INTERNATIONAL BUSINESS MANAGEMENT: BRITISH AIRWAYS

 

INTRODUCTION

This report aims to identify the several driving forces in global business to analyze their influence on managers as well as firms. The report aims to developing critical awareness regarding key socio-cultural and institutional issues, which firms confront in international business in context of British Airways. The topics illustrated in this article are company profile of British Airways, globalization, British Airways’ international operation, cross-cultural differences, global human resource management, HRM in BA, international business operations and entry strategy and BA’s international strategy.

COMPANY PROFILE

British Airways (BA) is the largest global scheduled airline of UK and is amongst the leading international premium airlines of the world. BA’s principal business location is London having substantial presence at the Heathrow, London City & Gatwick airports. It also has a global air cargo business. The Group flies to over 400 destinations globally. The vision of the company is to become the utmost admired carrier across the globe’s key cities. In 2011 British Airways merged with Spanish carrier Iberia and formed IAG (International Consolidated Airlines Group S.A.). Revenues in 2012 were£10,827mn, an increase of 8.4% over 2011 (BA, 2012a). British Airways in 2012 carried 36.7mn passengers, in comparison to 34.0mn in the previous year (BA, 2012b).

COMPETITORS ANALYISIS IN THE UK

Market Share

Top ten UK-based airlines, by passengers uplifted globally, 2006-11

Source: Mintel (2013)

 

The main British Airways competitors in UK market include Virgin Atlantic, EasyJet, Flybe, Ryan Air, Thomson Airways and Thomas Cook Airlines.

Consumer Perception:

The below figure shows that British Airways is considered traditional as well as overpriced by travellers. The company has always maintained a premium service. The best firms as per the graph by Mintel  (2012) are Virgin Atlantic, Thomson Airways and Thomas Cook which have been classified near to factors like welcoming, efficient, honest and responsive.

Airline Brand Personality: Micro image

Source: Mintel (2012)

 

The graph below uses image attributes where Virgin Atlantic, trailed by Thomson Airways & Thomas Cook, are perceived as more accessible as compared to BA, signifying BA was accessible for only those individuals having some economic resources.

Airline Brand Personality: Macro image

Source: Mintel (2012)

Lastly, the below chart shows British Airways along with Virgin Atlantic being the main UK brands, in terms of trust & differentiation. Strikes affected performance of British Airways, but the good service they provided has helped in reestablishing the brand’s trust.  The bubble size represents the number of customer of the airlines which is headed by BA.

Attitude towards & Usage of Airline brands:

Source: Mintel (2012)

 

GLOBALIZATION

The meaning as well as conceptual value of globalization has since long been disputed within the human geography. It has been likewise argued by Dicken (2004) that globalization could be considered inherently geographical. Faulconbridge & Beaverstock (2008) posit that understanding globalization in the form of a process necessitates consideration of the way time, place & space are configured & reconfigured because of contemporary modifications in technological, political & economic practices. Profitability and competitive advantage was pursued through globalization as organizations exploited 3 kinds of advantage which include expertise in manufacturing ownership which could be utilized for setting up an effective plant in an overseas market; internalization advantages which meant ownership of overseas plants besides having a control over their activities ensuring efficiency as well as profitability; and lastly location advantages suggesting that overseas location presence provided cheap labour as well as consumer markets for being exploited (Faulconbridge & Beaverstock, 2008). This led to FDI levels rapidly increasing towards the 20^th century end. Central to the above changes was constant and swift technological changes which enabled economic globalization. It began with telegram’s invention, but telephone & fax machine and at present internet revolutionized the globalization process. However all allow the economic activities’ co-ordination across the boundaries with managers in the headquarters having the ability to communicate as well as control subsidiaries efficiently & quickly. Movement & flows of goods (Dicken, 2007), people (Beaverstock, 2004) as well as knowledge (Faulconbridge, 2006) are the characteristics of this new global space economy. Economists according to Bordo et al. (2003) often use the term globalization for referring global integration of commodity labour & capital markets. The major forces that drove global integration include technological innovations, economic policies and broader political changes (WTO, 2008).

