2.1 PESTEL
Analysis ................................................................................................................................7

2.2 Porter’s Five

Forces ............................................................................................................................9

2.3 GE
Matrix ..........................................................................................................................................10

3.0 Customer
Analysis.................................................................................................................................11

4.0 Competitor
Analysis ..............................................................................................................................12

4.1 Strategic
Groups.................................................................................................................................12

4.2 Airline Quality Review

(AQR)..........................................................................................................13

5.0 Internal
Analysis....................................................................................................................................14

5.1 Value Chain Analysis (VCA).............................................................................................................14

5.2 Resource Based View
(RBV).............................................................................................................16
5.3 Financial Analysis (Source: British Airways, 2008)..........................................................................17
6.0
Summary ...............................................................................................................................................1
8

6.1 SWOT
Analysis .................................................................................................................................19

6.2 Key Strategic

Issues ..........................................................................................................................19 .........................
.............................................................................................................................................21

7.0 Strategy
Formulation .............................................................................................................................22 7.1
TOWs Matrix ....................................................................................................................................22
Figure 11 - Preliminary Comparison of
Strategies...................................................................................23 8.0 Analysis of Strategic
Options.................................................................................................................24 8.1 Strategic Option
1 - Improvement to People Processes.....................................................................24 8.2 Strategic
Option 2 - Improved Environmental Stance. .....................................................................25 8.3
Strategic Option 3 - Improved Technological Stance. ......................................................................26
8.4 Strategic Option 4 - Segment
Focus...................................................................................................27 8.5 Strategic Option 5 -
Broader Service
Offering...................................................................................28 .............................................................
.........................................................................................................30 9.0
Implementation.......................................................................................................................................
31 9.1 Company
Structure.............................................................................................................................32 9.2 Service
Quality Gaps Model..............................................................................................................34 9.3
Managing the Change.........................................................................................................................35
9.4 Gantt
Chart.........................................................................................................................................37 9.5
Stakeholder Map................................................................................................................................38
9.6 Control
Systems.................................................................................................................................39 9.7
Balance Scorecard..............................................................................................................................40
10.0
Critique.................................................................................................................................................41

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1.1 Report Objectives

The objectives and structure of this report will consist of four main sections which will enable a
strategic direction to be recommended to BA: 1 2 3 4 To To To To research in to the current strategic
position of British Airways. critically analyse British Airways’ internal and external environment.
design a selection of strategic options utilising the internal and external analysis. evaluate the most
appropriate option for British Airways and discuss implementation.

1.2 Company Overview British Airways Plc (BA) is the UK’s largest international scheduled airline.
Alongside scheduled services, BA is engaged in the operation of international and domestic carriage
of freight and mail, and the ancillary services (Datamonitor, 2008). In association with codeshare and
franchise partners, BA fly to more than 300 destinations, and carried more than 33 million
passengers, earning over £8.7 billion in revenue in 2007/08 (British Airways, 2008). Employee
headcount in March 2008 stood at 42,377 people (Datamonitor, 2008). Since privatisation in 1987,
BA has continued to grow as competition in the market has risen worldwide. In recent times, BA has
successfully been labelled the world’s first airline to take part in a scheme to reduce greenhouse gas
emissions (2002) and to allow passengers to print online boarding passes (2004) (British Airways,
2008). In 2005, the company saw Willie Walsh become Chief Executive of BA (Flight Global, 2008),
who to date has driven the company through the completion of Terminal 5 at Heathrow, amongst
other new initiatives. Despite reported and imminent industry hits due to the global economic
downturn, BA’s future looks promising. As BA announces its aim of becoming the ‘world’s most
responsible airline’ in the latest annual report (British Airways, 2008), great importance lies in
developing guiding principles and careful strategic direction to allow the achievement of this goal.
1.3 Current Strategies The report will be designed in consideration of BA’s current strategies (British
Airways, 2008): 1 2 3 4 Upgrade customer experience via the introduction of text and mobile
services for business class customers. Modernise aircraft fleet and offer new services. Manage cost
base. Increase corporate responsibility through environmental performance and partnerships.

Although BA does operate in a number of areas such as cargo, we are choosing to focus our report
on the scheduled passenger market due to the size and opportunities that BA has in this market
(Figure 1: BA Operations).

4
Figure 1 - Business Map (T-O £8.32bn)

Industry Regulators And Influencers

Member of: AEA

UK Government BAA, CAA, DFT

Research and Interest Groups

Component Suppliers

Aircraft Suppliers: Boeing and Airbus SAS

Airports: Heathrow and Gatwick...

Other Suppliers: Food Suppliers…

Support Provider Subsidaries

BA Avionic Engineering, BA Interior Engineering, BA Maintenance Cardiff BA Leasing, BA Capital, BA

Holdings, BA Cash Management, Speedbird Cash Management, Speedbird Insurance Company, Air
Miles Travel Promotions

Cargo = 7.0%

Mail +freight diplomatic bags Scheduled BA Cityflyer, Openskies

Passenger = 86.2%*

Non-scheduled services BA Holidays

BA Service Portfolio

Other Airline Operators: Ryanair, Easyjet, Virgin Atlantic, Lufthansa, Air France KLM, Aer Lingus…

Other = 6.8% Cargo Handling, Airframe Maintenance, Computer and Communication Services and
Consulting Services Alliances: Quantas, AA, Iberia, Continental Investments (equity owned)
Associates: Iberia S.A. 13.15% Avaliable for sale: Flybe Group Ltd 15%, Comair Ltd 10.9%

Intermediaries

Online websites

Direct Sales BA.com

Travel Agents

Customers

International Travellers: (by sales) Continental Europe = £1,219 ml The Americas = £1,697 ml Africa,
Middle East & Indian subcontinent = £821 ml Far East and Australisia = £659 ml

Domestic Travellers: (by sales) UK = £4,357 ml

Independent Customer Review: Skytrax rates BA as a 4* airline.

5 Adapted from: British Airways (2008) (* percent of operations)

6
2.0 External Analysis For success within the airline industry, an awareness of the external
environment is essential. This section aims to highlight the position of the industry, in particular
looking at competitors and assessing BA’s capability to meet current and future challenges.

2.1 PESTEL Analysis (Source: Johnson et al., 2008, p56) Figure 2 – PESTEL Analysis An analysis of the
macro-environment has been carried out using PESTEL (Figure 2).

