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British airways analysis

Par   •  18 Novembre 2017  •  1 833 Mots (8 Pages)  •  494 Vues

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Bruton, 2009).

First we will briefly mention and illustrate these 5 forces, then we will conclude by answering the question of the profitability or not, thanks to the summary of Porter’s five forces and profitability.

1. The threat of new entrants to the industry

Before the deregulation of the sky, there were several barriers that prevented or would make the installation of new competitors very hard. Nowadays, the only obstacle that a new company can meet is the takeoff slot granted to different companies, because they are granted "for life" (Hanlon, 1999).

The most profitable industries are considered as those with many barriers, that is why air transport is seen as one of the least profitable industries, because when a new competitor moves, the distribution of market shares is changed (Ghemawat, 2006).

2. The treat of substitutes products

In this industry, considered substitutes are other means of transport. Instead, they are seen as such only if the trip offers the possibility of several means of transport. For example, the car and the train are not considered as substitutes on a Paris-New York trip. In Europe, the train is the most serious of them because often cheaper and simpler (the passenger does not need to show up hours in advance as for an airplane trip)

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3. The bargaining power of buyers

Regarding buyers, travel agencies are very important because can represent up to 70% of the turnover of a company, as they now belong to large groups. The 2 types of established customers (leisure and business) have the option to choose one company over another, and loyalty is complicated.

4. The bargaining power of suppliers

The aircraft construction industry is an oligopoly, which means that buyers have little choice, and thus no room for negotiation. On the other side, the “catering” industry is also a very closed circle, in the fact that suppliers are more numerous but not necessarily good. The configuration is the same, for quality service and differentiate themselves competitors have little choice and so there is no place for bargaining.

5. The intensity of rivalry among competitors in the industry

The rivalry here is measured against the already established companies. They have a considerable advantage compared to the experience, and therefore the fact that their customers are more easily trusted. The main rivals are the low-cost airlines.

Through these explanations, we can summarize the following: the bargaining power of suppliers and the intensity of rivalry among competitors in the industry are all “high” forces, whereas the bargaining power of buyers is a “moderate” force.

The threat of new entrants and of substitutes products is both “low” forces.

Based on the summary of Porter’s five forces and profitability (Campbell, Stonehouse and Edgar, 2011), we can deduce that the airline industry is not really profitable.

According to Hill and Jones (2007), if a significant number of forces are “high”, the ability for the company to increase prices and generate more profit will be limited.

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C. Industry life cycle (ILC)

This analysis is used to identify which phase of the actual life cycle of the industry, and to take the most appropriate policy decision at the right time based on future predictions (Cole, 2003). It is divided into 4 stages, which are the following: introduction, growth, maturity and decline (Henry, 2008).

By comparing the aviation industry and this life cycle model, we can say that the aviation sector is in the penultimate stage, namely maturity.

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III. Internal analysis

To conduct the internal analysis of British Airways, we will focus on two theories, namely the resources and capabilities theory and the value-chain theory.

A. Resources and capabilities theory

According to Volberda et al. (2011) resources and capabilities are the basis of creation of core competencies and competitive advantages. Edith Penrose has demonstrated the resource-based view in 1959, and established two types of sources: tangible and intangible.

1. Tangible

Those are the ones that can be quantified, such as financial, physical and human sources. Regarding the financial aspect, BA revenues (in million) for 2014 has reached £ 11,719 (where Air France-KLM reached approximately £ 19,522), with a profit after tax of £702, amount doubled in five years. BA is also the company that displays the least loss of the airline industry. In term of physical resources, the fact that BA has a unique access to Heathrow terminal 5 offers a huge advantage. We can also include the fleet, which reaches not less that 263 aircraft in 2016 (against 395 for Air France-KLM).

After all, by considering the human resources, we can mention the fact that the company have a multicultural staff, composed of 40 000 employees (65 000 for Air France-KLM) and leading by Keith Williams (CEO).

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