 

BRITISH AIRWAYS & GLOBALIZATION

British Airways is the most internationalized amongst the biggest European flag carriers, i.e. it has the minimum domestic-focused network (CAPA, 2013). The domestic market for BA accounts for merely16 percent of seats, whereas this it is 33 percent for Air France and 21 percent for Lufthansa. For Iberia, domestic market accounts for 49 percent, even after domestic capacity has been reduced for several years, highlighting the threat faced by it in Spain, which is amongst the supreme competitive markets. British Airways also possesses the least proportion of their traffic for domestic/European routes in comparison to the 4 large flag airways, with 64 percent of seats in Europe, in comparison to 80 percent for Lufthansa, 71 percent for Air France while 78 percent for Iberia. This illustrates the waning of the group’s short/medium-haul services.

Source: CAPA (2013)

Almost 50% of the intercontinental seat capacity of BA is for North America, which makes it highly exposed towards one market in comparison to either of Air France or Lufthansa. It possesses a lower percentage of the seats for Asia in comparison to Air France or Lufthansa but has a higher percentage for the Middle East. Possibly these 2 factors, together with lower dependence of BA on the transfer traffic, o explains why it seems to be more relaxed regarding Gulf Airways competition in comparison to the other two (CAPA, 2013). BA’s North American focus along with the robust London market as well as capacity constraints in the Heathrow airport, have helped in providing it a defendable as well as profitable niche. Though, it has also resulted in making it susceptible to any trans-Atlantic weakness, a situation which has been facilitated by capacity constraint along with immunized market alliances (CAPA, 2013). The merger with Iberia added strength in Latin America, but IAG still has a relatively low proportion of seats in Asia.

Source: CAPA (2013)

CROSS-CULTURAL DIFFERENCES AND STYLES OF MANAGEMENT

Culture can be referred to as inherited concepts, values and methods of living that have been shared by individuals of a social group (Kawar, 2012). Culture has been defined by Hofstede (2001) as a minds collective programming which distinguishes members of a category or group from people of another group or category. That is, culture denotes the values which are known by a particular ethnic group of similar social background. Reynolds & Valentine (2011) state Hofstede (2001) is the sociologist who observed staff working in an MNC. He described 4 methods which could help to analyze and understand other cultures which are:

• Individualism versus Collectivism: in few cultures individual is given emphasis whereas in others group is prioritized.
• Power distance: it denotes a culture which believes in organizational power must have unequal distribution.
• Uncertainty avoidance According to Hofstede (2001) few cultures would accept change like a challenge whereas others would not.
• Masculinity versus Femininity: Hofstede now himself seems to reject “masculine” & “feminine” terms. These 2 terms need to be overlooked for valuing other issues that are more vital for the firm like assertiveness & achievement.

Cross-cultural management according to Adler (2008) explains people’s behavior in organizations across the globe and illustrates people in what manner work must be done in firms with employees as well as clients from several cultures. The cross-cultural management’s significance lies in its continuous co-operation between firms in different nations where difficulties might arise owing to the differences in culture. Hofstede’s (1980) work on culture is considered essential for any study concerning culture & management. As the world today is witnessing globalization, firms increasingly are expanding their operations to various places across the globe. This would lead to more activities across boundaries which bring about communication across different must adapt to the differences faced in that particular culture. Cultural Intelligence has been described as the ability of exhibiting certain behaviors, such as qualities & skills, which culturally seem to be tuned to values & the attitudes of others (Peterson, 2004).