PESTEL Factor Political Key Points Heavy regulation (AEA, 2009). Increased security due to past
terrorist threats (DFT, 2008). Economic Global economic crisis: World growth is projected to just
over 2 percent in 2009 (IMF, 2008). Pound weakens especially against the Euro. Oil prices: declined
by >50 % since their peak retreating to 2007 levels. Decline in fuel price = strengthening of the dollar
(IMF, 2008) UK consumer spending saw its sharpest decline for 13 years between July and
September 2008 (Channel 4, 2008). The UK has an aging population (see appendix 3) (National
Statistics Online, 2008). Increasing unemployment (Kollewe and Sager, 2008). A recent survey
revealed that 34% of online consumers plan to use pricecomparison sites more in 2009 (NMA, 2009).
Online booking services and check-in is becoming increasingly used by the airline industry. Noise
pollution controls, and energy consumption controls (DFT, 2008). Limited land and for growing
airports – Expansion is difficult at Heathrow as it would result in a loss in the London’s Green belt
area. (BBC News 2006) Consumers are becoming increasingly ‘green’ and more aware of the
environmental impact of their actions. Cancellations of flights and loss of baggage (Channel 4, 2008).
Collusion and price fixing. Recognition of trade unions and industrial action e.g. Cabin Crew strikes. 7
Open Skies Agreement (AEA, 2009) Implications for BA Compliance is essential if BA wants to
continue operations. Sufficient security measures should be in place to ensure consumer confidence
and competitive advantage is maintained. Possible reduction in the amount of business travel as
companies are cutting costs and using alternative means of communication such as
teleconferencing. BA is vulnerable as a UK operating airline to a poor exchange rate. Fluctuations in
oil prices and exchange rates will directly affect BA’s cost base. More intense competition Potential
opportunity for growth as older generations have more time to spend on leisure activities such as
international travel. Increased bargaining power as an employer. Increased consumer awareness and
therefore bargaining power. BA must ensure that they remain up to date with these technological
advances whilst avoiding becoming overly reliant, as this may isolate certain consumer markets (i.e
the elderly) who don’t feel comfortable using such technology. New legislation (e.g. Climate Change
Bill) enforcing tighter environmental regulation may increase operational costs each year. Limited
capacity=> utilisation of capacity.

Social

Technological

Environmental/ Ethical
Failure to adopt an integrated environmental strategy could lead to a detrimental effect on the BA’s
reputation and income. Such ethical issues could have a detrimental effect on reputation if left
unresolved. Restriction on mergers will have an impact on BA’s proposed alliance with American
Airlines. Good employee relations are essential if BA wants to avoid industrial action and interrupted
operations. Opportunity for BA and its competitors to freely transport aircraft between the EU and
US.

Legal
8
2.2 Porter’s Five Forces

(Source: Johnson et al., 2008, p60)

It is important to analyse the competitive nature of the airline industry in order to assess the
position of BA. The ‘Five Forces’ tool will enable BA to make strategic decisions in order to increase
profitability.

Force Competitive Rivalry • BA caters for both long haul and short haul flights. Within long haul
there is little differentiation between BA and their competitors, in terms of price and service
offering. • The short haul market is more fragmented with many small players. • Direct competitive
rivalry is fierce, e.g. Virgin has a website opposing the proposed strategic alliance between BA and
AA - ‘No Way BA/AA’ (Virgin Atlantic, 2008). • Consolidation of competitors has increased
competition.

Power of Suppliers • Two aircraft manufacturers = High bargaining power. • BA restricted by sole
supplier of fuel to the airport. • Priority of landing slots is given to historic rights of existing users
(IATA, 2008). • BA employees use collective bargaining through trade unions in order to increase
their bargaining power

Power of Buyers • Low concentration of buyers to suppliers means they have little bargaining power.
• Increased internet usage has amplified awareness and interaction of customers (Keynote, 2008c).

Threat of New Entrants • Significant barriers to entry: such as the competitive environment, high
regularity requirements and high capital cost requirements. • Barriers to exit are in place which
deters new entrants. • The failure of recent airlines such as XL and Zoom is likely to deter new
entrants (Times Online, 2008).

Threat of Substitutes • There are few direct substitutes: o Short haul flights: the Eurostar or a ferry.
o Long haul flights: no notable substitutes. Strength

HIGH

HIGH

MEDIUM

LOW
LOW

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2.3 GE Matrix

(Source: Johnson et al., 2008, p280.)

The GE Matrix (Figure 5) provides evidence of opportunities for growth through market
development in new markets and market penetration in existing. Figure 5 – GE Matrix Competitive
Strength Market Attractiveness High High Medium North America BA=1.7% Latin America BA=1.9%
Low

Medium Asia Pacific BA=1.1% Western Europe BA=6.9%

Middle East and Africa BA=2.3% Low Eastern Europe BA=2.2% Australasia BA=4.0%

Size of Circle = size of market (British Airwayssed on 2006 data) Width of Circle = CAGR Forecast
Growth (2006 – 2011) Source: Euromonitor (2008) From the analysis above, it is evident that if a
market development strategy was to be pursued by BA, Asia Pacific and Eastern Europe would be
prime markets for profitability due to high growth (Appendix 5/6). It may also be a requirement to
build defence strategies in BA’s core market, Western Europe, due to low growth and intense
competition.

10
3.0 Customer Analysis Over the past decade there has been increasing complexity in customer
needs, as the customer has become more educated and demanding. Particularly, the following
changes have occurred:

A shift in demographics to older passengers (Keynote, 2008c).

• Increased global connectivity allowing the usage of internet and search mediums (e.g. comparison
and review websites). • • • Increased requirement for convenience (e.g. new destinations, quick
check-in). Price has become more of a priority Segments have become more defined within their
needs.

Evidence that BA is failing to respond to the changing customer landscape includes:

••

The amount of BA customers recommending their services reduced from 61% in 2006/07 to 59% in
2007/08 (British Airways, 2008). BA have been criticised for slow innovation (Doganis, 2006, Pg 165).
Poor reliability and baggage handling (AQR)

• Failed attempts to target the price conscious consumer through low cost airline operation (Eirma,
2008).

11
4.0 Competitor Analysis 4.1 Strategic Groups Figure 3 – Strategic Group Analysis (Source: Johnson et
al., 2008, p73-77.)

LOW

PRICE

HIGH

Specialist e.g. PalmAir

Mass Service Providers e.g. BA, Virgin, NonFigure 3 illustrates that BA’s direct competitors are those
who operate similar services and lie within Local e.g. schedule Lufthansa, the same strategic group.
The BMI competition is likely to be most intense within this group as they are e.g. AirFrance KLM
seeking similardstrategies.

