British Airways Competitive Advantage in The Airline Industry
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British Airways Competitive Advantage in The Airline Industry
Introduction
British Airways has been revitalizing their services over the years with the aim of creating a form of differentiation from other players in the industry. This represents an important aspect of competitiveness in an industry with many players, and prices are determined by the market. It targets on the preferred return on investment has helped to ensure that customers are offered premium services thus making it a popular choice for most travelers on routes served. The need for expansion emanates from the benefits that a company stands to gain through the exploitation of other markets. Since its inception in 1935, British Airways has transformed significantly in terms of ownership, and the number of routes served (Belobaba, Odoni and Barnhart, 2016). The company categorizes itself as a premium service hence it tends to offer customer service that by most standards can be considered excellent. Its survival in the market is attributed to strategic decisions revolving around acquisitions and partnerships with other companies (Nolan, Ritchie and Rowcroft, 2014). The strategic decisions undertaken over the years have been instrumental in guaranteeing future changes in the market will not lead the company to a financial downturn. Some of the decisions include diversification into other industries where such investments contribute to its bottom line without necessarily having to abandon its core business.
British Airways has over the years strategically positioned itself to be a significant player in the airline industry whereby in terms of size and revenues generated, the company is at the top end of the market. The company has been in a position to increase its fleet size over the years owing to profitable operations. This effort has made its fleet to be the largest in the United Kingdom which also significantly puts the company among the top carriers (Belobaba et al., 2016). The positioning of the company in the market has to result in a marketing mix that best suits their target market and the intended level of service. British Airways employs a multi-segment positioning in the airline industry. In this case, the company actively exploits multiple market segments where potential customers can be acquired. The differences between the market segments employed include the splitting of services and regrouping them into packages from which the customers can choose the ones they need or can afford.
Market Positioning
Positioning in the market has to ensure that all aspects of the market mix are geared towards satisfying the needs of customers within each market segment. This has a positive impact on the marketing process since it ensures that all the factors that could affect the marketing effort of the company are addressed at the same time.
Product– this element refers to the various facilities that an entity uses to fulfill its obligations in the target market. In this case, British Airways owns a large fleet of which there are different categorization depending on the packages available for each route. Given its multi-segment positioning approach in the market, Business class travelers get to enjoy more space and better in-flight refreshments as compared to customers who use Economy class (Chen and Hu, 2013). Moreover, the company also offers the executive class, first class, and premium class. The difference which is reflected in the amounts paid helps the company to target different market segments in the most efficient manner possible. Frequent flyers also get to enjoy additional services in secluded lounges once they alight or when waiting to board a flight.
Price– the pricing strategy employed by the company revolves around offering packages from which the customer is free to choose the best fit combination. The packages are structured in such a way that the customer is allowed to choose what they would prefer hence the billing employed will differ with each target segment (Greenfield, 2014). With the lowest prices reserved for economy class travelers, the other classes charge much higher prices which qualify them for additional benefits while on board. This model allows the customer to plan on their expenditures according to how affordable and necessary it is for them hence the popularity of class segmentation.
Place– this element refers to the various locations in which potential customers can access the various products and services of the company. The company operates in multiple countries whereby they have been able to upgrade their systems allowing for online booking and reservation. The convenience offered by being active on most routes ensures that the customer’s experience ease in the booking process as connecting flights can be booked at the same time (Borenstein and Rose, 2014). In addition, the company relies on a large team of travel agents that offer any information required by customers.
Promotion– this element represents one of greatest expenses that companies in the airline industry have to contend with. British Airways structures its marketing through events and sponsorship of various activities within communities. The company slogan To Fly. To Serve best describes their marketing approach in the airline industry whereby the various strategies are structured to attract customers from all segments. Other promotional activities undertaken by the company include being the official airline and sponsor of Wimbledon Tennis tournament. The strategies play a huge role in ensuring the company continues strengthening its brand in the market.
Porters 5 Forces
Threat of new entry
The cost of establishing an airline is too high given the high cost of aircraft and other supporting infrastructure involved. It would be much higher for a new firm that would target to compete against British Airways right on the go taking into consideration that the company has a fleet of more than 250 aircraft (“British Airways”, n.d.). The only threat that the company has to deal with revolves around the entry of other major airlines into a route which British Airwaves dominates (Snider and Williams, 2015). Experience matters a lot when it comes to determination of the type of aircraft that a particular pilot may handle. New players in the industry may not have access to such skillful labor since training is an ongoing process. In addition, British Airways enjoys economies of scale in the purchase of aircraft whereby they have higher bargaining power when dealing with aircraft manufacturers and suppliers of necessities such as onboard refreshments.
Supplier power
The airline industry is served by many companies which also ply the same routes as British Airways. Therefore, the failure of an airline to satisfy the expectation of customers will mostly result in the loss of the customer to a rival airline. The industry also consists of large airlines which operate on both local and international routes while there are those airlines that deal specifically with regional flights. By serving both domestic and international routes, British Airways gains access to a large pool of potential customers. In addition, the cancellation of a particular route may not have a significant impact on its bottom-line as would be the case if it serves only a particular region. The rate of change in the airline industry is slow given the high initial cost incurred. To tackle this, British Airways has in place a program to ensure gradual fleet upgrades up to 2020 (“British Airways”, n.d.).