GLOBAL HUMAN RESOURCE MANAGEMENT

Globalization according to Morrison (2005) is a vital factor which influences firms which compete for consumers with high anticipations for performance, cost & quality. Human resource management practices contrast cross nations as well. Falcone (2004) observes that the severance payment amounts given to terminated staff differ extensively across nations, which ranges from a week for each year employed in the United States to 9 weeks for each year employed in Spain. Other HRM areas influenced by globalization include compensation, labor relations (that is, unions) and benefits. Expatriate benefits & compensation are complicated and normally much higher as compared to the expatriate’s home country. Compensation elements which motivate and help in retaining employees in various countries might differ. Compensation preferences of the employees in China & Hong Kong differ (Chiu and Luk, 2002).

It was observed that American managers in comparison to Chinese managers give lesser importance to work performance while greater emphasis is given to co-worker relationships, besides greater value is given to personal needs while taking compensation decisions. It has been argued by Graham and Trevor (2000) that handling compensation in a multinational firm is difficult because of the diverse employee pay perceptions & expectations regarding pay fairness. Hence, because of national & cultural differences, a worldwide compensation strategy intermixed along with native responsiveness has been recommended by them and Poutsma et al. (2006). Visser (2006) informs that the Labor union density rates hence power considerably varies across nations, ranging from 0 percent in China, to 12.5 percent in the U.S., and 53 percent in Italy. The unionism nature also varies.  According to Maidment (2004) in the United States unions bargain collectively over terms of employment, wages and benefits while European unions & works councils emphasize on  a broader range of concerns like political causes, family leave & holidays. HRM practices according to Zhang (2003) might not generalize between different nations because of differing laws, cultures & policies. Similarly, cultural differences might influence how human resource roles have been implemented across the borders. According to various studies it has been demonstrated that effective IHRM is positively linked to the financial performance of countries like Taiwan (Ling & Jaw 2006), the U.S. and also India (Khandelar & Sharma 2005). Effective IHRM has been linked with organizational performance by Stroh and Caligiuri (2005). Nevertheless, best human resource management practices according to Zhang (2003) might not always translate across nations owing to institutional & cultural differences.

HRM IN BRITISH AIRWAYS

The global workforce of BA was 41,315 in 2012, in comparison to 39,295 in 2011 (BA, 2012b). Their employees of BA are spread across UK & Ireland, America, Europe, Asia pacific and Africa & the Middle East. All BA managerial level employees have been entitled to receive pay rewards connected with firm performance (including environmental & social performance). The economic slump across the European Union and international markets is still affecting the airline sector. BA is continuously adapting to the ever changing climate and enhancing efficiency of their firm, besides re-shaping portions of its business which work in close capacity with their partner carrier, Iberia (BA, 2012b). BA regularly updates its employment policies with feedback from colleagues throughout the business. BA intends that all its employment policies are met with specific criteria which include legal compliance; cost effectiveness short & simple; fairness; empowerment of line managers (BA, 2012b). BA also works in collaboration with all their trade unions to establish a modern employee relation framework, with agreements which facilitate the business in focusing on customers, and retaining competitiveness as well as flexibility. All BA managers have a part to play to create an inclusive, accepting as well as high performing environment for the team. Conflict resolution is encouraged through informal, alternative means, and BA’s mediation process permits private conversations devoid of the need of formal action.

Training is an integral part of BA which maintains in-house Learning Academies concerning separate business areas. BA’s online training minimizes the need of classroom based training for their staff which would support an augmented speed & capacity to up-skill leading to performance enhancement through better-quality customer service. To understand and respond to the concerns & views of their employees remains a vital component of BA’s drive for becoming a customer-focused, high performing firm (BA, 2012b). Speak Up!, is their employee opinion survey, which is their primary information source supporting this vision. They continuously measure employee engagement as well as leadership capabilities, besides now also seeking employee opinions regarding customer focus, the security & safety culture within their firm and also dignity in workplace. In 2012 BA’s talent management & leadership development strategies have been for encouraging and establishing qualities of leadership in their people and for identifying and developing individuals who possess leadership potential. Their HPL (High Performance Leadership) system connects business planning, performance assessment, objective-setting, talent management, leadership development, rewards & career progression (BA, 2012b). Below figure provides an overview concerning few chief leadership development programs currently available in BA:

Source: BA (2012b)

BA strives to have a diverse & inclusive workforce. BA encourages a working atmosphere which motivates supports, engages and recognizes all employee differences. In 2012, the Group created a fresh diversity & inclusion strategy in line with their Business Plan objectives. In 2012, the key focus areas of BA included work dignity, building ability and stressing cultural intelligence (BA, 2012b).