Thomson

Lufthansa and KLM-Air France are the 2 leading European Airlines Member carriers in terms of No-
frills passenger numbers, withe.g. Ryanand 14.1% respectively of the total number of passengers
carried. 15.1% BA comes in third with 9.3% of the total (Keynote, 2008c). Air, Easy Jet BA face
competition from a small number of serious contenders in the UK, with the main contenders being
Virgin Atlantic, and United Airlines in the Star Alliance soon controlling BMI (Euromonitor, 2008).
Although they do not lie within the same strategic group as BA the advent of low-cost air LOW travel
has changed the faceBREADTH OF SERVICE Airlines such asHIGH of the airline industry. Ryanair and
EasyJet have established themselves among the leading carriers in Europe, whilst the more
established long-haul PRICE FOCUSED MIDDLE MARKET carriers such as BA have struggled to keep
up with FOCUScounterparts’OFFERINGS their ON SERVICE growth rates. Moreover the economic
downturn and sharp fall in oil prices has caused a price war between Emirates, BA and Virgin Atlantic
on the London-Dubai route. Fares have dropped by 30% across the airlines. Thus competition still
remains fierce. Based on the strategic group analysis it could be argued that there is a gap in the
market for a low cost airline operating a high breadth of service however it is likely the reason no
airlines have adopted this strategy is due to the fact that it would be destined to fail. This
assumption could be supported by BA’s failed attempt to enter this market in recent years
(Telegraph, 2002).
12
4.2 Airline Quality Review (AQR) Skytrax is an independent website and therefore gives an objective
view of BA’s quality of service in comparison to its competitors and may highlight strategic issues
that need to be addressed. Figure 4 – Competitive Spider Index

Created using data sourced from Skytrax, 2008.

Website 5 Overall Rating 4 3 Responding to Requests 2 1 Interaction with Passengers 0 Assisting

Families/Children British Airways Virgin Atlantic Air France KLM Service Efficiency Cabin Safety
Lufthansa Handling Delays/Cancellations Check-In Services

Quality of Meals Inflight Entertainment

Seat Com fort

All ratings taken from the website are based on scale of 1 to 5 with 5 being the highest.

•••••

The overall Airline Rating for BA was 4. Its major competitors all scored 4 apart from KLM, which
scored 3. BA and Virgin Atlantic are virtually identically marked in all categories with the rest less
highly rated. BA is not a Quality Approved Airline, whilst Virgin Atlantic is. BA needs to improve upon
its interaction with its passengers across all classes in order to outperform its nearest competitor
Virgin Atlantic. BA needs to improve its baggage delivery service. ‘Slow baggage recovery at T5’
(SkyTrax, 2008). General customer reviews have shown a common theme: poor in-flight
entertainment which regularly breaks down. BA needs to look at improving its online services by
providing additional services all with a more personal touch. Six competitors hold a five-star rating
with the independent evaluator.

13
•

For BA to become a 5 Star Airline emphasis needs to be placed on the quality of its customer service
delivery at all levels, which it has lacked in the past. This is what will differentiate itself between its
main competitors.

5.0 Internal Analysis It is now essential to analyse the internal environment in order to formulate
appropriate strategies. 5.1 Value Chain Analysis (VCA) BA have tried to control the system further by
forward and backward mitigation. Through controlling many component supplies in-house, and
through BA Holidays Plc, BA increases their reach in the value system to the supplier and channel
value chains.

Figure 6 – Value Chain (Adapted from: Johnson et al., 2008, p110)

FIRM INFRASTRUCTURE Structured hierarchy allows BA to make use of a multitude of specialist

knowledge in order to gain competitive advantage over downsized firms. HUMAN RESOURCE
MANAGEMENT Invested in the development of customer service training in 2007 attracting the best
employees. ‘Speak Up’ opinion survey encourages employees to provide feedback (British Airways,
2008). TECHNOLOGY DEVELOPMENT BA has added value in this category over smaller companies
due to slack resources that can be employed to innovate the service (e.g. individual LCD screens).
PROCUREMENT Due to the size and historical business relationships and alliances, BA is able to
leverage suppliers and through economies of scale make efficiencies where competitors may fail.
PRIMARY ACTIVITIES INBOUND OPERATIONS OUTBOUND MARKETING & POST SALE LOGISTICS
LOGISTICS SALES SERVICE Stock Control High quality training accredited by City & Guilds (British
Airways, 2008). Ongoing relationship with suppliers (e.g. Gate Gourmet. Increased Baggage Security.
Quick check-in services and secure online bookings with ability to pre-book additional services.
Customer Service Large database of airport slots enable passengers to access the majority of
destinations from preferred airport. Marketing communications to all stakeholders. Brand allowing
for large budget to be spent in this field. Loyalty card. club SUPPORT ACTIVITIES

Update communication on other services

Whilst the Value Chain highlights the primary and support activities that add value to BA, there are a
number of inefficiencies within these activities that arguably reduce the amount of value provided
(see figure 7 and 8).

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Figure 7 – Support Activities Value Loss

SUPPORT ACTIVITIES

Firm Infrastructure HRM

Technology Development

Large bureaucratic infrastructure decreases effective communication and increases inertia. BA’s
employee opinion surveys attracted a mere 35% response rate in 2007 (British Airways, 2008). Due
to high collective bargaining capabilities, BA has contended a number of highly publicised employee
relations issues (e.g. Cabin Crew strike over pay, sickness absence, and staffing in 2007 (BBC News,
2007). BA has failed to gain recognition for new innovation.

Figure 8 – Primary Activities Value Loss

PRIMARY ACTIVITIES

Inbound Logistics

Operations/Outbound Logistics Marketing & Sales

High solidarity between supplier employees and BA employees has created a history of negative
industrial action. For example, in 2005, BA employees walked out for two days when Gate Gourmet
employees were sacked (BBC News, 2005). TV documentary reported on Terminal Five operation
difficulties, an emergency landing at LHR, poor baggage handling and flight cancellations (Channel
Four, 2008). A lack of innovation in their marketing communications (e.g. Virgin gaining value over
BA).

15
5.2 Resource Based View (RBV) It is suggested that an organisations competitive advantage and
superior performance is resulted from its distinctive capabilities (Johnson et al., 2008 p95). The
resource based view highlighting BA’s resources and competencies is outlined below.