Threat of substitution
The threat of substitution of the airline industry is low especially when it comes to flights that cover long distances. Although there has been significant development in both water and rail transport, the convenience and speed offered by air travel is incomparable. Shorter region flights are at times substituted with rail travel given its lower price as compared to flying. However, there exists cross-product substitution in the airline industry (Greenfield, 2014). This refers to the risk of one airline losing customers to another offering the same level of service but at a lower price. This may trigger a case of price wars between airlines thus leading to low returns. Such an environment would not be conducive for a new entrant into the market since their need for immediate profits is much higher as compared to companies that have been in the industry for long.
Buyer power
This refers to the bargaining leverage enjoyed by the customer in the market and how sensitive they are to the various prices charged in the market. In areas where there is a high concentration of potential travelers such as in the major cities, there are likely to be a high concentration of airlines (Borenstein and Rose, 2014). In this case, the customer enjoys the ability to choose from different packages being offered by the airlines. A large number of firms also means that the customers tend to be more price sensitive hence the hiking of prices by one company may lead to the loss of the customers to a rival company. However, British Airways has been able to protect itself from such instabilities through brand development and ensuring service differentiation in the industry as indicated by the ability to maintain large fleets.
Competitive rivalry
This refers to the measure of how well a company competes against other companies operating in the same industry. The high level of competition especially in regions where there is a high concentration of airlines is likely to contribute to low customer loyalty since slight changes in service might influence a customer to seek a different airline. On the other hand, in markets where there is a low concentration of airlines customers tend to exhibit loyalty to a particular brand (Akamavi, Mohamed, Pellmann and Xu, 2015). In such cases, the customers are less price sensitive which also makes the establishment of operations by new entrants difficult.
Changes in the airline sector
British Airways has been able to deal with increased competition through product and service differentiation in the market. This has contributed positively to its growth over the years to becoming one of the biggest brands in the industry. Major airlines such as British Airways have recently been subject to stiff competition from low-cost airlines which tend to offer quite low prices for tickets by eliminating unnecessary niceties on board (Davahran and Yazdanifard, 2014). The fact that some of the services offered on board by major airlines are nevertheless nonessential, customers have been quick to embrace the low-cost airlines. This has pushed the major airlines to concentrate on markets where the customers are more conscious on the level of comfort and service offered in-flight and most specifically where long flights are the norm. As a countermeasure, major airlines are introducing their versions of low-cost subsidiaries.
The airline industry has experienced significant changes in the point of contact between the customer and the airline. The development of the internet and the spread of its coverage has helped push most of the services online leading to the rise in a population of individuals who prefer shopping online as opposed to visiting the facilities. This development in e-commerce usability and understanding by most customers has led airlines to establish online platforms from which customers can book their flights (Shaw, 2016). These new channels offer the customers convenience hence their popularity. However, companies should not disregard the service centers in airports as this provide the human touch between the customers and the airline and also provide backup in case the online platform fails.
Conclusion
The changes in the airline industry will require the major players to alter the way they conduct their operations and more specifically, the companies will need to develop a new pricing strategy. Most people tend to exhibit price sensitivity in an environment where there are choices. In this case, the entry of budget airlines targeting short haul flights is likely to cause a major shift in the way the companies operate and relate to their customers. The role of brand loyalty is likely to increase since as more players enter the industry, differentiation will be a notable factor towards making sure that a brand becomes a household name (Akamavi et al., 2015). British Airways would be best suited by initiating its version of a low-cost airline to ensure that it does not lose out to the competition. The removal of unnecessary regulation has allowed for more companies to enter the industry as opposed to previous regimes where competition was nonexistent as major airlines dominated (Borenstein and Rose, 2014). The company should also not shy away from sponsorship as this will offer them more coverage in the market. The measures will enable the company to retain its market share in the foreseeable future taking into consideration the threat posed by low-cost airlines continues to increase.
References
Akamavi, R. K., Mohamed, E., Pellmann, K., & Xu, Y. (2015). Key determinants of passenger loyalty in the low-cost airline business. Tourism management, 46, 528-545.
Belobaba, P., Odoni, A. R., & Barnhart, C. (2016). The global airline industry. Chichester, West Sussex, United Kingdom: John Wiley & Sons Ltd.
Borenstein, S., & Rose, N. L. (2014). How airline markets work… or do they? Regulatory reform in the airline industry. In Economic Regulation and Its Reform: What Have We Learned? (pp. 63-135). University of Chicago Press.
British Airways- Information. (n.d.). Retrieved April 28, 2017, from https://www.britishairways.com/en-gb/information
Chen, P. T., & Hu, H. H. S. (2013). The mediating role of relational benefit between service quality and customer loyalty in airline industry. Total Quality Management & Business Excellence, 24(9-10), 1084-1095.
Davahran, D., & Yazdanifard, R. (2014). The Importance of Managing Customer Service, Safety Quality and Benchmarking of Airports and Airlines to Enhance the Performance and Customer Loyalty. Global Journal of Management And Business Research, 14(4).
Greenfield, D. (2014). Competition and service quality: New evidence from the airline industry. Economics of Transportation, 3(1), 80-89.
Nolan, J., Ritchie, P., & Rowcroft, J. (2014). International Mergers and Acquisitions in the Airline Industry. In The Economics of International Airline Transport (pp. 127-150). Emerald Group Publishing Limited.
Shaw, S. (2016). Airline marketing and management. London: Routledge.
Snider, C., & Williams, J. W. (2015). Barriers to entry in the airline industry: A multidimensional regression-discontinuity analysis of AIR-21. Review of Economics and Statistics, 97(5), 1002-1022.