INTERNATIONAL BUSINESS OPERATIONS AND ENTRY STRATEGY

Internationalization of firm’s operations leads to competitive advantage but only under specific conditions (Friedman, 2007). Global presence might result in competence advantage if firms attain global economies of scale; integrate the local market differences, and transfer technology & knowledge effectively across borders. Air transport is considered amongst the major world economy industry with revenues equaling 1% of national GDP (Garcia, 2012). Airlines form a cooperative arrangement for generating higher revenue for reducing unit costs because of economies of size, and for minimizing or risk sharing through strengthening of their hold outside their domestic market. Carriers normally enter into either a tactical alliance or a strategic alliance.

Tactical Alliances: also known as commercial alliances generally include bilateral agreements among airlines in which joint efforts are put in few routes for gaining access in each other’s network. It starts with the carriers agreeing at a marketing level via interline agreements & code sharing and subsequently via joint ventures.

Interline comprises of transfer of cargo and passengers on each other’s route, the travellers are charged a single fair for the entire route and the revenues are shared by pro-rating (Garcia, 2012).

Code sharing includes sharing capacity among airlines for a particular flight which has a specific code for each involved carrier which helps in gaining consumer recognition and is the most prevalent alliance in airline sector.

Joint venture (JV) is revenue sharing partnership among airlines for the global routes such that a partner’s profit or revenue generated from travellers is not dependent which carrier gave the service (Garcia, 2012). Complete implementation of such cooperative strategy for a particular route needs regulatory bodies granting antitrust immunity for allowing the partner carriers in setting schedules & pricing together.

Strategic Alliances: According to Cools & Roos (2005) there are nearly 2000 strategic alliances formed each year across industries. In the airline industry they are agreements as per which allied carriers share common business objectives & goals for achieving which they coordinate their services. Besides coordinated sales, reservations as well as inventory management, and also a special focus to provide seamless connectivity form key strategic alliance elements. Currently there are 3 rival international strategic alliances in airline sector: Oneworld, Star alliance and SkyTeam.

 Summary table of the key indicators of the Global Airline Alliances:

Source: Garcia (2012)

The figure below shows various kinds of cooperation among airlines and how these co-operations have increased with respect to time.

Expected development of partnerships:

 

Source: Latrou & Oretti (2007)

Franchising is also adopted by several airlines which includes an airline operates with colours of some other airline, upholding independence besides obligation of providing service standard levels in line with the franchiser.

BRITISH AIRWAYS INTERNATIONAL STRATEGIES

British Airways operates one of the maximum extensive global scheduled networks of airline routes, along with the firm’s joint business agreements, franchise partners and code share, flying to over 400 destinations in major geographic markets globally (BA, 2012a). BA is a subsidiary IAG which was established in 2011 through a merger British Airways & Iberia.

British Airways international operations:

Source: BA (2012b)

BA aims to be the first truly international airline of the world. BA in early 1990’s had formed a bilateral alliance with US Airways. Oneworld is amongst the three major global alliances formed in 1998 by 5 airlines from 4 continents: British Airways, Canadian airlines (now defunct), American Airlines, Quantas and Cathay Pacific. The current composition of Oneworld is illustrated in the pie chart below along with the passenger traffic.