RESOURCES Threshold Resources THRESHOLD CAPABILITIES Tangible • Fleet of 245 aircraft accessing
over 550 destinations (British Airways, 2008). • Additional services (e.g. BA Holidays & The London
Eye Company (Datamonitor, 2008)). Intangible • International Customer Database. • Partnerships &
Alliances with ‘oneworld’ (incl. American Airlines), codeshare/franchise partners, and subsidiaries.
Unique Resources Tangible • Sole access to LHR’s Terminal 5 (BBC News, 2008). Intangible •
Reputable brand image. BA is recognised globally as a reputable brand, reinforced by its
longstanding existence within the industry.

COMPETENCIES Threshold Competencies

Training of ground school, flight simulators, and cabin safety training (BAFT, 2009). • Economies of
Scale from ongoing suppliers. • Ability to fly and manage passengers safely on various routes
(Davies, 2000).

ADVANTAGECAPABILITIES FOR COMPETITIVE

Core Competencies

•OpenSkies’ subsidiary’s aircraft never have more than 64 passengers per flight, with one attendant
per twelve customers (British Airways, 2008). First UK airline recognised as a training centre by the
City & Guilds, qualifying all cabin crew with NVQ Level 2 (British Airways, 2008).

16
5.3 Financial Analysis (Source: British Airways, 2008). In 2007/08, BA made post-tax profits of £694
million, an increase of 128% over the prior year. In 2006/07 profits were £304 million. The difference
is mainly caused by the loss from discontinued in operations in 2006/07 of £134 million. However,
the doubling in profits is also attributed to a decrease in operating costs and no credit arising on
changes to the pension scheme or provisions made for settlement of completion investigations. BA
has performed well in managing and reducing costs. Operating costs have risen steadily over the
past 5 years and this is in-line with the increase in fuel prices and increase in landing fees/en-route
charges as the company expands. In 2007/08 BA had operating costs of £7,878 million which is a 1%
decrease over the prior year despite increase in fuel costs to £2,055 million and increased landing
fees, handling/catering charges with Terminal 5. BA managed to reduce costs through a reduction in
the number of employees by approximately 3000 people. BA’ online booking/reservation service
helped reduce agency costs leading to a £77 million decrease in selling costs. BA efficient control of
all these costs has helped put them into a strong position in relation to its competitors, especially
with the current economic crisis. BA gearing ratio was at 27% in 2007/08, which is a reduction from
the prior year. This reduction shows that less debt is being taken on by the firm. This could also be
due to the fact that they have paid some of it back. Also, with increased liquidity to 21% from 19%,
BA is a strong position in the current economic crisis and is more likely to have better relations with
its suppliers and financial institutions going forward. BA’s earning per share increased, reaching 59p
per share. This was due to the increase in profit before tax and the reduced corporation tax rate.
Figure 9 – BA’S Turnover, PBT, PAT

17
Figure 10 – BA’s Fuel and Operating Costs

Overall BA remains financially stronger than its competitors. At the end of the 2007/08 financial year
they were in a good position to withstand most shocks and this has been the case. They have stated
that they expect an operational loss of £150 million for the 2008/09 year (IHT, 2008), due to the
trading conditions and fall in value of the pound. Despite a fall in oil prices, the cost of fuel for BA will
remain approximately the same due to the devaluation of the pound and the fact that fuel is bought
in dollars. However, compared to its competitors it still remains in the healthiest position and will
have to weather the difficult future ahead and may report losses in 2009.

6.0 Summary

18
6.1 SWOT Analysis (Source: Johnson et al., 2008, p81.) It is important that strategic development is
reflective of BA’s strengths and weaknesses relative to competitors and the opportunities and
threats presented by its external environment (Pitts & Lei, 2003): Internal Strengths • Brand Image •
• • Partnerships & Alliances Financial size and stability Terminal 5 VCA Refer to: RBV Financial
Analysis

Internal Weaknesses • Poor employee relations history

Reliability and trust Innovation & change

External Opportunities • SkyTrax Quality System • • Competitors forced exit Competitors reliability
failing on delivering

AQR Porter’s Five Forces GE Matrix

• Emergence of new markets External Threats • Open Skies Agreement • • • Environmental

awareness Global economic crisis Lower cost competition

PESTEL Strategic Group Analysis

6.2 Key Strategic Issues

19
Analysis Tool PESTEL

Porters Five Forces Customer Analysis

Strategic Group Analysis

Airline Quality Review

GE Matrix The Value Chain

Key Findings • Global economic crisis. • Higher regulatory requirements. • Increasing environmental
awareness. • Decline in consumer spending. • Increased use of the internet by customers. • High
competitive rivalry and bargaining power of suppliers. • Consumer trends in high convenience and
high expectations of service. • Intense competition within strategic group and trend for
consolidation. • The biggest other threat comes from low cost airlines. • BA = poor baggage
handling, poor on flight entertainment and low customer satisfaction. • Highest growth markets;
Asia Pacific and Eastern Europe. • BA adds value; financial size and stability, brand image, industry
expertise, and partnerships and alliances. BA loses value to competition; employee relations and
performance, marketing delivery, reliability, and slow innovation. Strong resources including sole
access to hub within largest UK Airport. Strong training competencies. Increased profits and lower
operating costs. Lower gearing ratios and higher liquidity. Possibility of a loss in 2009 as a result of
the economic downturn.

Strategic Implications Focus on technological and environmental issues.

Defensive strategies needed to protect market share. Ensure changing customer needs are
understood and met Although low cost airlines are the biggest threat to BA, moving into low cost
market is not deemed appropriate based on previous failed attempts. Service Quality needs to be
improved to gain a competitive advantage BA has a strong opportunity for market development in
Asia and Eastern Europe. BA needs to address the areas where value is being lost to avoid attacking
competitor strategies.

•
Resource Based View

•••••

Utilise BA core competences to gain competitive advantage.

Financial Analysis

Investment resources available. Increased scrutiny on strategic projects for risk assessment.

20
21
7.0 Strategy Formulation 7.1 TOWs Matrix

(Source: Johnson et al., 2008, p367.)

A range of strategic options will now be formulated using the TOWs matrix to resolve the strategic
issues highlighted from the analysis. External Opportunities Skytrax- star system of quality
Competitors forced exit Competitors failing on delivering reliability Emergence of new markets
Internal Strengths Brand Image Partnerships and Alliances Financial Size & Stability Terminal 5
Strategies for strengths to meet opportunities: • • • • Weaknesses Poor employee relations history
Recent negative attention on reliability and trust Quick innovation and change Segment focus.
Supply chain migration. Introduction of complimentary services. Broader service offering. Strategies
for Weaknesses not to expose threats: • Improved environmental stance. • Diversify into other
transport markets. Threats Open skies agreement Environmental Awareness (Climate change bill)
Global Economic Crisis Lower cost competition Strategies for Strengths to defend threats: •
Renovation of brand image.

Strategies for opportunities to overcome weaknesses:

Improved people processes. Technological advancement.

Figure 11 below gives a brief explanation of each strategic option and classifies them within Ansoff’s
matrix. A preliminary analysis will be made, scoring each option using a number of defined
performance indicators. This will lead to the elimination of options that are not considered suitable
for BA, leaving the 5 most appropriate strategies to be further analysed for consideration.

22
Figure 11 - Preliminary Comparison of Strategies

Do BA have the financial resources? 1 = No 3= Possibly 5 = Yes 5 Effect on Brand Image. 1 = Bad 3 =
No change 5 = Good 5 Effect on competence 1 = Bad 3 = No change 5 = Good In accordance with
current strategy? 1 = No 5 = Yes 5 Level of risk involved? 1 = High 3 = Medium 5 = Low Score Accept
for further consideration?

Strategy linked to Ansoff

Strategic Option

Explanation

1. Improvement to people processes 2. Improved environmental stance. 3. Renovation of brand

image. 4. Segment focus 5. Technological advancement. 2. Product Development

Reduce current tension from negative employee and customer relations. Go above and beyond
current environmental requirements. Renovation and modernisation of brand image in an attempt
to gain market share. Focusing on business class customers as the most profitable segment of the
business. Introduction of internet access on flights to improve the overall quality of service. Offering
of complimentary services such as car rental or hotels. Increase number of destinations BA flies to,
focusing areas of growth such as India and China. Diversify into substitute services such as rail in an
attempt to maintain competitive advantage. Vertical integration along the supply chain. i.e. Gate
Gourmet or Boeing.

20


33

55

33

51

33

19 15

1. Market Penetration



53

55

35

15

53

19 21
3. Market Development

6. Introduction of complimentary services. 7. Broader service offering 8. Diversify into other

transport markets. 9. Supply chain migration.

33

55

33

15

13

13 19

1
9

4. Diversification

11

23
8.0 Analysis of Strategic Options Based on the analysis performed in figure 11 the five most viable
strategic options will now be considered further in terms of suitability, acceptability and feasibility.
8.1 Strategic Option 1 - Improvement to People Processes Brief Outline: The analysis highlighted
recent negative attention both internally and externally. The RBV and SWOT identified BA’s public
criticisms for poor bag handling and delay management, and disapproval following a number of
negatively handled employment related cases. A people processes strategy may rebuild brand image
and stakeholder confidence. SUITABILITY Poor employee relations history and recent negative
attention on BA’s reliability and trust (SWOT). Given the current economic environment,
unemployment is increasing (PESTEL). Therefore, the threat of industrial action and resignations are
less likely at this time. BA’s current strategies are to motivate, engage, support and develop
employees, alongside improving baggage handling and delay management at their resident airports
(British Airways, 2008). Increase in internet usage, with more customers and independent services
reviewing and sharing feedback (Porter’s five forces). Better customer relations may improve such
reviewing mechanisms. ACCEPTABILITY Employees and customers are likely to invest high interest
into the development of their relations with the organisation due to the negative past experiences.
Skytrax highlights that customer relations is an important measure for customers when selecting
airlines for travel, increasing the potential of high returns (Skytrax, 2008). FEASIBILITY The Resource
Based View (RBV) illustrates an international customer database holding. Access to such data could
assist BA in market research and customer relation development based on findings. The industry and
organisation is highly unionised, and are likely to gain support from this external body when
strategically developing employee relations. SUPPORTS STRATEGY?



SUPPORTS STRATEGY?



SUPPORTS STRATEGY?



24
8.2 Strategic Option 2 - Improved Environmental Stance.

Brief outline: As identified within the PESTEL analysis, environmental issues are becoming increasing
important. A reactive strategy therefore could be to build an improved environmental stance and go
beyond the requirements of regulations such as the climate change bill. SUITABILITY BA benefits
from a sound brand image (RBV) which would be further enforced by this strategy. This would
ensure that BA remains a strong global competitor by ensuring they are meeting changes in socio-
economic behaviour. Consumers are becoming more environmentally friendly and this strategy
would at least ensure that BA’s market share is not compromised if competitors move in a similar
direction (PESTEL). ACCEPTABILITY Changes in customer preferences indicate a heightened concern
for the environment (PESTEL); therefore this strategy is low risk, especially when coupled with a low
degree of uncertainty. Furthermore, this strategy will ensure that BA is identifying and meeting
customer demands. As the requirements of environmental regulations are frequently increasing
(PESTEL), it would be beneficial for BA to be the first mover in the industry and make changes before
any of its competitors. FEASIBILITY Resources may be better employed elsewhere, as investing in
environmental policies may not increase returns. BA must be confident that it will be able to
successfully pursue such a strategy as if it fails it would be open to public scrutiny which could
damage its currently strong brand image (RBV). SUPPORTS STRATEGY?  

SUPPORTS STRATEGY? 

SUPPORTS STRATEGY?  

25
8.3 Strategic Option 3 - Improved Technological Stance.

Brief outline: The technological capabilities of an airline is increasingly affecting consumer choice of
airlines, from both leisure and business fliers. Greater improvement of the in-flight services will
enhance their overall service, increasing long-term revenues.

SUITABILITY The in-flight entertainment facilities need to be greatly improved and become more
reliable. This will lead to a long-term growth in the number of passengers (AQR). Many of BA’s main
competitors are beginning to introduce basic internet capabilities on selected flights. Therefore it is
in its interest to keep up with the competition and exceed it by rolling out internet access on all
flights. BA is currently testing the service on one flight from London City Airport to JFK, New York
(Shephard, 2009). BA also needs to compete with other modes of travel, e.g. Eurostar, which already
have internet capabilities (AQR). By implementing the strategy, BA can modernise its image whilst
maintaining traditional values (AQR).

SUPPORTS STRATEGY? 

ACCEPTABILITY Extensive testing has found the internet connection to be reliable, with loss of
connection only occurring for a couple of seconds during adverse weather conditions. Delivery time
of the project – Implementation takes only 1-3 days per plane (Row 44, 2008).

SUPPORTS STRATEGY? 