Oneworld Passenger Traffic (2010):

Source: Garcia (2012)

BA uses alliances through minority shareholdings for extending market access as well as strengthening its position of a leading international carrier. For building a seamless worldwide network today British Airways owns 24.6 percent of US Air, which is the fifth largest US carrier, 25 percent of Qantas, the international airline of Australia, 49.9 percent of TAT, the regional carrier of France, 49 percent of Deutsche BA, 2^nd German carrier after Lufthansa, and also has entered into a JV with Air Russia of Moscow. Route-by-route JV, which many airlines use for getting around rules in contradiction of M&A and consolidation (Ringbeck et al., 2010). In this the carriers enter into service agreements on particular routes thus sharing the costs as well as profits in an equal manner. The partners in a joint venture cooperate on aircraft types to be used, departure times, marketing and distribution. This aids them in gaining access to clienteles in the regions where they had a weak footing. This concept had been pioneered in 1995 by British Airways & Australia’s Qantas Airways for “kangaroo route” which connects Great Britain to Australia in eastern hemisphere.

British Airways’ aims on increasing its presence across all 6 markets and it involves massive growth which BA by itself would not be able to achieve. Franchising is generally used for smaller markets, local market for providing feeder services to BA’s flights and for complements their services in particular geographic locations, allowing BA in spreading its name as well as branding more rapidly & widely without incurring expensive overheads and thus create a massive global structure. Franchising provides partner carriers access to BA’s unique livery, service & products standards, and specifically its name. This also comprises taking British Airways flight code, computer systems and services, selling, ground handling, revenue accounts, and also frequent flyer package. BA has entered into franchising agreements with Scottish airways Loganair, and Gatwick based City Flyer Express which operates as Maersk and British Airways Express, which function from Birmingham as Manx Airlines and British Airways. Furthermore, Brymon Airways of Plymouth, although wholly owned, has been managed like a franchise.

CONCLUSION

British Airways is the largest global scheduled airline of UK and is amongst the leading international premium airlines of the world. The vision of the company is to become the utmost admired carrier across the globe’s key cities. British Airways is the most internationalized amongst the biggest European flag carriers, i.e. it has the minimum domestic-focused network. Almost 50% of the intercontinental seat capacity of BA is for North America. The merger with Iberia added strength in Latin America. The global workforce of BA was 41,315 in 2012. BA intends that all its employment policies are met with specific criteria which include legal compliance; cost effectiveness short & simple; fairness; empowerment of line managers. Training is an integral part of BA which maintains in-house Learning Academies concerning separate business areas. In 2012, the key focus areas of BA included work dignity, building ability and stressing cultural intelligence. Carriers normally enter into either a tactical alliance or a strategic alliance. British Airways operates one of the maximum extensive global scheduled networks of airline routes, along with the firm’s joint business agreements, franchise partners and code share, flying to over 400 destinations in major geographic markets globally. BA forms a major partner of the Oneworld global alliance. BA uses alliances through minority shareholdings for extending market access as well as strengthening its position of a leading international carrier. The route-by-route JV concept had been pioneered in 1995 by British Airways & Australia’s Qantas Airways for “kangaroo route” which connects Great Britain to Australia in eastern hemisphere. British Airways’ aims on increasing its presence across all 6 markets and it involves massive growth which BA by itself would not be able to achieve. Franchising is generally used for smaller markets, local market for providing feeder services to BA’s flights and for complements their services in particular geographic locations, allowing BA in spreading its name as well as branding more rapidly & widely without incurring expensive overheads and thus create a massive global structure.

RECOMMENDATIONS

• BA needs to improve its image among consumers as currently it is considered traditional as well as overpriced. It needs to lower the prices slightly or justify its premium pricing.
• The domestic market (UK) for BA accounts for merely16 percent of seats which is too less as compared to its rivals. Besides its international strategy it must look to increase its domestic traffic.
• Almost 50% of the intercontinental seat capacity of BA is for North America, which makes it highly exposed towards one market in comparison to either of Air France or Lufthansa. To avoid risks it must balance the seats across European continent.
• It still has a relatively low proportion of seats in Asia which must be its focus in the near future.

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