FEASIBILITY Ownership of the operations is much less costly and more reliable than the abandoned
‘Connexion’ service offered by Boeing (DailyWireless, 2007). BA has the slack resources in the
technology department needed to implement this strategy (VCA). BA must successfully deploy this
technology first time; otherwise it will receive serious criticism and could ruin its long-term image.

26

SUPPORTS STRATEGY? 


8.4 Strategic Option 4 - Segment Focus Brief outline: Focus and tailor tactics to the business segment
to combat Virgin Atlantic’s market share growth. SUITABILITY The company overview shows this
strategy aligns with the existing BA strategy to improve the customer experience. The recent 8.6%
drop in BA’s business class passengers suggests a need to address the current strategy (Milmo,
2008). Although the business segment is not growing as significantly in long haul as in short haul,
(Keynote, 2008c), the profitability and sustainability of the customers demand provides incentive for
market share growth. Through focusing on one segment BA may lose their advantage in other
segments (see appendix 8). Stakeholders may view this strategy as competitor narrow focus as BA
would be targeting their prime domestic competitor and challenging Virgin Atlantic at their own core
competence (Competitor Analysis). SUPPORTS STRATEGY? 

ACCEPTABILITY In relation to other strategies the benefit to cost ratio may not be as great. The
development of database marketing in line with BA’s loyalty club card in order to segment and
target these business users will increase relationship marketing operations, increasing BA’s failing
customer service (AQR). The benefits should also be sustainable through increase brand image and
preference (RBV). FEASIBILITY Competition such as Virgin, have made head way in segmentation
development, however with the brand reputation of BA and the expertise within the firm can ensure
success (RBV). The time frame to implement the strategy is achievable through resource allocation,
as there is no immediate urgency or threat (Competitor Analysis). BA may have already missed the
first mover initiative with specialists such as Virgin being so successful, the imitation BA would offer
may gain little credit (Competitor Analysis, SWOT).

SUPPORTS STRATEGY?  


SUPPORTS STRATEGY? 

27
8.5 Strategic Option 5 - Broader Service Offering Brief outline: Extend flights and services to new
destinations past that of BA’s current strategy. SUITABILITY Utilises the core capability of BA, their
service portfolio, in their core long haul market (British Airways business map). There is an increasing
demand for new destinations to be reached directly by domestic and international travellers
(Customer Analysis). As the pound continues to fail against the Euro, the economic advantage to
travelling to other destinations is found (PESTEL). To gain significant share in the most profitable
markets in the short term it may be worth focusing on a few markets as is outlined in BA’s current
strategy. Also the demand level of many markets is still unclear, and a phrased approach to
increased destinations may be the best (GE Matrix). BA has just restarted services to some
destinations in the middle east after a decade of a turbulent political environment
(Tradearabia.com). The risk to some destinations is still present and BA may not wish to take on the
security risks. SUPPORTS STRATEGY? 

ACCEPTABILITY Extending markets and their opportunities allows BA to capitalise on low competition
as the first mover advantage is gained (GE Matrix). The benefits far outweigh the costs, although the
difference in benefit to the current strategy may be doubtful in relation to other strategic options.

SUPPORTS STRATEGY?



FEASIBILITY Funding for the current strategy can be extended more easily for this aligned strategy.
The resources required for a successful strategy are within the capabilities of BA (Financial Analysis).
BA’s brand strength accommodates globalisation and a higher probability of acceptability by new
countries (RBV). Against local competition BA’s brand strength may not be enough to achieve the
demand needed (RBV).
SUPPORTS STRATEGY?



Based on the analysis of the strategic options it has been decided that before growth strategies are
pursued BA should focus on defending its current market position and achieving fundamental
service

28
quality. Based on this the people processes and technological advancement strategies are deemed
most appropriate for implementation.

29
30
9.0 Implementation Based on the analysis of strategic options it is proposed that two strategies are
implemented simultaneously. These strategies are a people processes focused strategy and
technological advancement. Figure 12 details the objectives and performance measures of these two
strategies. Figure 12 – Strategy Overview Strategy People processes Aim: Improved stakeholder
brand image & profitability Objectives • Utilise databases. • • Improve service delivery efficiency.
Improve internal communication. Implement effective review monitoring. Following succession with
test internet implementation, roll out internet on-board internet access. An appropriate pricing
strategy involving complimentary service for first class whilst targeting business class as the most
profitable market. Continued market research to ensure that this is a valued service and seek
opportunities for further development. Performance Measures • Profit margin increase of 2 – 3%. •
Increase repeat purchasing by 25%. • Increase customer recommendation from 59% (2007/08) to
70%. • Improve employee survey rate from 35% (2007/08) to 80% (Value Chain). • Install equipment
on remaining 244 aircraft.

• Technological advancement Aim: Customer Loyalty & Market Share • •

• Increase business class market share by 10%. • 80% of business class customers purchasing
internet usage.

• Following R&D implement 1 new technological service.

In order for the chosen strategies to be successful effective implementation is essential to organise
and enable success and to manage the changes that will impact BA.

31
9.1 Company Structure When implementing strategy, people are crucial to the success (Johnson et
al., 2008), therefore the structure within BA will now be analysed to ensure successful
implementation. 9.1.1 Corporate Level Structure

(Adapted from British Airways, 2008). At a corporate level, BA has a good structure already in place.
There is a new Acting Customer Director on an interim basis, Silla Maizey (British Airways, 2008). She
has introduced a new customer service team working with Heathrow Customer Services, designed to
put customers first. Using the current structure to implement our strategy, it is recommended that a
permanent and not acting director to be recruited. In terms of the technological strategy, no
amendments to the current structure are necessary as BA already have systems in place to
implement new technology. 9.1.2 Business Level Structure At a business level each department will
need to ensure all staff implements the strategies that have come top-down from a corporate level
and work within the organisation’s brand values. Each department must also tailor the corporate
level objectives specifically to its own targets. This will help to build the brand, improve its customer
relationship focus and achieve the stated objectives. 9.1.3 Functional Level Structure Every function
must coordinate with each other to ensure objectives are met and an updated operations manual
must be developed. Specifically for the relations strategy, detailed targets must

32
be stated for both the marketing and HR functions with constant data capture and analysis to see
whether the targets are being met. Sufficient training on the new onboard technology will be
necessary on an ongoing basis to ensure that employees are fully familiar with the service.

33
9.2 Service Quality Gaps Model The Service Quality Gaps Model demonstrates the long-term
strategy to improve service quality (Appendix 4). Figure 13 – Application to BA Service Gap The
Knowledge Gap Current Priority Low Strategy status Current Strategy in practise BA has completed
extensive market research into understanding the customer (British Airways, 2008), and our
assessment suggests in this fast changing environment, that it needs to be sustained. BA will soon
renew their fleet (British Airways, 2008). Our recommendation is to incorporate the latest
technology. This will address the current service design’s failure to meet customer needs in terms of
operational efficiency. The issue with the service delivery is for BA to maintain satisfied employees.
Our recommendation is for BA to invest in research to understand the employee’s needs,
responding with an adaptation in HR policy and internal marketing culture. BA appears to be losing
value in the marketing delivery over competitors such as Virgin and EasyJet. A future
recommendation and development strategy would be to address the external communication and
ensure the promises of delivery previously corrected reach and penetrate the relevant target
market.

The Design and Standards Gap

Medium

Current & recommended

The Performance Gap

High

Recommended

The Communications Gap

Medium

Future
34
9.3 Managing the Change Figure 14 – Types of Change Scope of Change Realignment Transformation

Incremental Nature of Change Big Bang

Adaptation

Evolution

Reconstruction

Revolution

Source: Johnson et al., 2008, p520. The shaded area of figure 14 reflects the nature and scope of
change that the proposed strategies will require of BA. Adaptation will be necessary; as this is done
on an incremental basis it is relatively low risk. The specific areas of change are looked at in more
detail in figure 15.

35
Figure 15 – Contextual Features of Strategic Change

Time The improvement of people processes will not be immediate. Perceptions of the firm will take
time to change. Internal surveys across employees will take time to design and analyse and be
implemented. It will take longer than a year. A customer orientated approach is needed immediately
to gain competitive advantage, however as this approach stems from an internal marketing
philosophy full implementation may take over a year. Data capture and using this within the
marketing activities could take up to two years before the full benefits are reached. Refer to Gantt
Chart for a full break down.

Scope A medium degree of change is needed in implementing a people processes strategy. New
systems will need to be implemented and surveys will have to be performed to assess satisfaction.
Training is needed to improve customer relations. A new/reinforced firm culture needs to be
implemented as a result of extensive employee satisfaction research. A low level of internal change
is needed for the introduction of full internet access across the fleet. A medium level of change
maybe required when it comes to carrying out research to ensure it is a valued service and in
seeking opportunities for development.

Preservation The traditional brand image of BA will be maintained whilst also being modernised by
an improved technological stance. Measures will be taken to preserve the employees, e.g. revised
pension schemes.

Power The current top level management structure will provide the power to implement these
strategies. Employees who have direct contact with customers must be given the power to obtain
direct feedback. Middle managers must be given enough power to ensure some autonomy in the
firm, and good communications within the firm.

People Processes, Technological Advancement.

Diversity As the nature of change is incremental and the scope of change is adaptation for both
strategies, the diversity risks are minimal.

Readiness Employees will need training and education on the strategy to realise the importance of
managing customer relationships and to implement the new systems. Certain employees within the
flight operations/general operations/cabin crew department will have to be trained to be familiar
with the new technology if anything does go wrong mid-flight.
Capacity An Acting Customer director is already in place at a corporate level, which feeds down into
customer relations team. However, a permanent position over the next 3 years is recommended to
ensure successful implementation. The capacity for the improved technological stance already
exists. 36

Adapted from: Johnson,G., Scholes, K., and Whittington, R., ‘Exploring Corporate Strategy’, 2006,
Prentice Hall, Page 508

Capability On a corporate level, the directors do have the knowledge and skills to implement both
strategies. However, senior/middle managers and employees will need to be further educated.
External consultants may be required for the people processes strategy and will be required for the
improved technological stance strategy.

Adapted from Johnson et al., 2008, p523.

9.4 Gantt Chart

Stage Planning Activities Market Researchinternal and external 2009 Q3 Q4 Q1 2010 Q2 Q3 Q4 Q1

2011 Q2 Q3 Q4 Q1 2012 Q2 Q3 Q4 Responsible Parties Market Research Team (MRT) (in-house or
outsourced) Corporate Business Development (CBD)/dept. Managers

Strategy formulation

Financial and resource allocation Finance/CBD Implementation Process designs Operations/CBD

Coordination of individual departmental strategies Internal and external communications e.g.
Promotion, reduced vertical measures. Evaluation On-going research and feedback CBD/dept.
Managers

Marketing/PR/HR department

MRT/HR

Control Systems and reviews

CBD/dept. Managers/MRT

37
9.5 Stakeholder Map It is important to assess the expectations of different stakeholders and the
extent to which they are likely to seek influence over BA’s strategies. Figure 16 – Stakeholder Map
(Source: Johnson et al., 2008, p156.)

38
INTEREST Low POWER Low Minimal Effort Charities BA donates money to a number of registered
charities in the UK (British Airways, 2008) - minimal impact on the strategies. Keep Informed
Creditors Must be kept informed due to money owed however this would not impact on the choices
adopted at BA as they have a good credit rating (Financial Analysis). OnAIr Internet Service BA is
currently testing the use of the OnAir internet service (Inmarsat, 2009). By expanding and utilising
their service across the fleet would positively impact OnAir therefore they have a high interest.
However they have little power as BA could move to its competitors (Row 44/Air Cell), which have
already shown positive results. Key players Employees Due to service being a key part of BA’ image
employees have the power to influence customers. They have a vested interest as BA provide their
financial wellbeing. The workforce is heavily unionised, this increases the power of the employees.
Competitors BA’s main rivals within their strategic group have both a high interest and power in
influencing BA’s strategy. The oligopolistic nature of the market will affect the decisions BA make.
Suppliers Two airline suppliers, Boeing and Airbus. They have a high interest and power over BA as
BA is a big source of income for them and BA in turn relies upon them. With only one supplier of
fuel, they too have a high interest and power over BA. This is also true for BAA the airport operator.
Financial Institutions Financial support maybe required from Financial Institutions to fund these
strategies and even though BA has lowered its gearing ratio and increased its liquidity. With the
current conditions the institutions have great power over BA and can refuse finance. Shareholders
Shareholders have a high interest due to aspiring to gain financially. They have high input into
selecting board members and authorising new strategies. The shareholders must be well informed of
the risks of the strategies and length of time before returns are expected and the size of those
returns. Local Communities BA continues to show corporate social responsibility including
environmental issues and has a high power over its direction. BA must keep the local communities
satisfied as they can severely damage BA’s brand image. High

High

Keep Satisfied Government/Regulators New legislation if introduced can have a great impact on the
organisation but is not individualised to BA specifically. Customers Customers provide all of the sales
but have low interest in how the company is managed. They still have a high impact as the goal is to
attract more customers.

9.6 Control Systems Strategy Technology Review Guidelines Review the Expected Competitor
reactions Premium

39

Contingency in place BA will partner with a

Resource Allocation People –
progress of the strategy in line with competitor intelligence, and customer feedback every 6 months.

Competitors such as Virgin are already advanced in this area, although many other competitors may
look to imitate, and form alliances with either the same supplier or a cheaper manufacturer.

technology provider ensuring that they are the leaders for quality, and that BA’s relationship is
exclusive. If imitation occurs BA will take steps to communicate the quality and take the early
adopter advantage.

Introduce technology team. Technology – Combine existing and new hardware. Finance – R&D,
Installing and maintenance, training. Information – Providing manuals to users and promotion.
People – Service secondments in third parties Technology – Use service blueprints to outline
processes. Finance – Market research Information – Promotion, internal communications.

People Processes

As the processes of implementing an internal marketing culture are complex, imitation is unlikely,
and the culture of BA will remain unique. Although any measures competitors will make will be
faster and more effective to implement due to their small size.

As competitors may take steps to head hunt BA employees, and offer benefits. Internal research =>
meet employee needs (strong pension/ shareholder schemes and internal marketing of the brand).
This will turn internal customer ‘Mercenaries’ or even ‘terrorists’ into Advocates (Jones and Sasser,
1995).

9.7 Balance Scorecard The Balance Score Card (Appendix 7) is used as a tool to analyse the progress
of the strategy in the review occurring every six months (Johnson et al., 2008). Whilst it highlights
the strategy achievements, it additionally focuses attention to areas which may be failing, and hence
need further resource allocation or a red flag to adapt the strategy. A traffic light system is utilised to
categorise areas of success, monitoring, and decision making.

40
10.0 Critique Although strong and justified strategies have been created within the confines of the
report there are a number of issues which BA should take into consideration when implementing the
proposed strategies. These are considered briefly below. 10.1 Financial BA should not have much
trouble in implementing these strategies. With an increasingly lower gearing ratio and better
liquidity they should be able to secure some funding from financial institutions and obtain the rest
from retained profits. However, with the current economic conditions, it will still be difficult to
obtain funding and BA will not want to increase its gearing too much. 10.2 People The
recommended strategy to improve relations will require full support from BA’s workforce. As a
highly unionised workforce, success in changing the employment relationship will be determined by
BA’s ability to work efficiently with each recognised union. In regards to implementing change, due
to BA’s history and size the company may experience organisational inertia or myopia. Again,
improvements to customer relations may be hindered by an uncooperative workforce, highlighting
the importance of ongoing training and support. Similarly, a technological stance will require BA’s
employees to develop service knowledge, and it is imperative for the organisation to support them
in doing so on a continual basis. 10.3 Legal The use of Wi-Fi on planes is already allowed by the
aviation regulators in the UK, Europe and Rest of the World. However, regulatory approval must be
achieved before it can be implemented on planes flying to/from USA (Wlanbook, 2008; Row 44,
2008). The use of external legal consultants should be used when implementing both strategies to
ensure that legal requirements are met, especially when performing internal and external surveys
and the confidentiality of data.

41
11.0 Conclusion As a result of the external and internal analysis a number of strategic options were
proposed. It was concluded that a combined strategy approach to improve service quality was
deemed most suitable. Due to the current industry climate we have chosen a strategy to consolidate
BA’s position as market leader. Due to the scale and scope of BA’s operations it was decided that the
focus of this report would be on scheduled passenger flights. We would recommend further
strategic analysis to implement SBU level strategies. Due to lack of primary research and restricted
access to company information there may be limitations in our findings and recommended strategy,
however we believe that if the general direction of our suggested strategic intent is followed it will
lead to lead to success.

42
Appendices Appendix 1 – Real GDP Growth and Trend

Appendix 2 – Jet Fuel and Crude Oil Price Trends

Source: IMF, 2008

43
Appendix 3 – Ageing Population (Source: National Statistics Online, 2009)

44
Appendix 4 – Service Gaps Model External Environment

EXPECTED SERVICE

GAP 5: Service Gap Closing Gaps 1 - 4 will help meet customers expectations and close gap 5

GAP 1 - Knowledge Gap

Closing this gap requires: Understanding and listening to customers (Market Research) Building
relationships with customers Filtering feedback through vertical channels of communications

PERCEIVED SERVICE

Internal Environment

SERVICE DELIVERY

GAP 3: Delivery Gap To close this gap: Internal Research HR Policies Match supply and demand

GAP 4: Communications Gap To close this gap: Horizontal Communications Integrated marketing
communications Management of Customer Expectaions

EXTERNAL COMMUNICATIONS TO CUSTOMERS

GAP 2 Standards Gap To close gap: Customer defined standards

TRANSLATION OF PERCEPTIONS INTO SERVICE DESIGN & PRECOEDURES MANAGEMENT

PERCEPTIONS OF CUSTOMER EXPECTATIONS

Approved service design. Appropriate physical evidence and servicescape

Zeithaml, V, A. & Bitner, M, J. (2003)

Appendix 5 – Tourist Arrivals (Source: Datamonitor, 2009)

45
Appendix 6 - Travel expenditure by region (Source: Datamonitor, 2009)

46
47
Appendix 7 – Balance Score Card (Source: Garrison et al., 2003.)

Financial Perspective CSF Measures - Sales growth Improved - End of year financial financial
performance accounts - Profitability and liquidity ratios Shareholder value - Share price - Dividends
per share

Customer Perspective CSF Measures - Quality control Quality of airline service Customer service -
Customer feedback - Customer questionnaires and feedback - Customer feedback - Increased
passenger volumes

Increased brand awareness

Internal Perspective CSF Measures Security and - Positive speed of feedback check-in - Time
efficiency services of check-in service

Innovation and learning perspective CSF Measures - Staff Integration of UK motivation and emerging
market cultures - Increase spending in R&D

Customer orientated

- Increased sales volumes - Profitability of airline competitors in the new markets

Investment into technological innovation Highly skilled staff

- Spending on staff training

Expansion into new markets

48
Appendix 8 – Airline Segmentation Matrix

Price Premium Virgin Medium BA First Choice, Thomas Cook… Ryan Air, Easy Jet Domestic

Low

Short-Medium Haul Focus of Service Provided

Long Haul

49